Should You Prepay Your Mortgage? Different times mean new advice

Should you prepay your mortgage?

When should you begin collecting social security?

How should you distribute your assets to your children or others?

How would you make these decisions? These are issues that we advise and discuss with our clients.

For decades, the conventional recommendation would be to prepay your mortgage, particularly if you are retired or nearing retirement.  For many people, it is emotionally important that they reduce or eliminate their mortgage prior to retirement. But is this the best thing to do today?

With interest rates so low, consider a new perspective. If you have a mortgage with an interest rate of 3-4%, the after tax cost of the mortgage is 2-3%. When interest rates eventually rise, your current mortgage interest rate will seem cheap. The longer your mortgage maturity, the greater this benefit may be. These facts should cause you to re-evaluate your thinking.

Let’s assume that you have a diversified portfolio which is balanced between stocks and bonds and you get an average annual return of 8-10% on the stock half of the portfolio. Over the long term, the investment return of the stocks and bonds should exceed the after-tax cost of the mortgage expense. And when interest rates rise, the fixed income return will increase. But your mortgage cost will not. Thus, in today’s economic environment, it does not make economic sense to prepay or accelerate your mortgage payments.

What will actually happen to the investment portfolio? There is risk involved, as no one can predict the exact return that will be earned each year. Over the long term, historical data tells us that 8-10% is the average return of the S&P 500 (made up of large US companies). Structuring a globally diversified stock portfolio, the expected return should be even greater than the expected return of the S&P 500. Adding components such as value stocks, small stocks, international and emerging markets stocks causes the expected return of this diversified portfolio to increase.

If your mortgage is 10-20 years, then your investment timeframe for this analysis should be 10-20 years. You should not focus on what the stock market will do in the next 3 months or 3 years.  This decision requires that you change your perspective from an emotional decision (“I want to pay off my mortgage before I retire”) to a rational decision (“what is in my long-term best financial interest?”). This is the benefit of an advisor’s perspective.

Your financial flexibility should also be considered. If most of your money is in retirement accounts, you should not pay down your mortgage faster. If you start to get new money, such as collecting social security or increases in your earnings, using the money to build an investment portfolio actually gives you more financial freedom and security. If you pre-pay the mortgage, that money is “gone” or harder to get access to. If you really need the additional money, you would need to refinance or apply for a home equity loan.

This decision should be reviewed on an individual basis, but the general concepts apply to most people. When facts and times change, advice can change. Just because your parents or friends may have wanted to pre-pay or reduce their mortgage as fast as possible does not mean that strategy is in your financial best interest today.

How to Securely and Efficiently Manage Your Passwords

Technology has added many wonderful things to our lives. But the multitude of passwords we all need to know is not one of them.

Managing and remembering passwords, PIN numbers, user names and router logins has become challenging.  For your own security, your login passwords need to be different and strong. You should not be using the same passwords for multiple websites, particularly bank accounts, credit cards and your email login.

One of our goals as a firm is to make your life simpler and easier to manage, with less stress. We want to recommend a solution so you can securely manage all these passwords and data. Using a program to remember and easily retrieve this data should be part of your everyday life.

For many years I have used a program called 1Password. It is an integral part of my life and I cannot imagine managing all this data without 1Password or a similar program. 1Password can be added to almost any computer, phone or tablet that you own. I have added the app to my iPad and iPhone and the program to my Windows PC. They also have apps for Android devices.

We recommend that you obtain one of these programs, take the time to learn how to effectively use it and put all your data into the program you choose.  We are not specifically recommending 1Password, it is just the one that I’ve used for many years. Similar programs you may want to consider are LastPass and Dashlane.

What are the benefits of 1Password?  How do I use it?

  • When I sign into my bank account via the Internet using 1Password, it automatically puts in the user name and password for me. After I click on my bank in 1Password, I am logged into my account information. I don’t need to remember my user name or password.
  • It does the same thing when I sign into most credit card accounts. I don’t need to remember any of this information. If it doesn’t automatically pre-populate, then it is easy to cut and paste the username and password from 1Password to the website.  This saves you from re-typing your user name and password, making it easier to have more complicated passwords.
  • If someone is at my office or home and wants to use my secured wifi, I can easily provide them with the router password, as it is stored in 1Password. I don’t have to scramble and search for the router login information.
  • To use one of my ATM cards, I have stored the PIN number within 1Password. I just access the app and look up my PIN number.
  • 1Password can assist you in storing your passwords, it can evaluate the strength of your current passwords and it can generate new passwords for you (with a password recipe function that allows you to set the length and whether you want symbols, numbers or other items in your password).

