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Today we’ll check out “Directors Mortgage,” a Portland, Oregon-based mortgage lender that says it “takes a community-first, people-focused approach” to the home loan business.

This means you can actually sit down and speak with a human being about your homeownership goals instead of filling out an online form, assuming you prefer face-to-face interaction.

And those human beings are apparently happy because the company is consistently recognized as one of the best companies to work for in Oregon. So hopefully they’ll make you happy too.

They are also one of the top philanthropic businesses in the area and involved with many of the local sports teams, including youth teams and pros like the Portland Thorns and Portland Timbers.

Let’s learn more about this local mortgage lender to see if they could be a good fit for you.

Directors Mortgage Fast Facts

  • Independent retail direct-to-consumer mortgage lender
  • Largest privately owned mortgage company headquartered in Oregon
  • Locally owned and operated in Lake Oswego since 1998
  • Offer home purchase loans, refinances, construction loans, and reverse mortgages
  • Currently licensed to do business in eight Western states
  • Funded nearly $1.5 billion in home loans last year
  • Also operate a wholesale lending division called USA Direct Funding

Directors Mortgage is a retail direct-to-consumer mortgage lender that was founded back in 1998 by current CEO Mark J. Hanna.

They are one of the largest independent mortgage companies located in the Northwest, and say they don’t take a “one-size fits all” approach like some of the bigger banks.

They offer many different types of loans, including home purchase financing, mortgage refinances, construction loans, and reverse mortgages.

Directors Mortgage appears to be focused on the Western United States, with licensing and physical branches in eight states, including Arizona, California, Colorado, Idaho, New Mexico, Oregon, Utah, and Washington.

Based on the most recent HMDA data, they were most active in Oregon, where they originated nearly a billion in home loans.

They also funded about $500 million in mortgages in the state of Washington, and appear to be growing in the other states where they’re licensed.

Roughly 45% of their overall volume comes from home purchase loans, with the remainder from refinances or reverse mortgages.

Aside from their main retail lending channel, they also operate Direct Portfolio Lending (DPL), which specializes in funding for clients who don’t fit the conventional mortgage mold.

Their offerings include investor fix & flip loans, bridge loans, spec construction loans, and commercial bridge loans, with interest-only options available.

Another brand under Directors is “Mortgage Monkey,” which specializes on providing home loan financing to the LGBTQ+ community.

They also operate a wholesale lending division called USA Direct Funding for mortgage broker partners.

How to Apply with Directors Mortgage

  • You can apply in person, over the phone, or via a secure online application
  • Once signed up you can eSign disclosures and securely upload any documents needed for processing
  • Their in-house underwriting and appraisal system allows borrowers to close quickly
  • After approval, you’ll be able to track loan progress via the online borrower portal from any device

While Directors Mortgage is big on the human element of mortgage lending, they aren’t a stranger to the latest technology.

In fact, if you wish it’s possible to complete a digital mortgage application without any human assistance whatsoever.

Either way, you’ve got options, whether you prefer to apply via phone, in-person, or from the convenience of your smartphone.

In terms of tech, they allow you to eSign disclosures, scan/upload necessary documents, and track loan progress 24/7 via the secure online borrower portal.

And their in-house loan underwriting and expedited appraisal system facilitates fast closings for borrowers.

Those who are buying a home can also take advantage of the so-called “Pre-Approval Advantage Certificate.”

It provides a reimbursement of up to $5,000 earnest money (to the buyer or seller) in the event the purchase agreement is cancelled due to financing.

That could give you the edge in a competitive housing market where bidding wars are the norm.

Loan Programs Offered by Directors Mortgage

  • Home purchase loans
  • Refinance loans: rate and term, cash out, debt consolidation, streamline
  • Home construction loans
  • Renovation loans
  • Reverse mortgages
  • Conventional loans backed by Fannie Mae and Freddie Mac
  • FHA/USDA/VA loans
  • Jumbo home loans
  • Relocation loans

One thing Directors Mortgage isn’t short of is home loan programs.

They seem to offer just about everything, whether it’s a home purchase, construction loan, bridge loan, refinance, or a reverse mortgage.

