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on Gopher (inofficial) | |
Visit Hacker News on the Web | |
COMMENT PAGE FOR: | |
How I think about debt | |
GuB-42 wrote 1 hour 39 min ago: | |
One can see cash as universal insurance. For example, if you have more | |
than a car worth of cash in an easily accessible account, your car is | |
effectively insured. If you break it, you can just buy another one. A | |
car is a lot of money but insurance premiums are also a lot of money | |
over time. | |
And unlike a car insurance that only covers your car and only in | |
specific cases (ex: crashes are covered but not mechanical failures), | |
cash covers for everything up to the value you have available. It | |
doesn't mean you shouldn't get "proper" insurance, there are extreme | |
events you would need way to much cash to cover (ex: civil liability, | |
health,...), just that cash can be counted as insurance. | |
pmg101 wrote 6 hours 38 min ago: | |
One thing I don't understand is why mortgage payments are fixed in | |
nominal terms over the terms of the repayment plan. This has the effect | |
of meaning they are most painful on month 1 and can be almost trivial | |
by month 360 since they've been inflated away. And that's not even | |
taking into account that earnings tend to increase over time even in | |
real terms. | |
It seems there would be a gap in the market for a loan whose payments | |
increase either at or above inflation (perhaps this does indeed exist | |
and I'm simply unaware of it.). Rent doesn't stay flat over a decade | |
time period so why should mortgage payments? | |
tlonny wrote 4 hours 17 min ago: | |
You could always refinance every 5 or so years to achieve this | |
t0bia_s wrote 8 hours 55 min ago: | |
Debt is perfect tool for obedient citizens. | |
âsing the song of him who gives you breadâ | |
trojanalert wrote 10 hours 57 min ago: | |
From a geographical socio-economic standpoint, debt is not a profit | |
maximising tool. | |
In India, for example, debt is a last resort means that comes with | |
contempt and social taboos. Yet people have no choice, but to avail | |
debt. | |
BinRoo wrote 12 hours 58 min ago: | |
Saw the title, jumped to the diagrams, and thought I knew where this | |
was going, but I was way off. I made the exact opposite conclusion from | |
a quick glance at the diagram - that debt gives you more freedom. It | |
allows you to go in the red. That a safe, debt-free life leads to less | |
volatility and therefore less ups. Then I read the article, and | |
couldn't hold both opposing ideas in my head. | |
anonymousiam wrote 13 hours 50 min ago: | |
The article doesn't mention businesses that periodically refinance | |
their debit, which can kill a business when interest rates are | |
unfavorable. Some business owners are experiencing that right now. | |
_heimdall wrote 14 hours 9 min ago: | |
I have always hated the recommendation that people should avoid paying | |
off debt and instead leverage that money in interest paying | |
investments. | |
Sure, on paper you seem better off when you keep a mortgage at 5% and | |
have investments paying 9%, but you're locked in place. That 4% in | |
potential gains means you aren't nearly as flexible when it comes to a | |
job and income, selling your house may be untenable or impossible if | |
markets fall meaningfully, and ultimately you are living in a house | |
that the bank owns while someone took your money and replaced it with | |
IOUs. | |
ornornor wrote 9 hours 23 min ago: | |
You can always liquidate the investment, pay the house off, sell it, | |
buy elsewhere. | |
If youâve invested in volatile titles that can be a problem. But if | |
itâs a bond, itâs quite stable and doable. | |
_heimdall wrote 3 hours 55 min ago: | |
How often do you have access to bonds that pay higher than a | |
mortgage though? Bonds are much less risky than mortgages, I'd only | |
expect them to pay higher in rare instances when rates changed | |
dramatically and you happened to be in the market at the right | |
time. | |
ornornor wrote 3 hours 30 min ago: | |
I donât have personal experience with this, I was referring to | |
GP who said thatâs what they did. | |
Ekaros wrote 6 hours 43 min ago: | |
Situations where a bond pays more than your own debt is either | |
anomalous or carries a risk. The risk is where premium comes from. | |
idontknowtech wrote 14 hours 43 min ago: | |
Most people don't think about debt rationally. If going into debt can | |
accelerate your plans by a significant timeframe, why not do it, | |
assuming it's affordable? Especially if you can get money without | |
having to give up equity. Their funds accelerate your business, you pay | |
them back with the increased earnings. It's literally how capitalism is | |
supposed to work. | |
adamredwoods wrote 15 hours 16 min ago: | |
Why is so much financial advice from very wealthy people who did not | |
gain their wealth through their own advice? Ie. Most advice is | |
retrospective. | |
philosopher123 wrote 15 hours 32 min ago: | |
This bro just described leverage lolz | |
lisper wrote 15 hours 36 min ago: | |
Not all debt is created equal. There is a really crucial distinction | |
here that the author doesn't mention. Debt to finance consumption is | |
very different than debt to finance production. The former narrows | |
your volatility window permanently, but the latter only does so | |
temporarily. Once you get past that, the window widens again and stays | |
wider than it would have been without the debt. As long as the | |
productive asset returns more than the cost of servicing the debt to | |
acquire it, you win. Of course, that's a big if, but it happens | |
regularly, and it's something that really needs to be taken into | |
account when making these kinds of decisions. | |
openrisk wrote 15 hours 39 min ago: | |
This thinking links to how corporate debt has being valued | |
theoretically, starting with the work of Merton [1], by looking at debt | |
as an option with non-linear payoff. The borrower can put the busted | |
assets to the lender. | |
In practice there are countless important complications that make a | |
naive option theoretic analysis very incomplete, e.g., getting into | |
debt makes a lot of sense if you can count on a bailout if things go | |
pear shaped. | |
[1]: https://en.m.wikipedia.org/wiki/Merton_model | |
SkyMarshal wrote 16 hours 8 min ago: | |
This is essentially an explanation of "absorbing barriers" [1] from | |
ergodicity economics [2]. In ergodic systems, the ensemble average and | |
time average are equivalent, but in non-ergodic systems (most of real | |
life) they aren't. In non-ergodic systems, E[X] [3] is path-dependent. | |
An absorbing barrier is like going all-in on a hand in poker and losing | |
- you lose your entire bankroll, are out of the game, you stop | |
progressing and have no more iterations. Your E[X] no longer | |
incorporates the set of all possible steps or outcomes (ensemble | |
average), but only the ones you actually experienced before incurring | |
the absorbing barrier (time/path dependent average). As a result your | |
real-life E[X] materially differs from your theoretical one. | |
The lesson is that long-term survival should anticipate absorbing | |
barriers, prioritize avoiding them, and build deep buffers against them | |
(cash on hand, etc). | |
[1] [2] [3] [4]: | |
[1]: https://en.wikipedia.org/wiki/Absorbing_barrier_(finance) | |
[2]: https://ergodicityeconomics.com/ | |
[3]: https://en.wikipedia.org/wiki/Expected_value | |
[4]: https://www.nature.com/articles/s41567-019-0732-0 | |
bdjsiqoocwk wrote 16 hours 12 min ago: | |
What does "wayward children" mean? I never heard this expression | |
before. | |
personjerry wrote 16 hours 39 min ago: | |
That's a really naive view. If you take on debt for a good reason, you | |
can alter the trajectory of the function completely. | |
hinkley wrote 16 hours 21 min ago: | |
Most people who take on debt believe they have a good reason to do | |
so. | |
It's like how almost nobody thinks of themselves as Evil. Everyone is | |
doing their best, but nobody has the same yardstick. | |
mayiintroduce wrote 16 hours 58 min ago: | |
necessary debt has value | |
unnecessary debt costs value | |
m463 wrote 17 hours 4 min ago: | |
I like this article. | |
I also like the book "Debt" by Graeber. Different, but very eye | |
opening. | |
TexanFeller wrote 17 hours 38 min ago: | |
I have a paid off house and zero debt. Sure I might be ahead if I had | |
used some of the cash to buy stocks instead of paying down the house | |
early, but Iâm completely happy with my decision. There is no peace | |
of mind like not owing anyone a cent and keeping your living expenses | |
low. Having debt was incredibly stressful and no longer worrying about | |
making payments is the best thing thatâs ever happened to my mental | |
health. | |
slyall wrote 14 hours 42 min ago: | |
A house is not a zero-risk investment. Any number of reasons from | |
Natural disaster on down could cause it to lose much of it's value or | |
even become uninhabitable. Possibly in a way that insurance wouldn't | |
cover. | |
Think of people who owned houses in declining industrial cities. The | |
local economy went bad, their house value went down and they faced a | |
barrier to moving since they couldn't sell, move, and get a | |
comparable house in a city with better prospects. | |
dusted wrote 6 hours 35 min ago: | |
it's still not a high risk, owning a house (that is, having paid | |
for it, not owing any money to the bank) still leaves you in a | |
better position than a renter, as you can basically let it burn and | |
will still be in an easier position to get a loan for a new house | |
in another place if you really need to | |
lr4444lr wrote 15 hours 43 min ago: | |
To each his own, but I get more peace of mind with a larger | |
retirement account due to the low fixed rates we had in the US from | |
2009 to around 2022. | |
I can't liquidate my house piecemeal when I need money like I can my | |
brokerage assets. | |
qudat wrote 14 hours 3 min ago: | |
But canât those all go to zero overnight, leaving you with | |
nothing? The same could happen with a home, but thatâs what | |
insurance is for. So I guess the gamble is between a natural or | |
fire disaster or our financial system collapsing. | |
anon291 wrote 9 hours 33 min ago: | |
No they cannot anymore than a house? Unless you purport that | |
Intel truly does not own those giant facilities in Hillsboro, | |
Oregon. Which, you can also have with a house if title falls | |
through. | |
voidfunc wrote 13 hours 56 min ago: | |
If the stock market all goes to zero overnight assuming you're | |
working with indexes or reasonably balanced portfolio then we're | |
all so fucked it won't matter whether you have a house or not. | |
VelesDude wrote 15 hours 19 min ago: | |
This is one of those areas the Australian government has done ok | |
in. Mandatory superannuation retirement funds. 11% (?) of all pay | |
goes into this fund to be invested. Thus you can pay off the house | |
and have an investment fund at the same time. | |
You can withdraw from your fund if you have a hardship but it is | |
generally considered best to not touch it. | |
silverquiet wrote 13 hours 56 min ago: | |
I have a house and a brokerage account thatâs worth a few times | |
my what my house is (itâs rather modest). Nothing is stopping | |
an American from doing both other than their own priorities (and | |
Iâve neglected areas that other people find important - I | |
rarely travel and drive a beater car for instance; to each their | |
own). | |
VelesDude wrote 13 hours 47 min ago: | |
Pretty much. While it is mandated here, there is nothing | |
stopping others form doing the same. | |
On my end it is just a manner of optics. The money being put | |
aside, I never see week to week thus it just seems like an | |
added bonus even though it is really just a part of the pay | |
cycle. | |
silverquiet wrote 13 hours 39 min ago: | |
We have private tax-advantaged plans that work essentially | |
like that, but they are totally optional. Interestingly the | |
only system that is mandatory is our âSocial Securityâ - | |
you are obligated to pay in but the money is pooled; you get | |
something akin to shares in the system, but it only entitles | |
you to a specific payout after a certain age; your | |
contributions are not privately owned. | |
Unusually for these types of discussions, it seems like the | |
US system is more socialized than the alternative in your | |
country. | |
beryilma wrote 16 hours 27 min ago: | |
Owning a house does not mean not owing anyone a cent. You still owe | |
multiple types of taxes to the government. You still need to get | |
insurance. You still need to make repairs. | |
I actually find piece of mind in renting. I can always say screw it | |
and move to the cheapest part of the country as I am getting closer | |
to retirement age. | |
whywhywhywhy wrote 5 hours 12 min ago: | |
While what youâre saying sorta makes sense I think youâre | |
