To me that sounds far above what are likely returns.
Currently at 38.8% marginal tax rate (hopefully moving to 40.8% soon)… so paying down the mortgage is a 10% tax equivalent return… the stock investments made over the next 10 years, if growing for another 10-15 years after that, should exceed that if history tells us anything.
Stocks in the USA in the very long term have returned 6% real (international stocks about 4.2%). Source UBS Global Investment Returns book (Dimson Marsh and Staunton).
About half of that return came from revaluation of the market: a rise in the Price-to-Earnings ratio or a fall in the Dividend/Price (yield) percentage. The remainder of the return came from initial dividend yield and dividend growth.
Even to do 6% real implies the US market will continue to increase in valuation. From what is already the 2nd highest PE in history (after early 2000)?
I think a range of 3-5% real is reasonable, long run. Then you have to figure out what inflation will be. But say 3% (the actual history shows such wide swings that it is hard to say).
So 6-8% nominal returns. Obviously if the stock market were to drop 50% things would look a lot more positive (depending on the cause of that drop, of course).
Certainly one should use all tax-deferred allowances *first* - because those are generally not available in future tax years.
But after that? With a mortgage at that rate, it looks financially attractive to pay it down.
Statistics: Posted by Valuethinker — Sun Mar 09, 2025 3:51 am