You can get a conforming loan, jumbo, or a government-backed loan, such as an FHA loan or VA loan.

They also have a dedicated relocation team if you happen to be moving that can help with all the details, such as sending reimbursable relocation costs directly to your employer immediately after closing.

You can get a loan on any major residential property type, including a single-family home or condo, vacation home, or multi-unit investment property.

They appear to mostly originate 30-year and 15-year fixed mortgages, along with adjustable-rate mortgages like the 5/1 and 7/1 ARM.

Directors Mortgage Rates

One area where we could use some more information is in the pricing department.

Directors Mortgage doesn’t openly advertise its mortgage interest rates online like some other lenders.

As such, it’s impossible to know how competitive they are without first speaking to a loan officer about pricing and lender fees.

So if you’re planning to use Directors Mortgage, be sure to take the time to get a quote first, including what lender fees they charge if any.

Then put in the time to get quotes from other banks, lenders, and mortgage brokers to see where they stand.

While service is certainly important, so is cost if you plan to keep your mortgage for many years to come.

Directors Mortgage Reviews

On Zillow, Directors Mortgage has an excellent 4.95-star rating out of a possible 5 from about 100 customer reviews.

Many indicate that the interest rate received was lower than expected, which is good news on the loan pricing front.

On Google, their Lake Oswego location has a 4.3-star rating out of 5 from about 33 reviews, also a fairly strong rating.

You can also find ratings for other locations on both Google and Yelp, so take the time to review the location(s) nearest you.

Lastly, they are Better Business Bureau accredited, and have been since 2006.

They currently enjoy an ‘A+’ rating based on complaint history, for which just one has been closed in the past three years.

In summary, Directors Mortgage could be a viable candidate for both new home buyers and existing homeowners looking for better terms on their mortgage.

They offer a pre-approval guarantee that could give buyers a leg up, and if you want to work with a local, independent mortgage company, they’re big in the Pacific Northwest.

Directors Mortgage Pros and Cons

The Good

  • Can apply for a mortgage online, by phone, or in-person
  • Offer the latest technology and in-house underwriting for quick closings
  • Wide product selection to choose from including jumbos and reverse mortgages
  • Pre-Approval Advantage Certificate for home buyers looking for an edge
  • Excellent customer reviews
  • A+ BBB rating, accredited business since 2006
  • Locally owned and operated for those who like to support local
  • Lots of physical branches in the Pacific Northwest
  • Free mortgage calculators and mortgage glossary on their website

The Maybe Not

  • Only licensed in a handful of Western states
  • Do not publicize mortgage rates or lender fees

(photo: Satish Viswanath)

Source: thetruthaboutmortgage.com

Apache is functioning normally

I wanted to title this post, “Can you be The Interestings,” with my writer’s craft book group (we discuss books based on writing analytics rather than whether characters and stories are likable). The book’s main character is just ordinary, with an ordinary job and ordinary talents. But Jules has some extraordinary (“interesting”) friends, friends that she met long ago at a summer camp for the arts.

Because Jules hasn’t pursued her art as a career, and she probably wouldn’t have made a ton of money at it in any case, she often finds herself terribly envious of her friends that have; notably, her friends whose talents have made them a huge financial success. (The male half of the couple seems to be loosely modeled off Matt Groening; his animated series quickly becomes huge and he’s rich within months of winning a network deal.)

In one particularly ugly scene, the main character bemoans their recent transformation from regular struggling artists to fabulously wealthy, comparing her own pleasure at the great deal at the kebab place (“it comes with free salad AND flat bread!”) to their never, ever again needing to worry about such things. To how easy it is for them to pick up the check and how ridiculous it is for her to do so. How she can’t see them the same way any more and surely! Her friends will look down from their Tower of Rich and shake their heads at their poor friend, still walking up stairs in her apartment, still picking up her own dry cleaning. Her husband sympathizes for a while, but loses his temper at one point, saying something along the lines of, “we’re not boring people just because we’re not rich! Do you hate being married to ordinary me? Get a grip!”