missing that money spent on a mortgage goes into an appreciating | |
asset that you own. | |
Money on rent goes to pay for someone elseâs appreciating asset | |
you donât own. | |
Insurance isnât that much and you have to pay taxes multiple | |
times on all your money anyway but at least property has a chance | |
to fight back a bit or hopefully outpace inflation. | |
The money you earn today and sits in your bank is going to be worth | |
very little in terms of spending power by the time you want to move | |
somewhere cheap if youâre not keeping it in investments or | |
property. | |
Weâre entering a dark time financially and there will be a | |
significant quality of life difference in 20 years of those who | |
have money in the right places today. | |
upsertingdefl wrote 3 hours 37 min ago: | |
>goes into an appreciating asset that you own | |
Like any asset, it _could_ appreciate, but is not guaranteed. | |
Where I live you can buy a house for 15-40K where normal prices | |
in the country are 100-200K. It didn't use to be that way, last | |
decade was all downhill for the city. | |
whywhywhywhy wrote 2 hours 41 min ago: | |
If the housing market crashed in any meaningfully impactful | |
wait there would be way bigger issues to worry about and | |
youâd still only be in the same situation as a renter, maybe | |
even still more well off. | |
dusted wrote 6 hours 37 min ago: | |
I own several houses, and even with taxes, maintenance and | |
insurance, it's cheaper to own two than renting in the same area.. | |
paulcole wrote 14 hours 17 min ago: | |
> I can always say screw it and move to the cheapest part of the | |
country as I am getting closer to retirement age. | |
reply | |
Something similar to this is why I prefer renting and why anyone | |
who unshakeably believes renting is âthrowing money awayâ is | |
immediately suspicious to me. | |
Iâve always tried to rent the cheapest (some would say crappiest) | |
apartment in an area that Iâve really wanted to live. Iâve done | |
quite well financially and in terms of lifestyle as a result. I | |
wouldâve done better financially by buying a home somewhere I | |
donât want to live, but whatâs the point? | |
dgfitz wrote 12 hours 55 min ago: | |
Itâs just a numbers thing. Applying emotion and trust (in your | |
words) to a numerical financial decision is naive at best. I | |
would try to change your mind with numbers and facts, but I can | |
tell it would fall on deaf ears/eyes. | |
paulcole wrote 12 hours 5 min ago: | |
Yeah I donât deny there are ways to make more money than the | |
choice I made. How would you answer the question I asked? | |
> I wouldâve done better financially by buying a home | |
somewhere I donât want to live, but whatâs the point? | |
Few decisions are purely numerical to most people. Or rather | |
there are many decisions people claim are purely numerical and | |
then make suboptimal numerical decisions on. | |
It doesnât make my choice a bad choice and doesnât mean | |
that I threw my money away on rent anymore than a homeowner | |
threw their money away on a refrigerator, property taxes, etc. | |
I exchanged a small amount of money for a place to live and had | |
money left over to spend/invest in other ways and I got to live | |
in an area I really love. | |
I guess thatâs what I get for being naive at best. | |
dgfitz wrote 48 min ago: | |
It was this comment: | |
> Something similar to this is why I prefer renting and why | |
anyone who unshakeably believes renting is âthrowing money | |
awayâ is immediately suspicious to me. | |
That doesn't seem like a rational take. Renting IS throwing | |
money away if your goal is to maximize wealth. Paying off a | |
mortgage early when you can get a higher % return in the | |
market than the interest rate of your loan is ALSO throwing | |
money away. | |
To try and claim you're generating more wealth by renting | |
just isn't true. To claim you're living the lifestyle you | |
prefer, great. | |
To be suspicious of everyone who makes such a mild claim is a | |
microchasm of why the world is going to hell in a handbasket. | |
boznz wrote 15 hours 6 min ago: | |
The ongoing expenses of owning a house are still there, taxes, | |
insurance, maintenance, electricity, garbage disposal, water, gas | |
etc. if you can't cover these, you're not debt free. | |
As you get over retirement age medical expenses could dwarf all | |
these. you need to be more than debt-free you need to be debt-free | |
and a good cashflow and emergency funds you can call on. | |
Just as you get to the top of the hill there is always another one | |
to climb. | |
anonymousiam wrote 13 hours 45 min ago: | |
Those expenses are not "debt" in the traditional sense. I've got | |
two paid-off houses, and my annual combined expenses for them | |
come to something around $20k/year. | |
toomuchtodo wrote 16 hours 2 min ago: | |
Rent can increase faster than your income. Owning, even with higher | |
carrying costs, derisks housing both from an expense and sourcing | |
perspective. | |
chiefalchemist wrote 15 hours 22 min ago: | |
Rent can do that. But in renting you can more easily move to a | |
better paying job. | |
I'm not sure you're derisking as owning is also subject to local | |
taxes of whatever sort. Those too can increase faster than | |
income. | |
toomuchtodo wrote 14 hours 41 min ago: | |
And if you canât find a job because youâre older or the | |
employer market is raking you over the coals, youâre screwed, | |
while your housing is mostly locked in. | |
chiefalchemist wrote 3 hours 59 min ago: | |
But that's the point, | |
rent === mobility | |
own === 10x less so | |
Sure. It's nice to want roots, have a home, etc. But given | |
how the financial system works - and the economic and | |
sociopolitical systems that sit on top of it - an RV might be | |
the smartest way to go. | |
Sure there's always the American Dream narrative but | |
(leadership) actions speak louder than words. Seeing Santa | |
Claus or the Easter Bunny is 100x more likely than the now | |
mythical Anerican Dream. | |
nyokodo wrote 15 hours 23 min ago: | |
> Owning⦠derisks housing both from an expense and sourcing | |
perspective | |
Except if property taxes increase beyond affordability as they | |
have for many folks in some states recently. | |
throwaway2037 wrote 14 hours 18 min ago: | |
> as they have for many folks in some states recently. | |
Can you name some examples? | |
erehweb wrote 15 hours 6 min ago: | |
California limits increases in property taxes to 2% for this | |
reason. More generally, property owners vote at a high rate, so | |
governments will usually be less aggressive in increasing | |
property taxes. Of course, they still go up, but it's generally | |
less of a risk. | |
vlovich123 wrote 14 hours 46 min ago: | |
Californiaâs approach privileges people who have lived in | |
California in the past over the affordability of housing for | |
people working today. Itâs got its own popularity issues. | |
sroussey wrote 11 hours 9 min ago: | |
Itâs very similar to rent control in that way. | |
Loocid wrote 15 hours 18 min ago: | |
Wouldn't their rent go up at a similar rate since the home | |
owner would be copping those tax hikes anyway? | |
readyman wrote 11 hours 23 min ago: | |
Profit | |
leetcrew wrote 15 hours 8 min ago: | |
not necessarily. rent and market value are related, | |
obviously, but they don't have to increase at the same rate. | |
in some markets, property values can increase much faster | |
than rent. | |
[1]: https://www.investopedia.com/terms/p/price-to-rent-r... | |
throwaway2037 wrote 14 hours 17 min ago: | |
Yeah, I agree. Rent is essentially capped by median | |
income. If mortgage rates are cheap enough, housing prices | |
will skyrocket, but median rent will barely budge. | |
geraldwhen wrote 16 hours 3 min ago: | |
You can buy better neighbors with a house, and less crime. | |
gwbas1c wrote 15 hours 49 min ago: | |
> You can buy better neighbors with a house, and less crime. | |
I wish! | |
I built a fancy house in a fancy neighborhood, and then a real | |
a-hole bought the house next to me as his retirement home. | |
brailsafe wrote 13 hours 12 min ago: | |
Might be some selection bias happening. It's usually not the | |
fancy neighborhoods that get a reputation for being humble and | |
down to earth. | |
gwbas1c wrote 4 hours 56 min ago: | |
A-hole neighbors have nothing to do with income level. I've | |
also had a-hole neighbors who were dirt poor. | |
In my case, the advantage is that I don't have to share a | |
wall with my bad neighbor. | |
Edit: I should add that the rest of my neighbors are awesome, | |
Just like every other place I've lived. | |
bddgyrdfv wrote 15 hours 6 min ago: | |
I feel this. | |
Unfortunately the only surefire way to avoid this situation is | |
to be the bigger asshole. | |
gwbas1c wrote 4 hours 57 min ago: | |
Yup: After my a-hole neighbor yelled at me because he thought | |
I was mowing his lawn, I got the property line surveyed and | |
had him remove all the shrubs he planted on my land. | |
chihuahua wrote 13 hours 17 min ago: | |
Not the only way. You can do what Bill Gates did, and buy all | |
the surrounding properties. In his case, some of his staff | |
live there. | |
gwbas1c wrote 4 hours 49 min ago: | |
I don't have that kind of money! | |
r00fus wrote 9 hours 52 min ago: | |
Billionaires do this - Zuckerberg did the same. | |
rnewme wrote 16 hours 4 min ago: | |
Selling that house before moving to the country side is surely | |
amount to something | |
dheera wrote 17 hours 28 min ago: | |
I never understood buying things that I can't afford. I always | |
thought you earn money and when you earn enough money to buy | |
something you can buy that something. That is always how I have lived | |
life. | |
For that reason I also find it ridiculous that it's the social norm | |
to take debt to buy a roof to put over your head. A (simple, clean, | |
functional) house is a basic need, not a luxury item. I always | |
assumed that if I don't have the cash for a house, I can't afford a | |
house. In those terms, I can't afford a house right now, so I've been | |
renting the whole time. | |
I think it should be the social norm for the median income to be able | |
to buy a house with cash. For that to happen either people need to be | |
making $1M/year median, or house prices need to come down to 1/5 of | |
what they are. | |
GuB-42 wrote 2 hours 12 min ago: | |
You can think of a mortgage like renting a house from your bank. | |
Or a bit more precisely, for the time the mortgage is running, you | |
and the bank are essentially co-owners, and you rent the share you | |
don't own from the bank (that would be the interests) while at the | |
same time, you buy the bank share bit by bit (that would be the | |
principal). At the end, you become a full owner and stop paying | |
"rent" to the bank. | |
jjav wrote 7 hours 56 min ago: | |
> I never understood buying things that I can't afford. | |
For most things, that's a wise philosophy. Going into debt for | |
something that depreciates like cars or furniture or electronics, | |
is not wise. | |
Housing is different though for several reasons. One is that you | |
must live somewhere. So (unless being homeless in an option) you | |
have to pay for housing one way or the other. So you either buy | |
(build equity) or rent (a pure expense). Another reason is that a | |
house may (often does) appreciate in value so you're leveraging | |
that debt to make money. Even if it depreciates, it hardly ever | |
depreciates faster than paying rent. Another reason is that rents | |
always go up, a mortgage locks in your cost for the next 30 years. | |
t0bia_s wrote 9 hours 4 min ago: | |
I agree. I think current economical "norm" of having debt is made | |
for purpose by states and banks. Because when you have debt, you | |
will be more obedient citizen, always voting in favor of system | |
that gives "benefits" of using money that you don't own. With price | |
of loosing our freedom with every new regulations. | |
zharknado wrote 12 hours 27 min ago: | |
I think halal mortgages are instructive on this point. To be clear, | |
Iâm not Muslim nor a lending expert, I just think itâs a really | |
interesting setup. | |
As I understand it, sharia law forbids paying interest, so a | |
conventional mortgage is not an option for adherents. However, | |
several different mechanisms are allowed by which the purchaser | |
gradually gains full ownership of the home. E.g. one is roughly | |
equivalent to a rent-to-own agreement. The financier still gains a | |
profit that reflects the risk their upfront investment is subject | |
to. | |
What I find interesting is a recognition that some people need a | |
lot of time to attain homeownership, and it may be valuable to let | |
them live in the home before they fully achieve it, despite the | |
outright rejection of lending as the mechanism. | |
dheera wrote 10 hours 54 min ago: | |
Well damn, can I just take out $10M in personal loans, tell them | |
my religion doesn't believe in paying interest, buy Treasury | |
