Cape Cod Five
Managing Director of Wealth Management Services
Prior to joining Cape Cod Five, Jason Lilly was Senior Vice President and Director of Portfolio Management for the Investment Management Group at Rockland Trust. Jason was responsible for the portfolio management team, which, as a group, managed over $2.8 billion for individuals, families, institutions, non-profits, endowments and municipalities. In addition, Jason was co-manager for the Morningstar 5-star rated Bright Rock Quality Large Cap Fund (BQLCX, five year through Feb., 2016), 4-star Bright Rock Mid-Cap Growth Fund (BQMIX, three yr. through Feb., 2016) and lead manager on the Income Builder High Dividend strategy. Prior to Rockland Trust, Jason worked at The Vanguard Group in their high net worth advisory division.
Jason received his undergraduate degree in resource economics from the University of Massachusetts, Amherst and his M.B.A. from Arizona State University. Jason is also a Chartered Financial Analyst (CFA) as well as a Certified Financial Planner (CFP®). Jason belongs to the Financial Planning Association (FPA) and the CFA Institute. Widely quoted in the media, Jason is regularly interviewed on investment topics for television, print and radio, including CNBC, Bloomberg, FOX, NBC, PBS, NECN, Wall Street Journal, Investment News, Boston Globe, Investor Business Daily, New York Times, WRKO, Bloomberg radio, WXTK and Boston.com.
MBA, Finance, Arizona State University
Assets Under Management:
Opinions expressed by Mr. Lilly should not be considered specific investment advice. Please consult with your financial adviser for recommendations based on your specific circumstance.
This might be an easier way to think about the effect of bond purchases on money supply:
When an investor buys a bond, they exchange cash for a stream of interest payments and a return of their cash (principal) at some point in the future. If the investor buys a bond from the government (say the Fed), the Fed gets the cash and the investor gets the bond. If that cash was sitting at the local bank, the bank no longer has the ability to lend against that cash, it has been removed from circulation (assuming the Fed sits on it). So, an investor buying a bond reduces the money supply.
The reverse would have an opposite effect. Lets say a bank sells some of their treasury bonds to the Fed. The Fed gives the bank cash, increasing the banks supply, which they can use for loans or other investments.
I hope that helps.
Hi. Thanks for the question. The loan period would be an important factor. For now, let’s assume a 30 year mortgage. Under option #1 refinancing $143,000 at 3.375% for 30 years would create a monthly payment of roughly $632.
Option #2 (the buy down) would run approximately $594 per month, for a saving of $38 per month. If we divide your buy down cost of $4,873 by your savings of $38, we learn that it will take more than 128 months to break even - That's more than 10 years and while you have every intention of staying in your current home, you never know.
If you have some wiggle room in the budget, I have an alternative for you to consider: Use the buy down money ($4,873) to reduce the outstanding balance from $143,000 to $138,00 (using round numbers), refinance into a 15 year which should be available with no points, no closing costs for around 2.8%. Total monthly mortgage of principle and interest will be about $940 per month.
You will save thousands in interest payments, be mortgage free in half the time and get the best interest rate.
As far as investing mistakes go, over-diversifying probably doesn’t make the list. That said, the benefits of adding asset classes diminish after a certain point. In addition, the weight of each impacts their efficiency. Our research suggests about a dozen asset classes with the smallest no less than 3%, is about right for a large investment portfolio.
What I see more often is an investment portfolio that may have dozens of holdings, but little diversification. The holdings will consist of mutual funds, ETF’s individual stocks and bonds, but when aggregated and analyzed, we find lots of overlap. On the surface ,the portfolio looks diversified, but in actuality, it’s very concentrated with large gaps. There are portfolio analyzer tools to help determine if this is the case. Morningstar’s X-Ray tool is a decent one.
I hope that helps.
If you are confident that your mortgage is at a fixed rate, you will be fine. The rate is fixed for the life of the loan.
For many, entering retirement debt free can be an important personal goal. Starting a new chapter without the burden of any debt can be emotionally gratifying and shouldn't be discounted. That said, taking a distribution (or a loan) from your 401(k) while working may not the best idea. A couple of options ; Assuming you have the flexibility in the budget, you could make additional monthly principal payments. If you are currently contributing to your 401(k), you, could redirect a portion of those contributions to accelerate principal repayments (although you would not want to reduce contributions below the employer match).
If these options aren't appealing and you feel strongly about eliminating the debt, double check expected income for 2017 as well as marginal and effective tax rates. Your 401(k) distribution can be considered a loan (assuming your plan offers that) while working, but upon retirement, if not repaid, will be considered income. That additional income may push you into a higher tax bracket. It may make sense to delay the distribution until the next calendar year, depending on pension amount and expected tax bracket in 2017.
I hope that helps. Best wishes for a happy and healthy retirement!