Jules may be more extreme in her statements than most of us, but we probably all feel like that sometimes.

I have a few friends who, in the course of our relationship, have gone from ordinary middle-income to bona-fide rich. One of my dearest friends’ husbands sold his little company to a huge corporation. My brother, who has worked for Intel most of his adulthood, has been doing very well. He bought a new house a few months ago and when I visited, I was shocked to find it was kind of mansion-y. Another friend I met at a writing conference, I discovered after I’d been chatting for hours, had enough money to be an angel investor in independent films. The sort of conversations that start out, “I’ve been working on this novel,” (happens all the time in my life) and end, “I’ve been thinking of buying the movie rights to this famous author’s novel.” (Never happens.)

I found myself, like Jules, sometimes re-evaluating ordinary money conversations after I’d had them.

My friend who’d gone from middle-income to rich was used to hearing about my money woes. Not that I’d complain all the time, but I’d remark on how my husband and I were arguing over money, or say I couldn’t afford to go out to coffee, or worry about a freelance check that was overdue and oh my goodness I was broke until then. Now I’d start into those conversations and at some point remember that she could sympathize but not relate, any more.

My friend is a good enough friend that I know she still does sympathize, and luckily things have been better for me, finance-wise, in the past year so I rarely have the situation where I have to say “no” due to finances. She’s not the sort given to social extravagances, anyway; when we go out, it is to plays, coffee shops or small cafes where we order small meals. We’re absolutely OK.

But what about rich people in your family? Can you still relate to them?

I found my brother’s case a good lens through which to look at this rich/middling dichotomy. His young adulthood was challenging and, when he was a new dad, I know he did struggle with money a lot. I know there were arguments in his first you’ve blown your food budget for two weeks. Your friend gets you a very expensive gift for your birthday and then complains to you about how a third friend gave her something handmade — which was your best idea for a suitable gift in return.

Sometimes friendships can’t work out with such out-sized differences. But it’s likely those friendships were too shaky anyway; maybe even based on the wrong things. If friendships are based on your personal relationship and not your relationship to things, places, and entertainment, you can weather the wealth of a friend.

Source: getrichslowly.org

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By Peter Anderson Leave a Comment – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited July 18, 2011.

When it comes to becoming a beginning investor, one thing that can hold a lot of people back is the fact that starting to invest can feel like it’s so confusing, with so many options out there, diffferent types of investments and investment classes.  Where should you start?  Should you hold mutual funds only? Index funds?  What about ETFs?

As part of my continuing efforts to educate myself as to what the different options out there are I’ve recently been reading up on a class of investments that are relatively recent innovations – the Exchange Traded Fund.

What exactly is an ETF?   It’s basically the investing world lovechild of a mutual fund and an individual stock where you have the diversification of a mutual fund, but also the ability to trade the investment like a stock on a stock exchange.

What Is An ETF?

Exchange Traded Funds have been around since the early 1993.   In January 1993 the first ETF was launched, the Standard & Poor’s Depository Receipts (SPDR) ETF.  The ETF basically was setup to track the performance of the S&P 500 index.  In 1995 S&P introduced a second mid-cap ETF, and after that other companies began launching a number of ETFs to track avariety of different exchanges/indexes and asset classes.

So in it’s most basic form, what is an ETF? An ETF looks a lot like a mutual fund in that it holds a variety of investments for you, but it can also  trade like a stock on the stock exchange.  ETFs allow the individual investor to diversify their holdings while still giving them the flexibility to be able to trade during the day, unlike a mutual fund.

Most ETFs are set up to track a given index like the S&P 500, so they would be classified for the  most part as passive investments – since most of them are not actively managed.  Because they are relatively passive in nature they also tend to have lower costs than some other investment options.

Reasons To Use An ETF

There are  a variety of reasons why you may want to invest in ETFs.