Other features:

  • It remembers your prior passwords, if you are required to change certain passwords over time.
  • Auto fill function can populate data you have to repeatedly enter, such as your home address and credit card information when ordering items on the web.
  • You can write notes within each section of 1Password, so it is quite flexible.
  • Many categories of data can be stored and then easily retrieved. There are categories for website logins (of course), as well as credit cards, membership programs, bank accounts, email accounts, routers and identity items such as social security numbers and passports. These can also be helpful to securely store the data of close family members that you may need to know.
  • You can store secondary login information, such as security questions. This way, you will know the answers immediately.
  • And did you ever consider that you don’t need to provide the real answer for some of these questions? The answer to many of these questions are publicly known, so a hacker may know the real answer. Instead, if these questions are only being used for login purposes on a specific website, create a different high school, first home or car, your mother’s maiden name and store your answer in 1Password. Now you have improved your personal security.

You access the program by creating and then remembering one master password. This is common among all these types of programs. There are special tips for developing and then remembering this master password, as this becomes the “key” to your life. This password should be very strong and you should give this password to a family member and someone else you trust, in case you forget the one password which opens these types of programs.  (See blog post “Toward Better Master Passwords”).  To optimize 1Password, you can use Dropbox or iCloud to sync your data across all your devices. I use Dropbox for this.

1Password also has “Security Audit” features. It identifies weak passwords, duplicates and other information to help you decide which Logins to revise. They have also added a feature called “Watchtower,” which lists all vulnerable websites that you have entered into the program. These are identified due to security breaches or viruses, such as the recent Heartbleed security bug. The Watchtower feature must be enabled.

You should use strong passwords and not use the same passwords or login information multiple times.  By using a program like 1Password, it is easier to manage all of your login information. You will be able to create much stronger passwords. You will have the confidence to change your passwords more frequently. And you will save time by not having to type in user names, passwords and other information.

Sound valuable, right? Will you take the next step and start using a password management program?


For more information on 1Password, see  For additional assistance learning about 1Password, see “Take Control of 1Password” at   The program is available for purchase at their website or sites such as iTunes. To purchase 1Password, there are various options, depending on what type of computer and devices you use. You may want to consider their various package bundles. The programs are not free and we would not want them to be. Agilebits, the developer of 1Password, has created an important security service and have continually updated and improved their products.  We have not been compensated in any way by 1Password or AgileBits.

What should you do now, with the stock market near an all time high?

With the US stock market at or near an all-time high, should you be making investment adjustments now?  If you have a lot of cash on hand, what should you be doing now?

The US stock market, as measured by the DJIA (Dow Jones Industrial Average) closed at an all-time high of 16,946 on June 10, 2014.  But what’s even more interesting is where the stock market has been.

The DJIA is almost 17,000 today, but it was around 11,700 less than 15 years ago during January 2000.

Even more startling, less than 25 years ago, in July of 1990, it was 2,900.

Approximately 34 years ago, in February, 1980, it was 904.

This should help to provide you with the proper long-term investment time perspective.

If you are in your 60s, your life expectancy may be 30 years.  For a married couple in their 60s, it is very likely that one of you will live into your 90s. If you’re younger, your investment perspective should be many decades.

Given this life expectancy information, you should understand why your investments in the stock market should have a very long timeframe. You should not be thinking about, or investing for, tomorrow, a month from now or even a year from now. Your perspective should be much, much longer.

You should not be thinking about what the economy or specific companies are doing right now. You should not be concerned with how Apple, Ford or IBM will do this week or next year.  You cannot control or accurately predict any of this.

What matters most and what you should focus on is developing a proper, globally diversified  long term investment plan, so you and your family can benefit from the world’s stock markets over the next 5, 10, 20 or more years.

We work with clients to develop an investment plan.  This is not a fancy document or 40 page bound booklet. We determine the right amount of their money to invest in the world’s stock markets, based on their goals, age, and ability to handle the volatility of the stock market.  Then we determine how much should be invested in very small companies, value companies, internationally and in emerging markets.  These areas provide greater historical returns, yet most investors are vastly under weighted in these investments.

If you are not invested in the stock market right now, yes, we would invest in a globally diversified portfolio for the future. If you are invested now, we would review your portfolio to see if it is globally diversified.

We help our clients simplify their financial lives and consolidate their resources.  We enable you and your family to achieve a sense of financial comfort and security.  We manage your portfolio with discipline and take the emotion out of the investment process.

Do you have an investment plan? Are you seeing the real financial benefits of investing in the stock market?