bonds with it, and live off the interest? | |
dtx1 wrote 7 hours 27 min ago: | |
If you find someone who lends you 10M interest free sure | |
jjcm wrote 16 hours 35 min ago: | |
> I never understood buying things that I can't afford. | |
I think even if you choose not to use debt as a mechanism, you | |
should understand why it's used as a mechanism, much like the | |
parent comment has. Debt as a mechanism is not a bad thing - | |
there's ample proof out there that availability of credit is an | |
extremely strong indicator of future economic activity at the macro | |
level. | |
Dylan16807 wrote 16 hours 49 min ago: | |
I agree that house prices should come down. | |
But given that you need a home, what's the difference between $1000 | |
in rent+fees and $1000 in mortgage+taxes+fees? | |
Normally the biggest difference between renting and buying with | |
debt is that you can stop renting. But you're not going to stop | |
having a home. | |
ryandrake wrote 15 hours 3 min ago: | |
Just a minor nit pick, but important: When comparing the costs of | |
renting vs owning, you need to compare rent+fees to | |
mortgage_interest+property_taxes+fees, minus any real estate tax | |
deductions (if you itemize). The principal portion of your | |
mortgage payment is not an expense, it turns into your own home | |
equity so it's money coming out of one pocket and going into the | |
other. The interest portion is generally federal tax deductible, | |
and your property taxes as well (unless you hit the SALT cap | |
which hopefully expires after 2025). | |
Dylan16807 wrote 13 hours 32 min ago: | |
> Just a minor nit pick, but important: When comparing the | |
costs of renting vs owning, you need to compare rent+fees to | |
mortgage_interest+property_taxes+fees, minus any real estate | |
tax deductions (if you itemize). The principal portion of your | |
mortgage payment is not an expense, it turns into your own home | |
equity so it's money coming out of one pocket and going into | |
the other. | |
You need to compare both numbers, because that equity doesn't | |
do much to help you make your payments. | |
throwaway2037 wrote 14 hours 12 min ago: | |
> it turns into your own home equity so it's money coming out | |
of one pocket and going into the other | |
What if house prices are falling? | |
ryandrake wrote 14 hours 7 min ago: | |
Your home equity = your property's value minus your loan | |
balance. So even if that value is currently negative, every | |
dollar you pay towards principal increases it. It's not an | |
expense. | |
paipa wrote 5 hours 47 min ago: | |
Your expense is that you've hitched yourself to an | |
oversized loan, so you're putting money from one pocket to | |
another, except the latter has a hole in it and you have an | |
obligation to keep feeding it. | |
If your cost was only mortgage interest, you'd be happier | |
with 600k outstanding at 1% than 300k at 4% for the same | |
house. | |
spatley wrote 15 hours 31 min ago: | |
My view has always been that buying gives me price stability. | |
$1000 in mortgage + taxes + fees is only going to change by a | |
hike in taxes but rent changes at the whim of the market. | |
Here in my west coast city, the mortgage on a 4 bedroom house | |
purchased 10 years ago is the same as a 2 bedroom apartment | |
today. | |
rcxdude wrote 15 hours 53 min ago: | |
Sadly the case in a lot of places is the difference is control | |
over your environment, or simply stability. In a lot of places | |
your rights as a renter are so bad you can basically do nothing | |
to improve the place you live, and even if you were allowed you | |
would be foolish to do so because then your landlord could just | |
kick you out or hike up the rent (and might just do that anyway). | |
(where I live even multi-year tenants are frequently forbidden | |
from putting up pictures on the walls, let alone repainting them, | |
FFS). In places with proper rental rights, rent vs buy is a lot | |
less clear-cut, especially if prices don't have much room to go | |
up any further (buying only looks like a non-brainer financially | |
in the past decade's environment of extreme price increases, or | |
if you fail to consider opportunity costs. Even if you can afford | |
to buy a house, it's not necessarily the best use of your money, | |
but the non-financial side can be a really big part of why people | |
go for it anyway). | |
sgerenser wrote 15 hours 21 min ago: | |
Where is anyone forbidden from putting up pictures on the | |
walls? 99.9% of residential rental contracts just state that | |
the dwelling has to be returned in the condition rented. Go | |
ahead and paint and put holes in the walls, just be sure itâs | |
repainted and patched when you move out. | |
Dylan16807 wrote 15 hours 29 min ago: | |
Right, I was talking about the financial aspect, not the | |
quality of life. | |
synergy20 wrote 16 hours 19 min ago: | |
my landlord friend told me, many of her tenants earn decent | |
salary, definitely more than her income, they can even spend | |
$8000 or more to remodel a car or things like that, but can never | |
save up to the 20% down payment ever. | |
brailsafe wrote 12 hours 15 min ago: | |
This truth has come up quite a lot lately in conversations. | |
It's not just the down payment though, it's like ok first I get | |
together $120k for the down payment, then I'm on the hook for | |
potentially double the already obscene amount the same place | |
would cost to rent for the mortgage payment, then utils, then | |
repairs, taxes (almost like one would need to be a landlord to | |
afford it). Like, pass, ~$4k+ a month is more than I'd prefer | |
to be on the hook for, and that's just a mediocre 1 bedroom | |
condo. Doesn't help that there are no viable jobs or enough | |
stability to ride out any volatility now that you've drained | |
your savings on the mortgage. | |
Instead, a modest trip and a few gadgets is wildly less | |
compromising and stressful. | |
jjav wrote 7 hours 54 min ago: | |
> then utils, then repairs, taxes | |
Remember you're paying for all these costs (+ landlord | |
profit) when you rent. | |
bombcar wrote 53 min ago: | |
Right now in many places we're in a bit of an inversion | |
where you can rent for less than the cost to buy - because | |
some owners have old properties with low mortgage rates, | |
etc. | |
But the main deal is people are still in "appreciation | |
mode" where they don't really care if on paper they're | |
losing money, because the house is appreciating faster than | |
that. | |
Once appreciation slows or dries up (or prices start going | |
back down) then things will get suddenly interesting. | |
throwaway2037 wrote 14 hours 14 min ago: | |
> remodel a car | |
What does this mean? | |
chasd00 wrote 13 hours 45 min ago: | |
Restore a classic or like high performance (or other) | |
customizations. | |
bmicraft wrote 16 hours 16 min ago: | |
> spend $8000 or more to remodel a car | |
> can never save up to the 20% down payment | |
something tells me those two things are connected | |
brailsafe wrote 12 hours 8 min ago: | |
Well, at that rate, one could not remodel 15 cars and maybe | |
have enough for the down payment on a studio in some markets. | |
Or one could remodel a car and give up on home ownership, | |
because it seems like a losing idea atm, and they'll have | |
pursued something they find fruitful for the time being. At | |
least they'll have the car in common with their boomer | |
neighbors. | |
booleandilemma wrote 17 hours 16 min ago: | |
I'm in the same spot. I'm in the middle class, I've been renting | |
for years, and I refuse to go into debt by taking out a loan for a | |
house. This is a societal failure. | |
jjav wrote 7 hours 28 min ago: | |
> I refuse to go into debt by taking out a loan for a house | |
But you are renting. | |
While renting isn't debt, it can be helpful to think of it as | |
debt you have to pay every month (unless you plan to be | |
homeless). | |
So you have 12N (where N is the number of years you think you | |
might still live) of rent debt payments that you are committed to | |
pay. If you transform that into mortgage payments, at least | |
you're building equity. And it will only be 1230 payments (given | |
a 30 year mortgage) so it is a bounded number unlike 12*N. | |
prawn wrote 14 hours 19 min ago: | |
A mortgage as a tool is available to you. If you refuse to go | |
into debt, is that societal failure? Affordability of housing is | |
a serious issue, but I'm not sure expecting to buy property | |
without debt is necessarily so. | |
It seems like a self-defeating position to take? | |
rcxdude wrote 17 hours 18 min ago: | |
It's more typical to think of 'affording' in terms of your expected | |
lifetime income, and this is generally a good predictor of people's | |
spending habits. Lending generally enables this. Avoiding debt | |
entirely is a very risk-averse strategy. As ridiculous as house | |
prices are, they are still generally affordable for many (and | |
whether renting or buying is a better overall financial decision is | |
dependent on many factors which depend on your location, how long | |
you expect to own the house, and your risk profile for real estate | |
vs any other kind of investment. Factors like rental rights can | |
also factor pretty heavily). | |
wyre wrote 16 hours 11 min ago: | |
>As ridiculous as house prices are, they are still generally | |
affordable for many | |
What? Technically this is true because âmanyâ people already | |
own homes and can use that wealth towards another. However, when | |
talking about the unafordability of homes the target market being | |
discussed should be first-time home buyers (unless you have an | |
investment podcast or something). | |
In my HCoL bubble the only people I know that can afford their | |
first house are high-income DINKs, or living 30mins outside of | |
the city, or have a high-paying remote job and can relocate to a | |
LCoL area with its own drawbacks. | |
geraldwhen wrote 16 hours 0 min ago: | |
Yes, you do live in a bubble. 65% of US families own a home. | |
[1] Most cities arenât San Francisco and New York City. Even | |
in both California and New York, there are many areas with | |
affordable homes for single income families. | |
[1]: https://www.statista.com/statistics/184902/homeownersh... | |
rcxdude wrote 16 hours 3 min ago: | |
I did mostly mean it in that weasly-way. My main point is that | |
if you can afford the mortgage, you can afford the house, you | |
don't need to be able to make a cash payment for it to afford | |
it. Housing is for sure becoming very difficult to afford even | |
by that definition in a lot of places (and it's not | |
particularly reasonable that even if you can, that housing | |
should take up such a large fraction of your lifetime | |
earnings). | |
dheera wrote 17 hours 16 min ago: | |
Why is avoiding debt a risk averse strategy? | |
I actually do a lot of high risk investments with a small | |
percentage of my net worth -- bitcoin, options, you name it. But | |
I do it with hard cash to my name. If I lose a chunk of that I | |
don't owe anyone anything. | |
I just never thought spending someone else's money and then owing | |
them was even anywhere close to my moral radar of things I would | |
do. | |
The only one time I took a debt is for a car when I had the cash | |
to buy it but it was 2022 and I took a loan at 2% and put the | |
balance of the car in treasury and municipal bonds at ~5% and | |
paying back the loan slowly while selling off the bonds. I | |
wouldn't take a loan if I didn't have the money. Before I could | |
afford a car I just rented cars. | |
LouisSayers wrote 17 hours 8 min ago: | |
> Why is avoiding debt a risk averse strategy? | |
Note that they said avoiding ALL debt. | |
For example, my student loan collects interest at a rate of | |
2.9%. Therefore, it makes sense to maintain that debt if I | |
believe (and accept the risk) of making an investment that pays | |
back a rate of 10%. | |
Financially it might make sense to keep that debt, pay the | |
minimum and invest cash into let's say an index fund. | |
If you have a hardline stance that you NEVER want any debt, | |
then you are basically saying you're highly risk averse (at | |
least when it comes to ending up in the negative). | |
rcxdude wrote 17 hours 12 min ago: | |
because the risk with debt is not being able to pay it back - | |
and you are paying the lender for their side of that risk | |
(generally paying less the more of that risk falls on your | |
side, like secured debt). It's a service they are freely | |
offering (and in fact benefits them disproportionately on | |
average), I don't see how it's a moral issue at all. | |
dheera wrote 17 hours 8 min ago: | |
The moral issue I have is that simply put, if I don't have | |
the money for something, I wasn't meant to have that | |
something. I need to earn the money for it, after which I | |
deserve to have that something. | |
However, the most basic clean-and-functional versions of | |
basic necessities (food, water, shelter, and transportation) | |