  • Low cost:  ETFs in general are going to have lower costs than some other investment products because most aren’t actively managed, and because ETFs don’t have to sell securities to accomodate shareholder purchases and redemptions.  They also typtically have lower marketing and other fees.
  • Flexibility for buying and selling: ETFs can be bought or sold at any time during the trading day at whatever the current market price is.  By comparison mutual funds can only be traded at the end of the trading day.   Also, since they are publicly traded securities, more advanced investment strategies like hedging strategies, stop and limit orders and purchasing on margin and short selling can be done.
  • Tax efficiency:  ETFs in general will usually have lower capital gains because of low securities turnover in their portfolios.  They also don’t have to sell securities to meet investor redemptions, which further enhances tax efficiency.
  • Diversification exposure to different markets: Like index funds most ETFs will provide instant diversification across an entire index, while still giving you access to a variety of different industry specific and commodity ETFs that aren’t available easily elsewhere.

So as you can see there are a good number of reasons why to consider ETFs for your portfolio.  There are also things to be wary of including the fact that you’ll have to pay brokerage fees every time you purchase or trade your ETFs.

Which Is A Better Option For Me: Index Fund Or ETF?

So since ETFs and indexed mutual funds are so similar in that they’re both usually tracking the performance of a given market or exchange, which one should you consider adding to your portfolio?

Mike over at ObliviousInvestor.com breaks it down in a post on ETFs vs. Index Funds, and gives the answer of “it depends”.

In summary,

  • the longer your time horizon,
  • the greater the amount you’re investing, and
  • the greater the difference between the expense ratios,

…the more sense it makes to use ETFs.

It really is going to depend on a variety of factors, including how long you’re investing for, how much you’re planning on investing, the expense ratios for the funds vs ETF, as well as how often you plan on rebalancing your portfolio as ETFs will usually carry brokerage fees/etc for rebalancing and/or purchasing new shares.

Conclusion

Exchange Traded Funds can be a great idea for the average investor, especially for those who want a few more investment options when it comes to commodities and the like.  The fact that they have low costs, are tax efficient and that they can give you some great diversification while allowing you to do some more traditional trading strategies all mean that the ETF will be popular for years to come.

For a more in depth look at ETFs, check out the tutorial linked below, or to find a brokerage where you can open an account and buy ETFs, check out our list of discount brokerages.

Are you currently investing with or using an ETF?  Why are you using an ETF as part of your investing strategy?  Are you avoiding ETFs for any reason?  Tell us your thoughts on Exchange Traded Funds in the comments.

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Source: biblemoneymatters.com

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Save more, spend smarter, and make your money go further

Are you tired of having credit card bills? Do you wish you could get out of debt once and for all?

If you want get out of debt permanently, first consider this: Debt is not a financial problem. Hard to believe, but true.

Debt is actually a personal problem that masquerades in financial clothing. That is why so many people have persistent problems with debt. They look outward for financial solutions, when the true solution is found by looking inward.

Planning a Permanent Debt Solution

Defining your debt problem correctly is critical to solving it.

That is where most debtors run into trouble. They mistakenly define debt as a financial problem and develop financial solutions. That is why their debt returns shortly after paying it off. They fail to identify the root cause of debt, opening the door to repeating the vicious cycle.

For a debt solution to be effective your plan of attack needs to be based on principles that actually work. Unfortunately, when you just pay off your balances you relieve the pain, but the underlying condition that put you in debt in the first place still lurks under the surface, ready to return.

Let’s face it, the real causes of overspending are your personal habits and attitudes. In other words, the true solution is personal — not financial. That is a key, and understanding this principle is what will make or break your success in slaying the debt monster for good.

Masking The Problem

When you get a headache what is the logical response? You reach to the medicine cabinet for immediate pain relief. Unfortunately, the various pills do nothing to cure the underlying disease: they merely treat the symptom. The cause could be excessive stress, brain cancer, dehydration, eye strain, or any number of other issues. By taking a pill you’ve treated the symptom — not the underlying cause.

The same is true with debt. Everyone knows they need to make more and spend less to solve their debt problems. So they pursue financially driven solutions to relieve financial symptoms. It seems logical on the surface.

Whether you choose to consolidate your credit card debt to lower interest rates or you choose any of the quick-payoff strategies (inheritance, gift, sell an asset, bankruptcy, home equity line of credit, or refinancing), the reality is you are treating the symptom and not creating a lasting cure.

