@Hank- Yes, your position on this is perfectly logical, and was my original position also. What drove me to pay off the mortgage early was that after some years it got transferred to BofA due to banking consolidation here in SF. I refuse to be beholden to or associated with BofA for anything for any reason. Just a quirk on my part.

I don't have a mortgage either and it is a nice feeling.
I'm thinking that at some point it may be advantageous to take out a mortgage. With low interest rates AND a fixed rate mortgage AND the offing (I'm guessing in 10 years) might look good.
Think back to the 1960s when people had low interest rates; then in the 70s interest rates rose.

Accepting the conditions, whatever they are, will not have any efficacy. You cannot 'austere' (if that is what is meant) your way here to economic improvement or health.
Wolfgang Munchau in FT:
If you have been unemployed for five years, with no prospect of a job, it makes no difference whether the money you do not get is denominated in euros, or in drachma.

Tend to agree with bee. Assuming that money is money, it would appear to be a question of whether you want that money invested in the equity of your home or in some other productive asset like mutual funds.
We've always had a mortgage or rent payment of some sort. Guess we've grown used to it. The current one at 3% has about 10 years to run. I'll rather miss it when it's paid off. Think of a fixed rate mortgage as an "anti-bond" - or a bet on higher interest rates. It can serve as an inflation hedge by stabilizing housing costs during periods of rising prices.
I'd argue that you have more control over the money if it's in a highly liquid asset like a fund than in home equity. But, will admit that the home is the "safer" of the two investments and apparently (to many) has a greater emotional value.

Tax deductions (itemized deductions) can and/or will be altered if one's mortgage interest deduction is large enough to "help" move one into the itemized deductions portion of a tax return. This deduction then allows one to gather all of the other smaller deductions to become a larger value which may be a large enough dollar value to be of benefit to reduce taxable income.
'Course, everyone's circumstance will vary with this.
Many years ago, with the elimination (payoff) of our mortgage; we no longer had enough other deductions to itemize them on the 1040. But, the mortgage interest was gone and all is well.

One M* thread with respect to possible annoyances:
http://socialize.morningstar.com/NewSocialize/forums/p/347815/3634184.aspx#3634184
I have looked at it off and on for the past few years more for my grandchildren donations rather than my own account. It's actually simple and credible. If nothing else one can get a great number of potential ideas from looking at the portfolio's that the site and others have created.

Article by Craig L. Israelsen:
"So after six years of a surging bull market, I wanted to revisit that analysis to discover: Does value-oriented investing still win out? My goal was to find out whether the value premium has persisted among U.S. large-, mid- and small-cap equity indexes — and, if so, to quantify its impact."
and,
'These findings do not argue for eliminating growth-oriented assets from a portfolio. However, the analysis does suggest that a value “overweight” is justified in the long run — particularly among small-cap U.S. stock mutual funds."

Article:
can-value-investing-still-trump-growth?

Hi Scott,
Thank you for the superior summary of David Winters’ year long decision making slump. Given the quality of all your posts, I expect nothing less.
It seems like Winters has bumbled and fumbled from one bad decision immediately after another. Slumps happen.
That is definitely not the David Winters of 10 years ago when he abandoned Michael Price’s Mutual Series of funds. Winters had the opportunity to learn from two investment grandmasters, both from Price and for a short time from Max Heine. Considering the lapsed time, perhaps he is forgetting or misapplying the lessons and rules that they passed to him.
That’s especially why I am anxious to see the upcoming interview. It will allow us to contrast the high-riding star manager of yesteryear against the down-to-earth struggling manager of today.
Less importantly, I’m also intrigued by how Consuelo Mack will conduct the interview given that the Wintergreen funds are co-sponsors of her program. I anticipate she will do a competent, workwoman-like job. She is consistently polite, but does ask the tough questions.
Best Wishes.