should be accessible to everyone working a full-time job, in | |
my opinion, without having to spend other peoples' money. | |
3 out of those 4 are attainable even with a low-paying job, | |
it's really just shelter that is the problem. | |
jjav wrote 7 hours 35 min ago: | |
> The moral issue I have is that simply put, if I don't | |
have the money for something, I wasn't meant to have that | |
something. | |
You're thinking of debt as a consumer. Like, take a | |
personal loan or credit card debt and buy a big screen TV. | |
Yes, that's dumb. | |
Not all debt is like that. Picture this scenario: Your bank | |
pays 5% interest on deposits. You're offered a loan from | |
somewhere for an interest rate of 4.9%. It is a no-brainer | |
to take that loan, go into debt, for as much as possible! | |
Deposit it into your bank account and profit each month. If | |
the rates change such that the bank pays less, just pay off | |
the loan. | |
Now, sure, that's a simplistic scenario since nobody will | |
offer you a loan for less than the banks are paying | |
interest right now. But with time being another variable, | |
you can manouver yourself into that situation. Right now my | |
bank pays more interest than the percentage I pay on my | |
mortgage balance. I'm literally making money every month by | |
having debt. It would be very dumb to pay off that mortgage | |
debt even though I have the cash to do so. | |
mlrtime wrote 2 hours 23 min ago: | |
No brainer may be pushing it... At a minimum there is | |
duration risk and other various terms in the note where | |
this breaks down quickly. | |
Banks do this all the time and some often fail. | |
JadeNB wrote 16 hours 35 min ago: | |
> The moral issue I have is that simply put, if I don't | |
have the money for something, I wasn't meant to have that | |
something. I need to earn the money for it, after which I | |
deserve to have that something. | |
There's a difference between having money and earning | |
money. If you find $20, are you therefore $20 more | |
deserving? If you are mugged and the thief gets $100, does | |
that make you $100 less deserving? | |
There are plenty of people who have lots of money through | |
no good deed, and plenty who have little through no evil | |
deed, and I think confusing monetary holdings with morality | |
is a very poor road to go down. | |
Cyphase wrote 15 hours 35 min ago: | |
Just to throw in a thought on this.. | |
I agree that "meant to have" and "deserve" are the wrong | |
concepts here. But reality and practicality are what they | |
are. | |
If I work hard and save my earnings, with the intention | |
to buy something which we agree is a "valid" need/want | |
(whatever that something is), and then lose the money | |
through some circumstance that we we agree is "not my | |
fault", that really sucks and I don't claim that it | |
affects how much I "deserve" the thing (whatever deserve | |
means), but the reality is that I now don't have the | |
money to buy that thing. Am I going to now borrow money | |
because "I worked hard and I deserve it"? Some would, | |
others wouldn't. | |
rcxdude wrote 17 hours 5 min ago: | |
Do you believe that taking investment is immoral as well, | |
then? That access to resources should be entirely based on | |
past work/achievements, with no judgement applied to | |
anything to be done in the future? That does seem to be the | |
standard you are applying to yourself, at least. | |
(And again, I do agree that housing is incredibly | |
overpriced in much of the world, it's just that debt vs not | |
doesn't have much to do with it. The high price of | |
mortgages is the same reason the rent is high, and the rent | |
being too high is a problem even if it doesn't involve | |
debt) | |
throwaway2037 wrote 9 hours 46 min ago: | |
> housing is incredibly overpriced in much of the world | |
Can we please stop this on HN? No, it isn't -- "much of | |
the world". It is overpriced in tiny areas (with | |
incredibly vibrant local economies) of very wealthy | |
countries. Even if you leave Paris, 25+km outside of the | |
city, the property is suddenly reasonably priced. Same | |
for Berlin. (Forget London!) Same for Tokyo. Same for | |
Milan. Also, mostly we have our parents' generation to | |
blame for outrageous house prices in these tiny areas -- | |
they consistently supported and voted for NIMBY-friendly | |
policies. The solution is "simple", but, politically, | |
very difficult to implement: Make housing a human right, | |
not a casino. | |
dheera wrote 10 hours 50 min ago: | |
Investment is different. In the worst case scenario | |
business goes bankrupt, which usually means you shut down | |
the entity, sell off the assets, and everyone including | |
the owners just go off and gets new jobs and live happily | |
ever after. | |
Personally going bankrupt means you're now facing the | |
possibility of actually being homeless on the streets. | |
sokoloff wrote 17 hours 25 min ago: | |
It's fine to expect some people to buy a house with cash. I don't | |
think that precludes saving for many years to do so (meaning the | |
median income doesn't need to be $1M/yr). | |
dheera wrote 17 hours 21 min ago: | |
Unfortunately housing prices are rising so fast that saving for | |
years doesn't necessarily get you there, unless median income is | |
close to ~1M by my back-of-envelope calculations, which include: | |
- taxes (1M is close to 500K after taxes) | |
- money that you need to cut out and put into retirement to | |
sustain yourself from age 65-100 | |
- living expenses and rent until you buy | |
- real estate prices rising the whole time | |
throwaway2037 wrote 9 hours 42 min ago: | |
> Unfortunately housing prices are rising so fast that saving | |
for years doesn't necessarily get you there | |
Where? In many, many highly developed countries this isn't | |
true. | |
> 1M is close to 500K after taxes | |
Woah. Where do you live where effective income tax rates are | |
50% for 1M+? Please don't confuse marginal ("headline") vs | |
effective ("actual") tax rates. | |
ehmmmmmmmm wrote 9 hours 19 min ago: | |
In San Francisco if you make $1M as a W-2 employee your | |
marginal tax rate is ~53% and your effective tax rate is | |
~47%. | |
If you make $1M on your own the rates are even higher. | |
(That's not including the 10% sales tax you pay on almost | |
everything you buy with the money you have left, property | |
taxes on property you thought you owned, property taxes | |
landlords financially pass onto you as a renter, etc.) | |
seanmcdirmid wrote 9 hours 14 min ago: | |
Property taxes are the only thing in California that are | |
pretty mellow given prop 13. Well, unless the property was | |
just turned over. | |
steelframe wrote 13 hours 11 min ago: | |
> sustain yourself from age 65-100 | |
Fortunately my life expectancy has dropped in the past few | |
years! | |
prawn wrote 15 hours 30 min ago: | |
Which is why taking on debt to buy property is often a good | |
option - you lock in prices, then they rise. Where I live, | |
house prices double in value every ten years, quite reliably. | |
Recently, it's been faster. In ten years, you're paying rent on | |
a $2m property while someone else is paying down a $500-800k | |
loan (using your example figure). | |
sokoloff wrote 17 hours 8 min ago: | |
> living expenses and rent until you buy | |
Which will of course be stratospheric in a world where median | |
labor costs $500 per hour. | |
curious_cat_163 wrote 19 hours 25 min ago: | |
I think that the analogy of drawing lines on a volatile plot is a good | |
starting point. But fails to account for some dynamics of how the | |
consequences of debt can be different. | |
Debt limits choices. But, one can still make a choice that expands | |
their liberty. | |
Having a stable home, being able to go to college, etc. are good uses | |
of debt. | |
Buying a flashy car purely to impress the neighbors? Maybe not. | |
mempko wrote 20 hours 2 min ago: | |
Here is a mind bending concept. Those that hold a lot of cash are | |
resilient. But that cash came from someone else getting into debt. | |
That's because money IS debt. Money gets created when people take out | |
loans. That debt ends up as income to someone else. | |
If you hold a lot of savings, others had to get into debt to create the | |
money that ended up in your bank account. | |
If EVERYONE decides to hoard cash, then the economy goes into a | |
deflationary spiral and everyone's ability to save goes to zero. This | |
is called the Paradox of Thrift. | |
Many folks on HN have huge savings accounts. Thank those that went into | |
debt so you can have savings. They sacrificed their resilience for you | |
to have yours. | |
al_borland wrote 13 hours 54 min ago: | |
The choice they made to give up their resilience was independent of a | |
savers choice to save. | |
If I stop saving, it wonât make their life better, it will just | |
make my life worse. | |
rcxdude wrote 16 hours 55 min ago: | |
Pretty much all of the value of basically every savings account is | |
primarily debt from organisations, not personal debt. | |
mucle6 wrote 19 hours 27 min ago: | |
Not trying to be pedantic, just curious. | |
Money isn't zero sum right? Like the U.S. Government prints it and | |
spends it, so its not clear to me that there is a balance sheet of | |
cash being someone elses debt. Unless its in a metaphorical sense | |
like we're all in "debt" to the U.S government and we pay interest | |
when they inflate more money. | |
mempko wrote 18 hours 37 min ago: | |
The government creates money by spending, but most money is | |
actually created by commercial banks when people take out loans. | |
ALL money is accounted for in these ledgers. So consequently, most | |
money in people's deposit accounts is debt, either their own or | |
someone else's. | |
I recommend reading the Bank of England's Money Creation in the | |
Modern Economy | |
[1]: https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1... | |
nr378 wrote 18 hours 41 min ago: | |
> Like the U.S. Government prints it and spends it, so its not | |
clear to me that there is a balance sheet of cash being someone | |
elses debt. | |
The US government prints it (âquantitative easing") by creating | |
new money and buying its own debt. In this sense itâs still | |
correct to say this Government printed money is backed by debt. | |
Nb. That this is only a small proportion of the overall money | |
supply though. Commercial bank deposits (created through bank | |
lending) represent the vast majority. | |
z0r wrote 18 hours 58 min ago: | |
Money isn't zero sum, but its value is based on being able to | |
exchange it for goods and services - or to compel the production of | |
goods and the carrying out of services. The less debt exists, the | |
less compelled people are to work. | |
WalterBright wrote 20 hours 42 min ago: | |
Debt is a tool: | |
1. Use it to account for the mismatch between income and expenses. | |
2. It takes money to start a business. You can borrow and start the | |
business now, or save up for N years and then start. Same thing for | |
buying a house. | |
3. If you can borrow money at 5%, and invest it at 10%, you make money. | |
Using debt to buy frills, though, is not a great idea. | |
I also use margin debt to increase my stock purchases. The returns are | |
larger, but I must also endure wilder swings in the value. Some people | |
say "what if the stock market goes to zero, what then, huh?" My reply | |
is if the stock market goes to zero, everything else has gone to hell | |
including whatever other investments you have. | |
ChrisMarshallNY wrote 20 hours 58 min ago: | |
> they tend to share a common characteristic: they hold tons of cash, | |
and no debt. | |
That describes the old-fashioned company that I worked for. They are | |
only a bit over 100 years old, but they are cheap bastards. I learned | |
how to work quite frugally, under them. | |
incomingpain wrote 22 hours 47 min ago: | |
I love this article. Very well laid out and simply explained. This | |
article is explaining the set in stone mental health association with | |
debt servicing. | |
>Iâm not an anti-debt zealot. Thereâs a time and place, and used | |
responsibly itâs a wonderful tool. | |
I am, here's how I would add to this article. | |
How do you tell how in debt you are. How tight is the graph? Its not | |
just your debt. | |
Your paycheque comes from your neighbour's spending. If they are in | |
debt, then you too will feel their collective debt. Generally speaking | |
debt is mortgages> cars> tuition. Not a great deal else. | |
So you can actually look at the public data. | |
Norway is 210% debt to income. | |
Canada is 178% debt to income. | |
The threshold of 100% is a big deal. It's when discretionary spending | |
stops. At 100%, your income goes 100% toward servicing debt. It's | |
generally regarded that you keep this in the 30-40% range. | |
When these thresholds hit ~130% that's typical of a financial crisis. | |
To reach 178% or above 200%... that's only possible if actions are | |
being taken by the central banks to prevent a crash temporarily. | |