Your financial problems are merely the accumulated reflection of the many small financial mistakes you are making on a daily basis — often without knowing any better. That’s why teaching a debtor to spend less and earn more is like telling someone to lose weight by eating less and exercising more. Everyone already knows that is the answer. The difficult part is not knowing what to do, but actually getting it done. The solution lies in your daily habits and attitudes.

[Related Article: 3 People Who Dug Out of Deep Debt]

Money Breakthroughs

I first discovered this approach to debt recovery in my work as a money coach. I started out making the same mistakes as everyone else. I thought debt problems were financial, so I coached my clients to financial solutions. The lackluster results proved it was the wrong approach.

The breakthrough came when I noticed my wealthy clients had mirror opposite attitudes and behaviors compared to my get-out-of-debt clients. For example:

  • My wealthy clients viewed their financial situation from a position of self-responsibility, whereas my debt clients were victims of their finances.
  • My wealthy clients planned their finances, but my debt clients had no plan.
  • My wealthy clients organized their plans around delayed gratification, whereas my debt clients pursued instant gratification.
  • My wealthy clients associated their self-worth with intrinsic values, while my debt clients associated self-worth with extrinsic stuff.

These are just 4 examples from a long list of opposing traits. They are guidelines or tendencies that generally hold true. While there may be personal variation, on the whole the patterns were unmistakable. These mirror opposite attitudes produced mirror opposite financial results in life.

[Related Article: 7 Ways to Avoid a Debt Relapse]

Amazingly,when I applied these principles, coaching habitudes instead of specific financial actions, the debt problems solved themselves over time.

This is obvious when you think about it. Your daily financial decisions result from your habits and attitudes that drive those decisions. For example, consider the following choices and their obvious financial implications:

  • Do you buy fancy coffees throughout the day or do you make a pot of your favorite coffee in the morning and bring it with you?
  • Do you lease a new car every few years or maintain your reliable used car?
  • Do you dine out frequently or cook healthy meals at home?
  • Are you a minimalist or do you desire the latest designer fashions?
  • Do you shop to get what you need or do you shop for pleasure and recreation?

When you focus on financial solutions, you treat the symptom instead of the cause. When you focus on your attitudes and habits, you focus on the cause, and the symptom takes care of itself automatically without any self-discipline.

Let me be clear — this isn’t a quick fix. The results you produce from this approach will occur gradually over time. Just as it took time to accumulate the debt, it takes time to unwind it when you work with root causes.

However, the solutions are as permanent as the new attitudes and habits you adopt — and that makes all the difference.

The truth is the financial results of your life aren’t dependent upon how much money you make. Instead, they depend on how well you manage the money you already have. This article series will show you the easiest way to adopt wealthy habits and attitudes and be smarter with your money so that you can get out of debt — permanently.

[Related Article: 5 Ways to Get Out of Debt: Which Will Work for You?]

Todd Tresidder is a financial coach and consumer advocate. His unconventional take on worn financial topics has appeared in the Wall Street Journal, Investor’s Business Daily, Smart Money magazine, Yahoo Finance, and more. He’s authored 5 financial education books including How Much Money Do I Need To Retire?, Variable Annuity Pros and Cons, and the 4% Rule and Safe Withdrawal Rates In Retirement. 

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Source: mint.intuit.com

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By Peter Anderson 3 Comments – The content of this website often contains affiliate links and I may be compensated if you buy through those links (at no cost to you!). Learn more about how we make money. Last edited December 9, 2019.

For a while now on this site you’ve heard me extolling the virtues of the Roth IRA, talking about how I think it should be a part of any person’s investment plan, and how it’s a great tool to help diversify your retirement savings.

When I have written the posts I’ve mostly focused on the Roth IRA because that’s the main avenue we’ve taken part in for our own investing. We would have liked to invest more, but some unforeseen (and foreseen – the baby) medical events in the past couple of years have kept us from investing too much.

