Selling Bonds and Stocks to pay down loans??

**Avg. Joe** · 05-05-2010, 06:37 PM

First of all, hang in there, you guys are doing ok. I feel certain you will receive a number of opinions on this matter. Before responding, I would like to ask a question. As you review this situation with your husband, are the two of you very analytical and able to set emotions aside in favor of statistics, or is this something that keeps you up at night? Generally, this is nothing more than mathematics, however, your psychological well being is important as well.

**bruinskier** · 05-05-2010, 07:23 PM

Def does NOT keep us up at night. We certainly understand that we are in good financial standing, which I attribute to the saving behaviors of my parents/gparents. My hope is to do the same, live well below our means, and provide the same opportunity to our kids.

I am a numbers person, so I am trying to figure what makes the most sense financially. Doing nothing probably is not best- meaning not selling bonds or stocks/mf. Selling ALL bonds and stocks/mf is also not wise. The key, like in most situations, is finding the right balance.

Mathematically, I am just not on top of it to figure out what is the most financially reasonably play at this point, and am looking for some guidance. All opinions are welcome and appreciated.

**jpg7n16** · 05-05-2010, 09:24 PM

Originally posted by bruinskier View Post

...I am a little stuck as to what to do with our Stock/MF and Savings bonds. The savings bonds were bought between 1983 and 1999, total Issue Price of $2425, now worth about $4800. The current Interest Rates I see for them are between 1.64-4%, compound semiannually. Doesn�t it make sense for me to sell them now and pay down Student Loan #1?...

Absolutely

I'd do that as soon as I could. It's like switching from a 2% investment to a 6.8% investment. Really good idea.

As far as the Stocks/MFs goes, that all depends on how much risk you are willing to take. It seems you're very comfortable with risk, so I would probably let it ride in the market for the next 15-20 years, and pay down your debt in just the order you mentioned.

I like your plan so far

**disneysteve** · 05-06-2010, 06:52 AM

Originally posted by bruinskier View Post

house is valued much higher than our sale price so our property taxes are really high compared to our mortgage

I wonder about this. Have you considered requesting a new assessment? If property values have dropped a lot in your area but the tax rate hasn't been adjusted, you should contact your municipality and find out how to request a new assessment. You may be able to get your rate dropped a lot.

**bruinskier** · 05-06-2010, 07:21 AM

Hey steve...yes, we are going to do that. Unfortunately, we JUST bought the house and reassessments are only done in March so we have to wait until next year to file.

**Hector** · 05-06-2010, 08:24 AM

I am impressed that you don�t have a car loan. Good job! I am wondering, how you managed to pay down payment on 265k house at the age of 26 and with 80k annual income before tax!!

Anyways, I would definitely sell savings bond. I don�t see a point in holding something which pays me 2-3% interest and paying more than 5% interest rate in other debts.

If I were you, I would sell stock/bond and pay down student loan 1 &2.

I will still have 90k in stock/mutual fund.

Then I will definitely be thinking about paying mortgage aggressively. But before doing so, I will refinance it for 15 year because
1. I have 90k in stock/mutual fund so I can afford to do so for next 5-6 years at least
2. I will get better interest rate for 15 years compare to 30 years loan
3. entirely, I will pay lesser interest on house for doing so
4. I will become debt free faster

I will constantly keep monitoring the bigger picture after every quarter or so.
If nothing changes drastically and my income and spending increases at the rate of inflection, once I will have 25k or so left in stock/mutual fund,
I will refinance it for the amount and duration accordingly my income so that I can afford it without dragging my stock/mutual fund account further. And most probably, I won�t need to think about this at least for 4-5 years.

**bruinskier** · 05-06-2010, 11:30 AM

Originally posted by Hector View Post

I am impressed that you don�t have a car loan. Good job! I am wondering, how you managed to pay down payment on 265k house at the age of 26 and with 80k annual income before tax!!

Anyways, I would definitely sell savings bond. I don�t see a point in holding something which pays me 2-3% interest and paying more than 5% interest rate in other debts.

If I were you, I would sell stock/bond and pay down student loan 1 &2.

I will still have 90k in stock/mutual fund.

Then I will definitely be thinking about paying mortgage aggressively. But before doing so, I will refinance it for 15 year because
1. I have 90k in stock/mutual fund so I can afford to do so for next 5-6 years at least
2. I will get better interest rate for 15 years compare to 30 years loan
3. entirely, I will pay lesser interest on house for doing so
4. I will become debt free faster

I will constantly keep monitoring the bigger picture after every quarter or so.
If nothing changes drastically and my income and spending increases at the rate of inflection, once I will have 25k or so left in stock/mutual fund,
I will refinance it for the amount and duration accordingly my income so that I can afford it without dragging my stock/mutual fund account further. And most probably, I won�t need to think about this at least for 4-5 years.

Hi hector...again, my parents/gparents saved aggressively for me, which put us in a great position to make the down payment. It was not due to savings from my income.

Now if I pay down everything so aggressively until my stocks/MF is left with 25k, dont I lose out on the compounding interest (~8% long term) vs. only the 5.375 of the mortgage, or 5 of the student loans? I definitely see value in paying off the two student loans in the 6.5-7% range. And then shift the focus to paying down mortgage. The other student loans will be paid off by paying minimums, and of course that interest is tax deductible.

So with some quick math-
Scenario 1: Apply bonds to Loan #1
Stocks/MF- 115K (still)
Spent- $4800 (bonds)
Saved- $3319 (in interest from Loan #1)

Scenario 2: Apply bonds AND stocks to Loan #1
Stocks/MF- 103K
Spent- $16400 (4800 in bonds, 11600 in stocks)
Saved- $8859 (interest from Loan #1, and interest from Loan #2 by applying the monthly payment from Loan #1 to Loan #2)
Lost- ~8% annual interest from the 11600 in stocks

So shouldn't I just go with Scenario 1- like what jpg7n16 said. Besides, market's down about 5% today.

Thanks in advance.

**Hector** · 05-06-2010, 01:23 PM

It makes sense in the assumption that on an average stock market will pay 8%. At least till now, I believe that stock market gives most return among popular investment vehicles. But I personally would prefer to be debt free faster and that’s why I would be aggressive in paying off debt.

I agree that stock market pays an average return of 8-10%, but recent recession scared me. If I have an option of getting out of debt vs having debt and making extra 2-3% on investment without paying debt faster, I will prefer to pay off debt first.

I think it’s a personal choice. I am not telling you what to do, I am saying what would I do if I were in your situation. You need to do whatever makes you feel more comfortable.

Selling Bonds and Stocks to pay down loans??