Checking Norway, because I don't know the state of their central bank. | |
It seems Norway went bankrupt in the early 2000s? It has been a steady | |
crash since being prevented by their central bank? | |
Private Debt to GDP in Norway increased to 277.90 percent in 2023 | |
So here's the thing about central banks working to prevent crashes. You | |
can do so of course, but you also need to deflate the risk. But all | |
they are doing is inflating the inevitable pop. You're just making the | |
crash worse over time. | |
sokoloff wrote 22 hours 1 min ago: | |
> Norway is 210% debt to income. | |
> Canada is 178% debt to income. | |
> The threshold of 100% is a big deal. It's when discretionary | |
spending stops. At 100%, your income goes 100% toward servicing debt. | |
You're confusing two different measures there. The first two are | |
"total debt" (a stock) vs "total income" (a flow). Then, in the last | |
paragraph, you switch to talking about consumption declines as if the | |
total debt stock was directly comparable to a total income flow, | |
which it obviously isn't. | |
The total interest due on the debt is the flow that you should be | |
comparing to the total income flow. (Otherwise, if spending stopped | |
at 100% debt-to-income, how could Canada and Norway's economy be | |
working at 1.8 and 2.1 times that trigger threshold?) | |
My mortgage debt (the stock) is give-or-take 100% of our annual | |
household income (the flow). | |
We have plenty of money left over each month to buy things, because | |
the payments on that mortgage (the flow) are a sensible fraction of | |
our household income (the flow). | |
incomingpain wrote 20 hours 59 min ago: | |
>The total interest due on the debt is the flow that you should be | |
comparing to the total income flow. | |
That's what these numbers are. | |
I'm talking about a calculated popular metric many people use for | |
many countries all over the world. | |
It's really not a controversial or debated subject for either of | |
these countries. | |
sokoloff wrote 20 hours 1 min ago: | |
Youâre incorrect about what that figure is. [1] That means for | |
every 100 units of annual income, Norwegians owe 210 units in | |
total debt. (Not total debt service payments [a flow, with unit | |
of kr/yr], but total debt [a stock, with unit of kr].) | |
[1]: https://tradingeconomics.com/norway/households-debt-to-i... | |
incomingpain wrote 3 hours 25 min ago: | |
>Youâre incorrect about what that figure is. | |
Why then would all these countries, as websites such as your | |
source be calculating such a useless indicator? If I am | |
incorrect? | |
sokoloff wrote 2 hours 29 min ago: | |
It's not a useless measure. Normalizing total debt against | |
total income is a sensible way to compare countries to | |
another. It's just not a measure that is a unitless ratio of | |
two measures with the same units. (The unit is years [of | |
income to payoff the debt if no further interest accrued].) | |
nineplay wrote 23 hours 45 min ago: | |
You can take money and pay off your mortgage or you can take that same | |
money, throw it in a low cost index fund, and keep the mortgage. Most | |
people are going to end up better off with the later. Cash has the | |
illusion of being safer but start talking about inflation and it starts | |
to lose its luster. | |
al_borland wrote 14 hours 0 min ago: | |
Paying off your mortgage starts to make more sense as interest rates | |
go up. | |
gbalduzzi wrote 23 hours 12 min ago: | |
Sure, and what happens when, after you do that, some calamity happens | |
and stocks go down by more than 50%, you lose your job and you can't | |
pay the mortgage anymore? | |
That is of course extreme, but proves the article point: by not | |
having debt, you can sustain a much broaden series of events. | |
As everything in life, it's a spectrum. I think it's pretty | |
reasonable to accept the "sustainability narrowing" that comes from | |
an affordable mortgage, but I avoid taking debt for other goods that | |
are less important and would limit my ability to withstand unexpected | |
events and accidents | |
ianburrell wrote 15 hours 53 min ago: | |
If you held the stock for more than ten years, you are likely ahead | |
because the stock doubled. If not, you still have money to pay your | |
mortgage. | |
Most people pay extra to mortgage gradually. Until it is paid off, | |
they face the same risk of foreclosure. What happens if you lose | |
your job with one year left? You lose the house, you can't pay your | |
bills cause banks won't give you home equity loan. | |
Liquidity is more important for most people than returns. Money | |
saved in a house is a huge risk. | |
TexanFeller wrote 17 hours 5 min ago: | |
> what happens when, after you do that, some calamity happens and | |
stocks go down by more than 50%, you lose your job and you can't | |
pay the mortgage anymore? | |
> That is of course extreme | |
I donât think thatâs even that extreme. In 2020 the market | |
crashed something like 40% and at the same time vast swaths of the | |
population became unemployed. All of my grandparents experienced | |
the great depression. We will be very fortunate if we arenât | |
heavily hit by war or economic disasters for the rest of our life. | |
avgDev wrote 22 hours 36 min ago: | |
You can easily plan for such events. | |
What if your house collapses due to some event that is not covered | |
by your insurance and you used all the capital to purchase it? This | |
is as an extreme example as the market dropping 50%. | |
Surviving market crashes is not rocket science, don't be 100% in | |
stocks. Have a decent emergency fund if you have a family, have | |
some bonds, have a house with decent equity, and don't subscribe to | |
consumerism. | |
kgwgk wrote 19 hours 53 min ago: | |
> What if your house collapses due to some event that is not | |
covered by your insurance and you used all the capital to | |
purchase it? This is as an extreme example as the market dropping | |
50%. | |
Quite a lot of people have experienced a market dropping 50% - | |
not so many have seen their house collapse due to some event not | |
covered by their insurance. | |
avgDev wrote 18 hours 30 min ago: | |
At least the stock market has bounced back, can't say the same | |
about that house. | |
Joel_Mckay wrote 23 hours 47 min ago: | |
Debt is essentially sacrificing future well-being for immediate access | |
to some product or service utility normally inaccessible from current | |
market conditions. | |
Even if a specific type of debt load is not necessarily a liability for | |
personal profit, it is assuredly someones problem eventually... | |
The theory debt doesn't matter only applies to 0.04% of the population | |
dodging tax burdens with structured financial instruments. The | |
interest rates should be set over 14.2% (and we know it), as | |
aristocratic gambling-culture has stolen living-standard value from | |
great-great-grandchildren not even born yet. | |
The poignant question is 'could anyone do anything about the trends', | |
and the short answer is a simple 'No'. [1] Have a great day, =3 | |
[1]: https://en.wikipedia.org/wiki/Tragedy_of_the_commons | |
cess11 wrote 23 hours 7 min ago: | |
Might want to read this monograph from 1990: | |
[1]: https://www.cambridge.org/core/books/governing-the-commons/A... | |
Joel_Mckay wrote 22 hours 39 min ago: | |
Another counterargument: is the opportunity for individuals to | |
improve family living standards increasing or decreasing since the | |
1950's? | |
I'll spare you the exhaustive list from education, housing, | |
infrastructure, and medical service access. It is not, kids are no | |
longer getting stable jobs, their own homes, or starting families | |
until later in life. | |
In my opinion, creating financial securities out of communities | |
just turned most cities into theme-park economies. Fun, but | |
innately unsustainable for all visitors except the board. | |
Personally, I have found the contradictions formed between | |
macroeconomics and microeconomics fascinating. Primarily because | |
tragedy can be profitable in a global context, but destructive from | |
a personal perspective. | |
"Do you want to be right or do you want to be happy?" (Phillip C. | |
McGraw) | |
cess11 wrote 19 hours 52 min ago: | |
You haven't changed my mind, I still think you ought to read | |
Ostrom. | |
"Mankind does not strive for happiness; only the Englishman | |
does". (Friedrich Nietzsche) | |
Joel_Mckay wrote 19 hours 34 min ago: | |
Nietzsche spent most of his time in a brothel, and is hardly an | |
authority on moral intellectualism. | |
I actually really respect you have a differing opinion, as most | |
of my data driven conclusions are statistical rather than | |
philosophical in nature. | |
Have a wonderful day, and good luck out there =3 | |
cess11 wrote 19 hours 25 min ago: | |
Kinda weird to make stuff up like that. Maybe you're | |
confusing him with Toulouse-Lautrec, known for moral strength | |
rather than moral intellect? | |
Nietzsche's The Geneaology of Morals is arguably the most | |
important treatise on christian morality in the previous | |
century, possibly that millenium. | |
Joel_Mckay wrote 17 hours 23 min ago: | |
Nietzsche was a smart man that had a difficult personal | |
story, and it is interesting to learn about his life. He | |
was suspected of suffering neurological issues from | |
syphilis... obviously not a particularly amusing subject | |
before the invention of antibiotics. | |
I never make stuff up unless it is obviously funny or | |
someone makes me a liar... my neutral evil temperament | |
usually ensures stoic honesty even when being deceived. | |
Some of my most cherished friends don't agree with me about | |
most things =3 | |
cess11 wrote 13 hours 5 min ago: | |
I don't think you have learnt about his life, or read his | |
more important books. | |
Joel_Mckay wrote 12 hours 34 min ago: | |
Indeed, German fluency has all but vanished with age. | |
I am beginning to suspect we no longer may communicate | |
in English as well. | |
Cheers =3 | |
adverbly wrote 23 hours 50 min ago: | |
This is an overly simplistic model which happens to have applied very | |
well to Japan but would break down if applied in other economies where | |
inflationary risk is present. | |
I'm pretty sure there's a joke about there being three types of | |
economies: developed, undeveloped, and Japan. | |
Cash is useless if the value of the cash goes down by 10,000% and you | |
don't have an inflation adjusted revenue stream. You have to do | |
something with the cash to get enough interest to keep up with | |
inflation. | |
al_borland wrote 14 hours 7 min ago: | |
I took the article as these businesses keep a healthy amount of | |
assets and donât feel an obsessive need to buy things for the | |
business they canât afford, or scale at all costs. | |
If everything they have is paid for, and people are still buying | |
stuff from their business, their prices can adjust with inflation. | |
Some of their cash might get devalued in a period of hyper inflation, | |
but if they still have enough to get by, as well as new sales, they | |
should be ok. They hopefully also diversified their assets in some | |
things that will handle an inflationary period and donât just have | |
mattresses full of money. | |
anonporridge wrote 22 hours 18 min ago: | |
My bet is most of these long lived businesses also maintain a large | |
pile of gold, which is a fantastic multi generational store of value. | |
But yeah, cash is really just a call on the local monopoly on | |
violence, which changes all the time over the long arc of history. | |
Terrible long term store of value. | |
gbalduzzi wrote 23 hours 22 min ago: | |
I don't read OP article as "keep all your worth in cash". | |
Asset allocation is of course extremely important, but the main point | |
made in the article is not having debt | |
bluGill wrote 23 hours 46 min ago: | |
There are more assets than cash. cash is the most accesible, but | |
others exist and are useful to have. | |
k__ wrote 23 hours 46 min ago: | |
What about deflationary currencies? | |
drexlspivey wrote 18 hours 57 min ago: | |
What is that? | |
adverbly wrote 23 hours 41 min ago: | |
I don't think there have been any currencies that have been | |
deflationary for 100+ years so it's impossible to say. Obviously | |
currency risk is what you have to watch out for though if you're | |
not able to consistently both spend and collect from this single | |
currency over the lifetime of your business. | |
psychlops wrote 20 hours 19 min ago: | |
Bitcoin is a deflationary currency. | |
Ekaros wrote 6 hours 49 min ago: | |
But it also has been extremely volatile over the lifetime. And | |
quite volatile at all points. | |
callalex wrote 19 hours 28 min ago: | |
Itâs a security/commodity, not a currency. | |
bigstrat2003 wrote 17 hours 45 min ago: | |
That's nonsense. Bitcoin is absolutely a currency. | |
psychlops wrote 18 hours 20 min ago: | |
It's a currency and used as a direct form of acceptable | |