Now that we’re starting to have a bit more free money to save and invest we’re looking more at the options we have available to us.

My company recently made some changes to the company 401(k)plan moving to a new plan administrator. With the move we’re going to have a lot better low cost investing options in our plan with some good index funds from Vanguard now available, as well as there now being a completely new Roth 401(k)option.

Because we now have more and better choices our investing path will be slightly different. Here’s what we’ll be doing now:

  • Invest in Roth IRA to max: First, we would like to invest in our Roth IRA to the max of $6000 per investor. So that means $6000 for each of us, my wife and I. Little Carter has no earned income so he’ll have to wait. 🙂
  • Invest in company 401(k) & Roth 401(k)to max: Next we’ll be investing in my company 401(k)and Roth 401(k)to the max. For 2020 that means a combined total of $19,500.
  • Investing in taxable accounts: Next we would be investing in taxable investments, most likely through an account with Betterment.com, M1Finance or one of the other robo-advisors. That may not be happening much this year since we’re also trying to save for a down payment for a house.

The History Of The Roth 401k

From Wikipedia:

The Roth 401(k) is a type of retirement savings plan. It was authorized by the United States Congress under the Internal Revenue Code, section 402A,[1] and represents a unique combination of features of the Roth IRA and a traditional 401(k) plan. As of January 1, 2006 U.S. employers have been free to amend their 401(k) plan document to allow employees to elect Roth IRA type tax treatment for a portion or all of their retirement plan contributions. The same change in law allowed Roth IRA type contributions to 403(b) retirement plans. The Roth retirement plan provision was enacted as a provision of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA 2001).

Roth 401(k) Contribution Limits

The Roth 401(k) is subject to the same contribution limit as the regular 401(k). For 2020 that means there is a contribution limit of $19,500. If you are 50 or older the limit is bumped up to $26,000.

Note: The Roth 401(k) and the regular 401(k) are subject to the same contribution limit. In other words the total contribution for both account types is $19,500. You can’t contribute $19,500 to one account and then an additional $19,500 to the other. So the Roth 401(k) offers no new opportunity to invest, just the opportunity for a different tax treatment than the regular 401k.

Roth 401(k) Withdrawals

I would never suggest taking money out of a retirement plan before you actually retire, but in some cases of hardship and so forth it may be necessary. Here are the rules for taking distributions from your Roth 401k(k) account.

Qualifying Distributions

In order to withdraw your money without tax penalties you need to have had the account for at least 5 years as well as being at least 59½ or disabled. Required minimum distributions begin at age 70 1/2, unlike the Roth IRA which has no RMD.

Non-Qualifying Distributions

If you need to take the money out for other reasons and you don’t meet the above criteria (5 year account/59.5 years), then you will see penalties. For the Roth 401(k) you have to report taxable income in proportion to the account’s earnings when you take a distribution.

For example, if 70% of the money in the account is from your contributions and another 30% is from earnings, your distribution will be 30% subject to taxes and penalties even if the amount you withdraw is less than the amount of your contributions. This sets it apart from the Roth IRA which allows tax free withdrawals of your contributions at any time. So again, there will be a 10% penalty and the regular tax rate charged on the proportion of your early withdrawal that is attributable to earnings.

The situations where you can take a non-qualified distribution are limited, so seek tax advice when heading down that road.

Benefits Of Roth 401k

The Roth 401(k) has several benefits that should be noted.

  • Higher contribution limits than the Roth IRA: While the Roth 401(k) has the same after tax contributions, it has a higher contribution level than the Roth IRA which tops out at $6000/year.
  • Rollover option: If you leave a company you can roll a Roth 401(k) directly over into a Roth IRA.
  • Good for high income individuals: High income individuals are limited when it comes to contributing to a Roth IRA. No such limitations exist for Roth 401(k).
  • Post tax contributions mean you pay no more tax: Like the Roth IRA you won’t be paying any further tax on the money or earnings in retirement. It’s a good way to diversify tax risk.

The Roth 401(k) combines some of the great parts of the Roth IRA – the tax free withdrawals at retirement – with the higher contribution limits of the traditional 401k. Because of that it’s a great choice for a wide variety of investors, as long as their company’s plan offers the Roth 401(k)as an option – which not all of them do.