Hi Guys,
Like Scott, I too look forward to the upcoming WealthTrack interview with David Winters. I learn from a master.
It will be informative to learn if some of his fundamental guideposts have changed recently. To test that possibility it is instructive to contrast a past interview with the one that Ted will post. Here is a Link to last year's video interview:
http://wealthtrack.com/recent-programs/david-winters-different-drummer/
Any substantial changes will be revealing.
Best Wishes.

I'm actually curious about this interview from the standpoint of whether or not Winters will be honest about some of the issues that he's encountered in recent years.
Winters has said that he believes in various themes including the rise of the emerging market consumer. The other theme that kind of ties in with that is luxury goods as Winters has believed that emerging consumers will want similar things. He's run into issues with emerging markets, plus a crackdown in China on luxury goods and a horrible period for Macau.
His tobacco stocks have worked out okay, but other themes (Canadian oil and gas is another) have basically been where you do not want to be in recent years.
Last, but certainly not least was the horrible idea of going after Coke as an activist. It got him nothing (and he should have seen that coming) and Buffett finally got to a point where he verbally really let Winters have it on air.
This was what Buffett said:
http://www.mutualfundobserver.com/discuss/discussion/19369/buffett-on-david-winters-wintergreen
I know there is a view for the longer term and Winters has said as such. That said, it remains to be seen how long investors tolerate it.
That doesn't even get into the fees and minimum because Winters has compared Wintergreen to a hedge fund, despite the fact that he's rarely ever used any such tools.

Given today’s market conditions and the S&P 500 CAPE valuation, I anticipate an equity annual real return of 1.0%, and a bond return of 2.5% (mix of treasury and corporate holdings) over the next 10-year time horizon.
Add another 2.5% for inflation. I presently expect a 60/40 equity/bond mixed portfolio to generate an actual return of 0.6 X 1.0 + 0.4 X 2.5 + 2..5 (inflation) = 4.1% annual average actual return for the next 10 years. Given the crudeness of the analyses, the projection is 4% annually. Quoting anything more accurate is misleading.

On a macro level I agree. When you look at stagnating wages, labor participation rate, retiring baby boomer, increase of people on food stamps, cost of Obamacare it point to a economic malaise. Also, at some point we will get a VAT which should put an additional damper on things.

FYI: I will link interview early Saturday morning.
Regards,
Ted
Dear WEALTHTRACK Subscriber,
As we celebrate our tenth anniversary year on WEALTHTRACK we have been taking an in depth look at one of the biggest investment trends of the past decade, the huge migration of both institutional and individual investors from actively managed funds to passive, index-based ones, especially ETFs.
As we have reported before, index funds now account for a third of fund assets, up from 14% ten years ago. And recently exchange traded funds, or ETFs, have seen the lion’s share of the fund flows.
As Morningstar recently reported, U.S. ETFs have more than $2 trillion dollars in assets compared to nearly $13 trillion for all mutual funds, excluding money market funds. That means 14% of fund assets are now in ETFs, up from a mere 4% ten years ago.
During the current six year bull market index funds have outperformed the vast majority of actively managed funds. In addition, the cost benefits of index funds are considered to be overwhelmingly in investors’ favor, especially when compounded over time. The asset-weighted expense ratio for passive funds was just .20% in 2014, compared with 0.79% for active funds.
Even investors in active funds are opting for lower cost ones. During the past decade the lowest cost quintile of active funds received $1.07 trillion of the total $1.13 trillion dollars of the net new flows into actively managed funds.
With better performance and lower costs it’s hard to find anyone concerned about these developments. However this week we have an interview with a critic of the surge to passive investing. Not surprisingly, he is an active fund manager.
David Winters is CEO of Wintergreen Advisers and Portfolio Manager of the Wintergreen Fund, which he launched in 2005. He was nominated for Morningstar’s International-Stock Manager of the year award in 2010 and 2011.
He has been a WEALTHTRACK regular since the beginning because his traditional value–oriented, global approach worked for years. However the last five years have been rough. The fund has underperformed its benchmark and Morningstar World Stock category.
I spoke with Winters about why he thinks the move to index funds is a dangerous market mania, which puts retirees at particular risk.
If you miss the show on air this week, you can always catch it on our website. We also have an EXTRA interview with David Winters about the challenges of being an active manager during a six year bull market. Its available exclusively online. As always, we welcome your feedback on Facebook and Twitter.
Have a great 4th of July weekend and make the week ahead a profitable and productive one.
Best Regards,
Consuelo