payment. Not as much as it's creator envisioned, but it is. | |
It's not a security. It certainly shares attributes with a | |
commodity although I think a characteristic of a commodity is | |
that it is tangible. | |
mouzogu wrote 23 hours 59 min ago: | |
> "As debt increases, you narrow the range of outcomes you can endure | |
in life." | |
when you have cash you do what you want. when you have debt you do what | |
someone else wants. | |
Tokkemon wrote 16 hours 45 min ago: | |
Real hard-hitting, groundbreaking news on HN. | |
more_corn wrote 1 day ago: | |
The core (flawed) assumption is that a thousand year business is | |
desirable. As a business owner and a worker I donât want to work in | |
my great, great grand pappyâs toothpick company. | |
I want to have opportunities to create my own business, make profit, | |
enjoy profit, hand modest generational wealth to my descendants and die | |
without regrets. | |
Thousand year business are not the way to achieve my goals and my goals | |
are not incomplete with debt. | |
I hold debt on my house. My future is tied to that debt and I | |
wouldnât have it another way (I mean unless you want to pay off my | |
house). | |
its_ethan wrote 14 hours 49 min ago: | |
So you're saying his assumption is incorrect because you want | |
something else? You should read some of this guys other stuff - a | |
point he's made many times is that most disagreements in financial | |
advice come from "people with different experiences in life, | |
different time horizons, different risk tolerances talking over each | |
other". There's a lesson in there for you. | |
You don't want to work at your grandpa's company, fine. This advice | |
may not be for you then. That doesn't make his premise any more | |
flawed than your own. | |
And FWIW a thousand year old company does not require that it stay | |
within the same family - which is from your (flawed) assumption. In | |
your own example of "creating a business, making a profit, and | |
handing down wealth to your family", one of the ways to make that | |
profit is to sell your business to someone else, who may sell it to | |
another (on and on for... a thousand years). | |
So not only are you claiming he's wrong based on an opinion you have, | |
your opinion isn't even contradictory to the point he's making. | |
CaptainZapp wrote 22 hours 59 min ago: | |
Maybe Japan and the Japanese have some different values than our fast | |
charging Western world? | |
Let me introduce the Shokunin (translated as Artisan, when you look | |
it up on Wikipedia, which isn't quite right). | |
What a Shokunin produces is, sort of, the antithesis of what you can | |
order from Temu. | |
A rather interesting blog post[0] explaining the concept: | |
"Shokunin is more than just a craftsperson or artisan. It represents | |
the devotion and lifelong commitment of craftsmen who dedicate | |
themselves to perfecting their art. They embody the values of | |
dedication to craft, excellence in craftsmanship, and masterful work. | |
Shokunin believe in meticulous attention to detail and uphold the | |
highest standards of quality and skill in their work." | |
For us Westerners it's not fathomable to work 20 years, or a | |
lifetime, ro achieve a perfect product. Who's to say that this | |
concept is wrong? | |
And I think it has a lot to do with a society who believes that a | |
1000 year old company is not only desirable but a virtue. | |
[0] | |
[1]: https://tobyleon.com/blogs/art-design/shokunin-japan-artisan... | |
throw0101d wrote 1 day ago: | |
The author of the article, Morgan Housel, is also the author of the | |
book The Psychology of Money. This thoughts on, e.g., paying down his | |
mortgage: | |
> It just increased our independence, even if it made no sense on | |
paper. So that's another element of debt that I think goes | |
misunderstood. And a lot of that for both of those points is this idea | |
that people don't make financial decisions on a spreadsheet. They don't | |
make them in Excel. They make financial decisions at the dinner table. | |
That's where they're talking about their goals and their own different | |
personalities and their own unique fears and their own unique skills | |
and whatnot. So that's why I kind of push people to say like, it's okay | |
to make financial decisions that don't make any sense on paper if they | |
work for you, if they check the boxes of your psychology and your goals | |
that makes sense for you. And for me, extreme aversion, what looks like | |
an irrational aversion today, and I would say is an irrational aversion | |
to debt, is what works for me and what makes me happy, so that's why | |
I've done it. | |
* [1] * | |
[1]: https://rationalreminder.ca/podcast/128 | |
[2]: https://www.youtube.com/watch?v=NSaRb-iFwPA | |
ochoseis wrote 19 hours 44 min ago: | |
Rational Reminder is one of the _best_ podcasts I listen to right | |
now. Love the polite Canadian vibe | |
EFreethought wrote 17 hours 22 min ago: | |
I watched some of the videos on their YouTube playlist about | |
blockchain and crypto, and while there was some good information, | |
there was not a lot of interaction. The hosts just seemed to read | |
from a list of questions, and they did not seem to have any | |
follow-up questions. | |
eadmund wrote 23 hours 55 min ago: | |
> > it's okay to make financial decisions that don't make any sense | |
on paper if they work for you | |
I consider that to be (mostly) pernicious nonsense, like âitâs | |
okay to walk off of a cliff, if that works for you.â To a very | |
great degree, finances are a mathematical/legal reality: the path of | |
wisdom is to adjust oneâs emotions to that reality rather than to | |
imagine that reality matches oneâs emotions. | |
There is some degree of truth to it, of course: at the end of the | |
day, life is not about maximising oneâs finances, and oneâs | |
emotions definitely have a role to play in oneâs happiness. But | |
the sooner one learns to defer immediate gratification, save for the | |
future and build up a nest egg, the happier one is likely to be. | |
al_borland wrote 14 hours 15 min ago: | |
The math equations play out differently based on the physiology. | |
When I got my home I went crazy trying to pay it off as fast as | |
possible. I did it in 30 months and it was the best feeling in the | |
world. I deferred my immediate happiness on many things for almost | |
3 years to hit that goal and it was euphoric. Since doing that, | |
Iâve been able to increase my savings rate dramatically. I save | |
much more now than I would be saving if I still had a mortgage and | |
made minimum payments. My net worth jumped up considerably during | |
that period, since I had a clearly defined goal just around the | |
corner it was easy to give up more for it. Now itâs easy to give | |
more to investments because I donât really want for anything and | |
my expenses are low. When nothing is competing for your dollars it | |
is easy to start stacking them up. I was also maxing out my 401k | |
while paying off the home, so itâs not like I wasnât investing | |
or completely out of the market. | |
Most people paying the minimum on their âgood debtâ arenât | |
aggressively investing what they otherwise would have applied. | |
Theyâre spending the money and have nothing to show for it at the | |
end of the day. The potential investment is the justification to | |
not pay the debt, but itâs not the reality of what theyâre | |
doing. | |
I find a lot of peace knowing that if something happens to my job, | |
I can probably get a job just about anywhere and still make ends | |
meet. My emergency fund also went from 6 months of expenses to 12 | |
months without adding another dime, but by eliminating my biggest | |
expense. | |
Another thing I thought about a lot was the 2008 crash. If I were | |
to not pay down my house, and invest instead, I could still end up | |
in a situation where I lost my job and with the markets down, | |
couldnât afford to stay in or get out of my house if needed. | |
Paying it off eliminates that risk. Property taxes for the whole | |
year are about equal to 2 months of rent in most places around me. | |
I love businesses that are 100s of years old. They may not be the | |
biggest, but they donât need to be huge to weather the storms of | |
life, they just need deep roots. Thatâs what I want for my life. | |
Stability. Investments can buy some flexibility when times are | |
good, but a paid off home will give me a place to rest easy when | |
times are bad. | |
ZephyrBlu wrote 17 hours 27 min ago: | |
A financial strategy is worthless if you don't follow it. If the | |
most optimal strategy isn't going to work for your situation for | |
one reason or another, there is no point in trying to force it. | |
Picking a sub-optimal approach that is sustainable makes more | |
sense. | |
jonfw wrote 20 hours 16 min ago: | |
I know someone who recently retired, sold his expensive home, and | |
bought a new home in a cheaper area outright with cash. | |
He had a fixed income that would easily cover his living expenses. | |
He had an investment portfolio that he is planning to pass on to | |
his family. | |
By investing his cash and getting a mortgage on his home- he | |
certainly would have made enough money to cover his mortgage on | |
interest. But, he'd be at risk of going cash flow negative, and | |
having to liquidate some of his investments to cover his mortgage + | |
lifestyle. | |
He knew that having to liquidate investments would bother him- it'd | |
be a lot harder to justify that vacation if he'd have to sell some | |
stocks. Those stocks are for his family in his mind. | |
By buying that home outright, he now knows that he's going to be | |
cash flow positive for as long as he's alive. He'll never have to | |
dip into his stocks. And he'll never have to stretch a dollar. | |
It's not a strategy that you'd come up with on a spreadsheet, but | |
he's one of the happiest guys I know | |
DiggyJohnson wrote 21 hours 41 min ago: | |
Walking off a cliff doesn't work for anyone, that's why you're | |
missing the point. The "some" degree of truth to it is the entire | |
point. Nobody is suggesting to "do whatever feels right or good | |
when it comes to financial decisions." | |
rKarpinski wrote 1 day ago: | |
Interesting they chose to use this example of Japanese companies not | |
having debt, when the country of Japan has the highest debt to GDP of | |
any developed nation[1] which has contributed to its economic | |
stagnation since the 1990s | |
[1]: https://en.wikipedia.org/wiki/National_debt_of_Japan | |
gr8r wrote 17 hours 21 min ago: | |
Interesting. Just another reason I'm convinced some of these recent | |
non-fiction is just commentary (almost) making-up/inflating a problem | |
and then providing a "magic" solution. The content isn't nearly as | |
timeless nor broadly true. | |
rKarpinski wrote 16 hours 54 min ago: | |
yeah, it's content marketing which is all the rage these days. The | |
purpose of pieces like this is to advertise (the VC fund) not to | |
provide deep insight | |
AndrewKemendo wrote 1 day ago: | |
This guy's entire life (He's a VC) is about pushing debt in the form of | |
promissory notes and equity-debt onto companies in exchange for his own | |
ownership | |
How does he reconcile the fact that the companies he lauds in the | |
beginning, would completely shun any business with him (an investor) | |
for precisely the reasons described? | |
I feel like investors and VC are unaware of their own values | |
morgante wrote 20 hours 10 min ago: | |
What exactly is "equity-debt?" That is never a term I have heard of | |
before. | |
stevenally wrote 23 hours 19 min ago: | |
I guess there's personal debt and there's company debt. There's a big | |
difference. | |
throw0101d wrote 1 day ago: | |
> This guy's entire life (He's a VC) is about pushing debt in the | |
form of promissory notes and equity-debt onto companies in exchange | |
for his own ownership | |
There's a difference between business finance and personal finance. | |
There's a difference between what needs to be done to start a | |
business and what needs to be done to keep it going. | |
Apple started in a garage, but it is no longer run out of one. Apple | |
started with loans and investors, Apple now has a large pile of cash | |
(though also bonds that it needs to pay). | |
yellow_lead wrote 21 hours 2 min ago: | |
Well, the article specifically references Japanese businesses | |
throw0101d wrote 18 hours 54 min ago: | |
In the introduction. He then has paragraphs such as: | |
> Letâs say this represents volatility over your life. Not just | |
market volatility, but life world and life volatility: | |
recessions, wars, divorces, illness, moves, floods, changes of | |
heart, etc. | |
And further down: | |
> I hope to be around for another 50 years. What are the odds | |
that during those 50 years I will experience one or more of the | |
following: Wars, recessions, terrorist attacks, pandemics, bad | |
political decisions, family emergencies, unforeseen health | |
crises, career transitions, wayward children, and other mishaps? | |