Do you have a Roth 401(k)option in your plan, and are you taking advantage of it? Tell us your thoughts on the Roth 401(k)in the comments!

Related Posts

Source: biblemoneymatters.com

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As the 2010s closed, many young and new investors were in for a shock. Even cautious and conservative investors – e.g. those diversifying, utilizing index funds, not chasing the hot stock, etc. – had seen 15%+ annualized returns from their stock portfolios toward the end of the decade.

Investing is easy!

Pile away some money, compound at 20% for a few years, then head to the beach. Mojito, please!

Then 2020 brought a shock…but only for a few months. In fact, 2020 probably taught more of the wrong lesson. Sure, pandemics hurt…but just wait for the historic and massive recovery!

2022 taught the real lesson. Investing – especially stock investing – has perils, too.

Still, the good outweighs the bad. The up years outweigh the down years, and stock market investing has, historically, been a net positive…if you wait long enough.

But how long do you have to wait? Let’s look at a “normal” investor who does the following:

  • They invest the same amount every month, like you might in 401(k) or to your IRA. They dollar-cost average.
  • They invest in a broad-based, low-cost index fund. I’ll be using the S&P 500 historical data (from Robert Shiller**) as a proxy for a U.S. stock market index fund.
  • They don’t sell. They just keep buying, through thick and thin.

**All data is this article assumes dividends are reinvested, and shows real, or inflation-adjusted, returns

Is 3 years long enough to ensure positive returns? Not even close. A quarter of the time, you lose money over 3 years. In fact, you have a 1-in-10 chance of losing 20% or more. That’s far from a good outcome.

What about 10 years? About 88% of the time, yes…but not 100% of the time. There have been distinct periods in stock market history were 10 years of consistent dollar-cost averaging lost you money.

Below is a table showing the last year of such periods, along with the annual internal rate of return (IRR) of those periods. IRR is the proper way to account for the various investing periods that dollar-cost averaging creates (120 months, 119 months, etc). You shouldn’t just look at beginning and ending. You need to account for everything in between.

The 12% of decadal periods with negative returns are concentrated around these 8 end dates.

You could have invested every month from March 1999 to March 2009, and the final result is as if every one of your dollars suffered a 9.6% annual loss from the moment you invested it.

Ewwwww! Compare that filth against the magic of the 2010s. It’s a completely different story! Someone who invested the same way from November 2011 to November 2021 would have a +13.8% annual IRR.

(-9.6%) and +13.8% annual returns are both within reason for 10-year stock market investing timelines. But the two investors who suffer these opposite fates would feel as if they’ve lived different lives. I want you to be aware of both possibilities.

If we zoom out to 20 year timelines, the results change. Negative periods are still possible, but far more unlikely. Only 5% of 20 year periods had negative IRRs, all concentrated around the end dates in the table below.

Yes – someone could have invested diligently from March 1989 to March 2009, and their real annualized return was just 0.1% per year. That’s not a fun outcome. But it is an unlikely one.

If we zoom out further to 30 year periods, there are no periods of negative IRR.

There are still bad periods, no doubt. But at least we’re seeing real, positive annualized returns. We’re getting some reward for taking these risks.

Let’s pause the bad news. Because the median of these 30-year returns is 6.6% annually. That’s amazing. That’s the reason we invest in the first place. We are making a bet that the median will apply to us, and we’ll see 6.6% annual real returns in our own portfolios.

But only if we wait long enough.

The upshot from this data is that stock investing is not a short-term exercise. There are far too many bad outcomes occurring over 3-, 5-, and even 10-year periods. Short-term money should not be invested in stocks. Something like U.S treasury bonds or money markets makes far more sense.

But if you have the time, patience, and stomach, then long-term stock investing is great place to be.

Thank you for reading! If you enjoyed this article, join 6000+ subscribers who read my 2-minute weekly email, where I send you links to the smartest financial content I find online every week.

-Jesse

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Source: bestinterest.blog