Hi Bee,
Thank you for reading and replying to my post.
Our family portfolio does indeed have many more components than are reflected in the simplified forecasting tool that I proposed. The portfolio includes Foreign Developed Equities, Emerging Market units, REITs, Commodity holdings, and government TIP positions. It is much more diversified than my simple model might suggest.
To respond to a second question that you asked, if a foreign equivalent to Shiller’s CAPE formulation exists, I am not familiar with it. Sorry, I can’t help in that area.
The issue you raised with regard to the inclusion of more investment categories to complete the forecasting tool is very pertinent. That’s why I started and ended my submittal by referencing Einstein’s simplicity caution. The utility of the forecasting tool can be corrupted by over simplification. That danger is real.
Probably no final answer exists. Much depends on the accuracy, the load that the simplified tool is expected to carry. My target goal was dominated by simplicity considerations, and I was prepared to sacrifice some accuracy. Although I did not do a formal analysis, I did scan the historical returns for other sub-group categories. Yes, they depart from US Equities and Bonds, but not that dramatically over the long haul.
For my purposes, I concluded that ignoring these other categories would not compromise the model too drastically. Also, finding simple ways to project returns for these categories (if they exist) is a daunting challenge that I was not prepared to accept. Complexity would quickly multiply. So I punted.
I’m in the diversified marketplace regardless of the model projections. I’ve mostly used it as a tool to dampen the overly optimistic expectations of bushytailed new investors. I try to balance expectations with real world likelihoods.
Although US Equities are likely to deliver muted returns over the next few years, I am not convinced that non-US positions will do much better. In many ways, global problems are as complex, interactive, and deep as those we face. A butterfly flaps its wings in New York, and the world feels its amplified effects. That’s just me talking glittering generalities. I surely am not an expert on the prospects of the global marketplace.
Best Wishes.

@JohnChisum: Thanks. I searched the website and failed to find that doc.
Stepping down his role in prep for a sabbatical at the end of the year is understandable. He has been doing heavy lifting for 10 years (and 10 before that).

@MJG,
Do you invest only in US-centric (CAPE) investments? I would think a diversified portfolio should also have a good slug of non - US investments. A globally diversified portfolio might fair quite well over the next ten years.
Maybe the next ten years will be less about US - CAPE weightings and more about being diversified globally.
Is there Global CAPE data available to compare Schiller's CAPE?
Thanks for your thread.