Not sure how many businesses experience divorce, family | |
emergencies, career transitions, wayward children. | |
DrPhish wrote 1 day ago: | |
âDebt is slaveryâ is how Iâve always thought about debt, and wh… | |
Iâve taught my kids. | |
cies wrote 7 hours 12 min ago: | |
Have you see what rent is like lately? | |
BTW rent is not much different from a loan. You just do not pay | |
principle. | |
You are either way paying to use someone else's asset(s). | |
Tokkemon wrote 16 hours 47 min ago: | |
Debt also allows you to live when you can't find means otherwise. | |
Night_Thastus wrote 20 hours 20 min ago: | |
For low-income people, debt is slavery. | |
For high-income people, debt is a powerful tool. | |
The vast majority of people fall into group #1 and need to treat | |
debts like credit cards and car payments with extreme caution. | |
tjmc wrote 13 hours 22 min ago: | |
Agreed and you can use debt very safely if your net position is in | |
credit. For one example I'm always amazed at how many people don't | |
take advantage of the interest free period of credit cards. As long | |
as you have enough savings put aside to cover the CC balance in | |
full each month you're significantly better off doing all your | |
spending on a credit card instead of a debit card. | |
al_borland wrote 14 hours 3 min ago: | |
I see this a lot and I think it hurts more than it helps. People | |
read this as, âif I want to be rich, I need to take out debt.â | |
And they almost always take on debt for the wrong reasons. | |
psychlops wrote 20 hours 17 min ago: | |
> For high-income people, debt is a powerful tool. | |
How? | |
rcxdude wrote 16 hours 37 min ago: | |
I would phrase it more as a powerful tool if you are financially | |
literate and have a predictable income (especially if it's | |
predictable with confidence to a lender), something which is | |
generally more true of high-income people. Debt (when | |
appropriately priced) allows you access things that you would | |
otherwise need to wait to afford, allowing saving money vs. | |
renting said thing, or the time-value to you of the length of | |
that wait (whether it's through directly financially benefitting | |
from that thing, or from simply whatever utility you are getting | |
from that thing, or both, like buying a more expensive car which | |
saves you money on fuel and maintenance as well as just being | |
nicer to drive). It's dangerous when your income is not | |
predictable (because it means that debt is more expensive for you | |
as well as more personal risk), or if you are forced into debt | |
for necessities that are beyond your means, or if you are | |
financially illiterate, all of which can mean you take on debt | |
beyond your means, which quickly becomes exploitative. | |
(That latter part can happen even with very high incomes. It's | |
not unheard of for e.g. professional sports players or celebrity | |
actors making millions to take on way too much debt and ruin | |
themselves, especially because their high income can disappear | |
quickly, e.g. due to an injury) | |
gr8r wrote 17 hours 37 min ago: | |
you are my group hahaha. | |
jokes apart, some great replies explain how. | |
nickjj wrote 18 hours 54 min ago: | |
> How? | |
Here's an example that could be achievable without needing to be | |
a super high wealth individual, but does require being able to | |
pay a few thousand dollars up front with little notice. | |
Let's say you get hit with a $3,500 medical bill. The hospital | |
says they're willing to reduce it by 20% ($700) if you pay up | |
front so now your bill is $2,800. | |
Now, let's say you rarely use credit cards and a major bank will | |
give you $750 cash as a bonus if you spend $4,000 in 3 months. | |
With the medical bill and regular spending you can hit that | |
without making any "extra" purchases. | |
You could sign up for that card, immediately pay off the $2,800 | |
to avoid paying any interest on the card and once you get the | |
cashback bonus it's really like paying $2,050 instead of $3,500. | |
Now you can take that $1,500 you saved, invest it at 5% for 15 | |
years and with compounding interest you get back +$1,500 profit | |
(minus taxes) which essentially means your medical bill was $500. | |
Of course this requires luck and timing around being able to do | |
that with the card but even if you didn't have the card bonus you | |
can get a guaranteed 20% return in 1 year by paying it off. The | |
alternative is paying the full amount in smaller payments. | |
Technically a lot of hospitals don't charge interest and give you | |
reasonable plans to pay it off but most other places will charge | |
you interest. | |
hipratham wrote 19 hours 49 min ago: | |
[1]: https://v.redd.it/s0qwj8td9tyc1 | |
abduhl wrote 19 hours 50 min ago: | |
The most important things financially are cash flow and coffer | |
size. Being able to take on debt at advantageous times provides | |
both of these things because it allows you to shift cash flow | |
temporally and increase the money you have on hand at will. A | |
rich person can translate portions of their future earnings into | |
large amounts of capital on command, and this can come in the | |
form of future anticipated earnings too (e.g., future anticipated | |
rents or sales) while still being able to live on a day-to-day | |
basis. Being able to control your current and future finances | |
can also provide tax benefits if structured correctly. | |
Poor people can't do that - they need all of their cash now just | |
to live, all the time. | |
ihumanable wrote 19 hours 58 min ago: | |
Not the original poster, but debt can allow you to shift | |
transactions to periods that are most advantageous to you. | |
Here's an example. Let's say that you as a high wealth | |
individual have some stock. The stock has a value of $10M but | |
you can only realize that value through the sale of the stock. | |
If you sell the stock right now you have to sell it for the price | |
the market will buy it at and you have to pay taxes on the | |
profit, either income taxes if you've not had the stock for long | |
or capital gains taxes if you've held it for the requisite | |
period. | |
It is in your interest to optimize your sale so that you pay the | |
least amount in taxes and get the best price per share. You'd | |
love to be able to hold your stock until you can do that, but you | |
need money now. In comes debt. | |
Someone will probably happily issue you some debt that you can | |
use today as money. You can collateralize that debt with your | |
$10M in paper value and get a nice interest rate. | |
So you take out $1M in debt and enjoy life and at the end you | |
have to pay back, to keep the math easy, $1.1M. This debt cost | |
you $100k but if by taking on that debt you can sell when the | |
stock price is higher or convert income tax (37%) into capital | |
gains (20%) then the $100k could easily buy you much more than | |
$100k. | |
In our example if the stock price were the same but all you did | |
was hold the asset long enough to convert it from short term to | |
long term then instead of paying $10M * 37% = $3.7M in taxes, | |
you'd pay $10M * 20% = $2M in taxes. That's a savings of $1.7M | |
on your tax bill. | |
This is how people with assets can use debt as a tool. | |
Workaccount2 wrote 1 day ago: | |
Reminds me of those real estate influencer types you see on social | |
media... | |
"We are $4.25 million in debt but live care free vacation filled lives | |
bringing in $40,000 a month" | |
eadmund wrote 23 hours 49 min ago: | |
$40,000 is $480,000/year, which is 11.3% of $4.25 million; if one | |
borrowed that $4.25 million at a significant discount to 11.3% then | |
that might be a very good financial decision indeed. | |
If itâs at a floating rate, it might still be a good decision. But | |
right now some business loans are up around 15%, at which point the | |
situation above would be an absolute catastrophe. | |
Brajeshwar wrote 1 day ago: | |
Today, I started picking up what I started some time back -- the book | |
âDebt: The First 5,000 Yearsâ by David Graeber goes deep into the | |
details of Debt. I've heard good reviews and I hope this is a good book | |
as they say. | |
[1]: https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years | |
mempko wrote 19 hours 50 min ago: | |
This is a life changing book. It demystifies the biggest part of our | |
lives, which is money (and debt) and helps you contextualize your | |
world by looking into the past. It's the best researched book on the | |
subject. | |
lurking15 wrote 23 hours 31 min ago: | |
I feel like Graeber's book is another (left leaning) fad to glom on | |
to, like Piketty's book some years back. | |
I found this book, The Price of Time by Edward Chancellor [1], very | |
useful for understanding the development of money and debt over | |
history. It's so detailed and clearly extensively researched. | |
[1] | |
[1]: https://www.harvard.com/book/the_price_of_time/ | |
Nicholas_C wrote 19 hours 21 min ago: | |
Thanks for the rec. Iâve wanted to read âDebtâ for a long | |
time but I recently read Graeberâs book âthe Dawn of | |
Everythingâ and it bent the truth so much every which way to get | |
to his POV that I wonât read another book by him. | |
unmole wrote 12 hours 59 min ago: | |
Cherry picking and misrepresenting evidence to argue for his | |
fringe political beliefs was Graeber's whole shtick. You're | |
better off not reading Debt. | |
Willish42 wrote 13 hours 41 min ago: | |
> I recently read Graeberâs book âthe Dawn of Everythingâ | |
and it bent the truth so much every which way to get to his POV | |
that I wonât read another book by him. | |
Do you mind elaborating on why this is the case? I've read and | |
liked some of his other work (Bullshit Jobs is a great one) and I | |
have Dawn of Everything on my reading list -- was it due to his | |
politics in general or because of disingenuous interpretations of | |
the evidence? | |
Nicholas_C wrote 10 hours 55 min ago: | |
Disingenuous interpretations of the evidence and stating things | |
as facts that are very much still debated or denied by other | |
experts. | |
A good example: Graeber posits that the European Enlightenment | |
came directly from contact with Native American ideals rather | |
than being a home grown movement. To support this, Graeber | |
repeatedly references a book written by a French Army officer | |
named Lahontan about his travels in North America in the late | |
1600s[0]. In this book Lahontan has dialogue with a fictional | |
Native American named Adario that is more or less a disguised | |
critique of European society. Adario bears similarities to | |
Iroquois Chief Kondiaronk[1]. It's thought that Adario was a | |
literary device for Lahontan's ideas but Graeber makes a very | |
hand wavy argument that Adario was actually Kondiaronk and the | |
dialogue was real. Graeber then uses this as his main piece of | |
evidence to support his theory about the origins of the | |
European Enlightenment. | |
I couldn't finish the book because I kept looking up the | |
evidence Graeber was presenting and it usually ended up like | |
the Kondiaronk situation. | |
Graeber is also very condescending when he's writing about | |
ideas held by other anthropologists (like Jared Diamond), it | |
was off-putting and came off as unprofessional for someone who | |
was supposed to be a leading academic. | |
[0] [1] | |
[1]: https://en.wikipedia.org/wiki/New_Voyages_to_North_Ame... | |
[2]: https://en.wikipedia.org/wiki/Kondiaronk | |
mempko wrote 19 hours 51 min ago: | |
It's strange that you would trust a fund manager like Edward | |
Chancellor over a trained anthropologist like Graeber on historical | |
research. The price of time looks a at a small sliver of debt | |
through the eye of interest rates and their impacts. | |
Chancellor's axe to grind is clear, that manipulation of interest | |
rates by central governments has led to economic instability. Yet | |
historically emperors, kings, and other rulers would periodically | |
wipe the slate clear because debt enslaved too many people causing | |
instability. | |
Read Graeber's book. It's better researched. | |
lurking15 wrote 16 hours 55 min ago: | |
> Chancellor's axe to grind is clear, that manipulation of | |
interest rates by central governments has led to economic | |
instability | |
Have you read the book? Cause this is such a simplistic reduction | |
of the book, I can't help to think that YOU have an axe to grind. | |
venv wrote 19 hours 53 min ago: | |
Piketty's book (Capital in the Twenty-First Century) is most | |
definitely not a fad. It is a result of serious research into | |
historical economic data and anyone intellectually honest ought | |
take it seriously. As anything in the social science of economics, | |
it is subject to debate, but to call it a 'fad' is odd, to put it | |
mildly. | |
pas wrote 12 hours 26 min ago: | |
serious? sure, yet wrong | |
they made a few mistakes, and after correctiona their findings | |
are not reproducible [1] | |
