paying off your mortgage early is silly, right? In the timeframe that we did it, from 2010 to 2013, it was downright costly. This handy calculator from dqydj.net shows that we gave up a 17.4% annualized return by not putting our extra mortgage payments into the S&P 500. Because the market went on a tear during those years, the money we put towards the house had significant opportunity costs. Opportunity costs are what you sacrifice when you take one course of action instead of another. Every choice has opportunity costs: you go down one path, and you pass up the chance to go down another. Two roads diverged in the woods, and all that. In this case, we gave up historic gains in the market in order to book a 4.25% gain by paying down the mortgage. And it frustrates me, because who knows when an opportunity like that will come again?
The rub is that there isn't much I can do about it now. We're investing more these days, which is nice. But we can't turn back the clock to 2010 and buy the S&P 500 at 1,100. We're buying at today's prices, and I look back with longing for the bargains of yesteryear. On down days, I kick myself. Since we only started investing in 2008, lost a lot of money, then stopped, and didn't truly get serious about investing until, maybe, 2012, we missed out on the first great buying opportunity of our investing career. And while I know there will be other chances to buy the market on sale, when I sit down and think about our past decisions for too long, I wade through a wave of bad emotions. I feel regret. Like we made a mistake...a five figure mistake. I feel stupid. Then angry...at myself.
A lot of good that does me. Feeling bad about the past doesn't make the present any better, and my money says it doesn't help the future a whole lot, either. Al Pacino said once that guilt is like a bag of bricks: all you got to do is lay it down. Simple enough. But what if you keep picking the bag back up?
An old saw from investing has helped me turn the corner: sunk costs are irrelevant. Sure, it sucks that we've suffered those opportunity costs. But that opportunity, and that money, is gone. And it ain't coming back, either. Our opportunity costs are sunk costs, and are therefore irrelevant. The only thing that matters now is, well, what we decide to do now. If we think leveraging our home and using that money to invest in the market is a good idea, we might decide to tap that equity. (But don't bet on it.) Still, better to focus on what we ought to do today than to wring our hands about what we wish we'd done last year.
Like Lily Tomlin says, forgiveness means giving up all hope of a better past. When I give up trying to improve my past, I can finally get over it. I can accept that missing out on this last rally, and spending like crazy during my twenties, and waiting for so long to finally use my retirement accounts, that's all in the past. It really and truly doesn't matter anymore. And when I get that, I can forgive myself.
So if you have some stuff in your financial history that nags at you, like a few years of reckless credit card spending, or student loans that just didn't pan out, or a great investment you let pass by, I'm hoping you can just lay that stuff down. It's done and gone, and it doesn't matter, anyway, friend. Thanks for reading.
*Photo is from vagawi at Flickr Creative Commons.