Very interesting, I have a few issues with the analysis though.
That is a very high mortgage rate. When mortgage rates are that high, investment returns are typically much higher than 6% - 8.5–10% in the S&P is over what period?
You’ve brought up a very interesting point - investment return assumptions. This is actually one of the trickiest parts of any model. In our view, there is no single "right" answer. Every family should enter the numbers they believe best reflect their views. Using historical data is often a great starting point, but not always.
Investment returns are not always higher when mortgage rates are high. There were periods of high interest rates and low market returns in the past, such as 1975-1985.
Very interesting, I have a few issues with the analysis though.
That is a very high mortgage rate. When mortgage rates are that high, investment returns are typically much higher than 6% - 8.5–10% in the S&P is over what period?
Jono,
You’ve brought up a very interesting point - investment return assumptions. This is actually one of the trickiest parts of any model. In our view, there is no single "right" answer. Every family should enter the numbers they believe best reflect their views. Using historical data is often a great starting point, but not always.
Investment returns are not always higher when mortgage rates are high. There were periods of high interest rates and low market returns in the past, such as 1975-1985.
S&P500 chart: https://www.macrotrends.net/2324/sp-500-historical-chart-data
Fed Interest rates: https://www.macrotrends.net/2015/fed-funds-rate-historical-chart
Absolutely loved this analysis, so rare to see at this level of detail! Ramit Sethi would be very happy reading this, haha.
Thanks, Thiago! Will do more of that!