On the House

Ben Rodriguez

THIS IS THE STORY of how I thought I’d successfully timed the market—but didn’t.

I started investing in 2007, when the stock market peaked, which wasn’t great. But then came 2009 to 2019. Stocks enjoyed the longest and one of the strongest bull markets in history, averaging some 15% a year. Thanks to that great bull market, my wife and I found ourselves with more in our taxable mutual funds than we owed on our home mortgage.

Should we pay off our mortgage early or continue to let the money ride? It was an issue I struggled with. By late 2019, the stock market’s price-to-earnings ratio was near historic highs as share prices hit record levels. My philosophy: If you’re selling at all-time highs, you can’t be wrong, even if prices eventually and inevitably head higher.

I’ll admit to also being influenced by radio host and personal finance guru Dave Ramsey. Ramsey’s “God’s and grandma’s” advice is to get out of debt, stay out of debt, build an emergency fund, invest for retirement and then pay off your house early. Like most financial experts, Ramsey acknowledges that the math favors continuing to invest in stocks, which historically have averaged around 10% a year, rather than pay off a home mortgage with a 3.5% interest rate.

On the other hand, there’s a kind of magic to a paid-off home. As someone once pointed out, you can’t live in your mutual funds—plus, as I told my wife, if we hate being debt-free, we can easily remedy that problem.

After a few years of hemming and hawing, wearing down my wife, and getting some tax advice from an accountant, we decided to pay off the mortgage at the beginning of 2020. To break up the resulting capital gains tax bill from selling part of our mutual fund holdings, we opted to sell half the necessary amount at the end of 2019 and half at the beginning of 2020. By mid-January, everything was cashed out. I walked the final check into my mortgage company’s local branch. What a feeling—to be completely, 100% debt-free and just days before my 40th birthday.

What came next was even better. As the global economy shut down amid the pandemic, the stock market sank by a third. Clearly, I was a genius. I had just successfully timed the market.

But I also knew a few things about timing the market: It was supposedly impossible and—even if you managed to sell at the right time—you couldn’t reliably time it right on the way back in. Sure enough, even though I had successfully sold at the right time, I didn’t successfully “catch the falling knife.” Having just paid off my mortgage, I was fresh out of cash. With what little I had left, I invested in stock mutual funds in late February, but the market continued to fall precipitously from there.

The market then did what it does best—humble those who think they’ve figured it all out. This time, it was me. The meteoric recovery that ensued was astonishing and, by year-end 2020, the mutual funds we’d sold were 30% higher.

I never liked making the mortgage payments each month, but I’ll have to confess it was also distasteful to write checks to the IRS for our 2019 and 2020 capital gains. Nevertheless, I’m with Sinatra: I have too few regrets to mention. Yes, I missed out on the remarkable growth of a few hundred thousand dollars over the next year. But how would I have felt watching that same money sink 30% in February and March? Would I have sold at those lows? I don’t think so, but I can’t be certain.

Indeed, early last year, while the entire world was going crazy amid the global pandemic, recession and unprecedented lockdowns, I rested easy knowing no one could take our house away. And it isn’t as if we got no benefit from the 2020’s stock market rally. We had substantial money in retirement accounts—and those dollars rode the wave up.

Licensed in both Ohio and Kentucky, Ben Rodriguez practices real estate law in Cincinnati, where he lives with his wife and daughters. Since 2009, Ben’s made a hobby out of personal finance by reading books and articles on the subject, and also listening to podcasts.

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