Hi Guys,
The saying that “Everything should be made as simple as possible, but not simpler” is often but not universally attributed to Albert Einstein.
Regardless of who actually made that pithy proclamation, it is especially applicable when making investment forecasts. Uncertainty dominates any forecasting, and complexity only increases the odds of introducing extraneous and erroneous factors.
I particularly favor a short and simple set of rules when forecasting longer-term market returns. I am not in any way motivated to travel to Chicago to attend a Morningstar convention where invited experts offer no more illuminating projections than I can painlessly glean from these simple rules.
What is my simple rule set? For the equity portion of my portfolio, I use a 10-year equity returns correlation that deploys the Bob Shiller Cyclically Adjusted Price to Earnings ratio (CAPE) as the entry parameter. Its current value is about 26; its historical mean value is roughly 17. So, today, the equity marketplace has a cautionary higher than normal risk level.
Future equity returns are negatively correlated with CAPE. A correlation that I like projects the following 10-year annual real returns (inflation subtracted) of 11%, 8%, 5%, 3%, and 1% as CAPE groupings increase from below10, 10 to 15, 15 to 20, 20 to 25, and greater than 25, respectively. These 5 groupings project a sad story for the current CAPE level. Please take note: This table is the primary insight and tool.
Above a CAPE of 30, equity returns have been historically negative for the upcoming 10 year period. One reason I like the above correlation is the timeframe balance of its components. Both CAPE and the equity market returns forecast are for a 10-year time horizon.
Projecting the next 10-year bond return likelihood is an even easier task. Simply use the current yield of the 10-year treasury bond. If you are a more aggressive corporate bond holder, you might consider adding 0.8% to the government value.
Given today’s market conditions and the S&P 500 CAPE valuation, I anticipate an equity annual real return of 1.0%, and a bond return of 2.5% (mix of treasury and corporate holdings) over the next 10-year time horizon.
Add another 2.5% for inflation. I presently expect a 60/40 equity/bond mixed portfolio to generate an actual return of 0.6 X 1.0 + 0.4 X 2.5 + 2..5 (inflation) = 4.1% annual average actual return for the next 10 years. Given the crudeness of the analyses, the projection is 4% annually. Quoting anything more accurate is misleading.
If you are a neophyte investor and expecting a portfolio return that is north of 8% annually over the upcoming 10 years, forget-about-it. It is not now in the cards given the present high value of CAPE. Naturally, these forecasts change as the input parameters get revised.
Well, this forecast is not rocket science and it did not need a visit to the Morningstar clambake. It has taken a complex forecasting problem and has simplified to allow a rapid and respectable estimate that does not depart too radically from those made by the professionals with their complex computer models. That complexity adds little.
Returning to the Einstein quote, I hope my approach has not crossed the overly simplified boundary. I also hope that a few MFO members find this simple forecasting tool useful. I realize that many MFO members use similar simplified methods in making their own projections. I thank these members for their patience with this submittal.
Best Regards.

Safeco was located in Seattle and they had some funds. I think they were bought out by Liberty Mutual some years ago.
Also the Benham Group was located in San Francisco. A well respected bond group, I bought in their GNMA fund way back when. They were absorbed by Twentieth Century now American Century.
I had the great fortune to speak with Jim Benham on the phone once. I had a simple question and as a small investor I was shocked to be speaking to the head. I have never forgotten the five minutes he took to answer my question.

@MJG
Twas not that I don't know how to do the ballpark math; as I do this all of the time for our portfolio. I was curious as to Old_Skeets number and what brought him to this conclusion.
Easy case for what Ted mentioned would be to pick 5 balanced/moderate allocation funds and discover the average down for the day in question. Magico-Presto, eh?
I've always been very good with head math........
Each week at our house for the true numbers, I use a handy-dandy and most reliable, HP-12C.
I'm sure your example may have been of benefit to someone here; but I am surprised that you would choose to explain your method to me.......my being in the game of life for so many years.

Kaufman's only fund management experience from what I can find on M* has only been the Thornburg Developing World fund starting in December 2009, so to @VintageFreak 's point we don't know much about how he'll do in a "real" down market. The downside capture ratio for THDIX over the last 5 years is only 81%. so at least he did well when the market was down without having a bear market.

@MFO Members: The Linkster's general rule wait three years. That's called winner, winner not quite a chicken dinner.
Regards,
Ted

FYI: Some of the top-performing municipal bond funds over the past five years have held huge stakes in Puerto Rican debt. Now that Puerto Rico's governor has said the island's roughly $72 billion in debts are "not payable" and asked for U.S. bankruptcy protection for the commonwealth, investors in those funds may take a big hit.
Regards,
Ted
http://www.cnbc.com/id/102798839
Bloomberg Slant:
http://www.bloomberg.com/news/articles/2015-06-30/puerto-rico-bonds-fall-by-most-on-record-as-debt-crisis-worsens