[1]: https://www.vox.com/future-perfect/2024/1/11/23984135/in... | |
[2]: https://marginalrevolution.com/marginalrevolution/2023/1... | |
NegativeK wrote 17 hours 28 min ago: | |
I think it's popularity among layfolk, like myself, was a fad. | |
I'd be incredibly surprised if it's flying off the shelves now | |
like it was right after release. | |
But popularity doesn't validate or invalidate its content. | |
imtringued wrote 20 hours 4 min ago: | |
In a general equilibrium economy with no innovation or all | |
innovation potential being exhausted, money demand and interest | |
disappear. "Interest" isn't the price of time, it is the price of | |
liquidity. | |
For some reason economists seem to gloss over that money doesn't | |
abstract over just time. It abstracts over everything including | |
location, trade partner, the specific commodity being traded and | |
minimum quantities. | |
Since people involuntarily produce liquidity by bringing their | |
goods to the market, people owning the rights to that liquidity | |
(aka capitalists) can "reap where they haven't sown". | |
This leads to a paradoxical situation. Liquidity production is work | |
like any other. In short, liquidity production demands to be | |
compensated. Since the holders of liquidity can utilize the | |
benefits of the liquidity services without paying they can either | |
decide to use the liquidity benefits themselves or they can decide | |
to monetize them by selling liquidity on the capital markets. The | |
compensation for this liquidity service is known as risk free | |
interest. | |
As I mentioned, liquidity demands to be compensated, but since the | |
producer of liquidity does not get paid, they will eventually wisen | |
up and cease producing liquidity in the national transaction | |
network. This leads to production capacity in the economy being | |
dismantled since it represents a commitment in | |
time-commodity-quantity-person-space. Instead, future producers of | |
liquidity await the holders of liquidity to effectively signal | |
their demand so that they know to what production process they | |
should commit to. | |
Since information acquisition is costly, it is perceived to be | |
cheaper to avoid committing oneself or in more direct terms: | |
interest measures the reluctance to lose control over ones capital. | |
cies wrote 23 hours 56 min ago: | |
RIP Graeber. | |
shoo wrote 23 hours 58 min ago: | |
Graeber's book is about how debts work in different societies and | |
cultures and what they mean. i finished the book being more confused | |
about debt and money than when i started. that said, it was an | |
interesting read, i don't regret reading it. | |
in contrast, this brief blog post by Morgan Housel gives a small | |
visual metophor and a rule of thumb about how too much debt might be | |
fatal when operating a business. arguably it teaches you something | |
actionable, but doesn't tell you anything about your society. | |
Graeber's book is not at all concerned with giving you actionable | |
advice on how to best use (or avoid) debt to run a business within | |
your society. | |
that said, Graeber's book may give you some actionable advice on how | |
to get along better with your neighbours, family and community. the | |
tip would be: try to have everyone in the village owe each other | |
debts. the idea is everyone should feel they have some obligation to | |
others that they can never fully repay, but maybe they can return | |
some other incomparable favour or assistance in future. this | |
encourages cooperation. | |
trying to fully repay or balance these debts would be frowned upon -- | |
such behaviour is what one might do if one were seeking to not | |
participate in society any more. not pro-social. | |
throw0101d wrote 23 hours 59 min ago: | |
> the book âDebt: The First 5,000 Yearsâ by David Graeber | |
Also would recommend Money: The True Story of a Made-Up Thing: | |
> Money only works because we all agree to believe in it. In Money, | |
Jacob Goldstein shows how money is a useful fiction that has shaped | |
societies for thousands of years, from the rise of coins in ancient | |
Greece to the first stock market in Amsterdam to the emergence of | |
shadow banking in the 21st century. | |
> At the heart of the story are the fringe thinkers and world leaders | |
who reimagined money. Kublai Khan, the Mongol emperor, created paper | |
money backed by nothing, centuries before it appeared in the west. | |
John Law, a professional gambler and convicted murderer, brought | |
modern money to France (and destroyed the country's economy). The | |
cypherpunks, a group of radical libertarian computer programmers, | |
paved the way for bitcoin. | |
* [1] And The power of gold : the history of an obsession (and | |
Bernstein's other books): | |
> Incorporating myth, history and contemporary investigation, | |
Bernstein tells the story of how human beings have become | |
intoxicated, obsessed, enriched, impoverished, humbled and proud for | |
the sake of gold. From the past to the future, Bernstein's portrayal | |
of gold is intimately linked to the character of humankind. | |
* | |
[1]: https://www.goodreads.com/en/book/show/50358103 | |
[2]: https://www.goodreads.com/en/book/show/249245 | |
belval wrote 15 hours 33 min ago: | |
> Money only works because we all agree to believe in it. | |
Respectfully, this is the type of true-that-sounds-deep statements | |
that are absolutely shallow and pointless. Yes money the "paper" is | |
not worth anything, but the same could be said of anything in an | |
organized society. Ownership means nothing, it's just a title | |
backed by the government which has a monopoly on violence. Ethics | |
means nothing, it's just something we culturally decided was | |
desirable because if you feel a-ok with murder any trip anywhere | |
would turn into a blood bath. | |
At this point it should be a named fallacy (maybe it is), if we are | |
discussing the merits of debt as a tool, saying "money isn't worth | |
anything" as if it means something is not some ground breaking | |
statement. | |
arj wrote 1 day ago: | |
It is | |
2d8a875f-39a2-4 wrote 1 day ago: | |
I'm not qualified to expound on it but the featured article doesn't | |
cover opportunity cost, and a scale of risk appetites. To name just two | |
concepts it's missing. | |
phkahler wrote 1 day ago: | |
>> the featured article doesn't cover opportunity cost, and a scale | |
of risk appetites. | |
If your business is moving along just fine and you have a decent cash | |
reserve, what opportunity cost is all that important? FOMO doesn't | |
seem like a good thing to let influence business decisions. | |
tombert wrote 1 day ago: | |
I don't think all debt is equal, and I don't think all debt hurts your | |
ability to handle volatility. | |
I have a 30 year mortgage on my house with a 2.75% interest rate. That | |
has effectively given myself "rent control"; outside of a potential | |
rise of property taxes, my "rent" payment will not exceed a certain | |
number of dollars. That means that if the housing prices rise | |
rapidly, I'm covered. | |
If I had decided not to leverage several hundred thousands of dollars | |
of debt, then yes I'd have more cash directly now, but I might have | |
suffered the fate that lots of others faced with the recent spikes in | |
rent that have happened due to COVID. I simply didn't have to worry | |
about that. | |
Obviously there's different types of debt; some insanely high-interest | |
loan you get from a payday loan place absolutely is a bad and will hurt | |
your ability to stand volatility. | |
throwaway2037 wrote 9 hours 40 min ago: | |
You are overlooking the scenario where home prices fall. Yes, your | |
monthly payments will be fixed, but your asset will be falling in | |
value. | |
hndamien wrote 14 hours 39 min ago: | |
Australia is practically all variable rates after 3 years, so not | |
much is really "locked in" | |
chinchilla2020 wrote 17 hours 12 min ago: | |
Covid is one example. The PPP loans provided by the federal | |
government to businesses were forgiven. That sort of stimulus, | |
combined with massive inflation, is favorable to a debtor, not a | |
saver. | |
For many, taking on debt in 2018 to buy a house for 200k would have | |
paid off greatly by selling in 2022 for 500k. In an inflationary | |
environment, you should grab as much cheap debt as possible. | |
oooyay wrote 20 hours 22 min ago: | |
> I have a 30 year mortgage on my house with a 2.75% interest rate. | |
That has effectively given myself "rent control" | |
This only works in places with fixed property tax. When I lived in | |
Texas my property tax went up hand over fist every year as my | |
property increased in value and automatic reassessments occurred. If | |
your salary remains relatively stagnant and does not increase with | |
cost of living (most salaries are subject to this) then you can | |
certainly find yourself being subject to nuevo rent rates as a long | |
time mortgage holder. | |
I do agree with you that different types of debt should be classified | |
differently. | |
hifromwork wrote 4 hours 42 min ago: | |
>This only works in places with fixed property tax | |
Critically, this also only works in places that offer fixed-rate | |
mortgages. In my country (and most of Europe I believe) they are | |
relatively expensive and the rate is fixed for only ~5 years (after | |
which you either change to floating or update the rate). So | |
basically nobody considers them long-term. Damn, I envy Americans. | |
tombert wrote 20 hours 10 min ago: | |
Fair enough, thereâs a maximum that they are allowed to raise | |
property taxes in NYC (6% in a year, 20% over five years); my rates | |
will eventually go up, but not super fast. | |
oooyay wrote 20 hours 2 min ago: | |
Yeap! We're subject to a similar maximum in Portland. It was one | |
of the aspects of government I specifically shopped for before we | |
relocated. I did wish I'd looked more into the ever-expanding | |
income tax we have at the city, county, and state levels but | |
that's a different cost structure that's only significantly worse | |
when factoring in Trump era tax reform. | |
milkytron wrote 20 hours 16 min ago: | |
I've experienced this. My property taxes have gone up maybe 30% in | |
the past few years. My income has increased pretty substantially, | |
so it's not like I'm unable to pay for the increases. Compared to | |
rent though, and having a mortgage where every month the amount of | |
principle paid off increases, it still seems like the better | |
option. | |
Rent has increased 30-50% where I live over the same time period. | |
At least when my property tax increases, it's because I have an | |
asset that has increased in value. If I am at some point forced to | |
sell because I can no longer afford the property taxes, then I'll | |
walk away with more money than if I had been paying rent for those | |
same years. | |
Property taxes can force the same type of relocation that rent | |
increases cause, but I think the typical outcome from someone being | |
forced out by rising property taxes will be better than the person | |
forced out by rising rents. | |
phaedrus wrote 21 hours 17 min ago: | |
Besides taxes, there is another sense in which outside circumstances | |
can break your "rent control" model of home ownership with 30 year | |
mortgage. Here in Oklahoma, insurance rates have skyrocketed in the | |
last couple years. I now pay more in homeowner's insurance monthly | |
than either my principle or interest payment (though perhaps not both | |
together - yet). And I have a 4.something% mortgage. | |
I suspect it has or will soon reach the point where the Kelly | |
criterion says mathematically I'd be better off to self-insure - if I | |
didn't have a bank loan. | |
It's not just insurance (which is likely also weather-related); after | |
a fluke super-cold Winter we had, our natural gas companies incurred | |
a huge wholesale market bill which they've passed on to customers. I | |
have a family member who owns his house free and clear whose gas bill | |
went up so much he could no longer afford to heat his house. The gas | |
company still tried / is trying to assess a one-time very large | |
retroactive fixed fee even though he turned off his gas. | |
My point, I guess, being even homeowners are not totally insulated | |
from being screwed over by outside market forces. | |
jjav wrote 7 hours 21 min ago: | |
> Here in Oklahoma, insurance rates have skyrocketed in the last | |
couple years. | |
Insurance company profiteering is a disaster but that's a whole | |
different topic. | |
But remember that rental properties are also insured. And the | |
renter is paying for that insurance, it's just bundled in the | |
rental price. So renters are also paying the wild insurance hikes. | |
And utilities like gas are generally directly paid by renters, so | |
no difference. | |
r00fus wrote 9 hours 48 min ago: | |
> Here in Oklahoma, insurance rates have skyrocketed in the last | |
couple years. | |
I thought this was only a problem in CA or FL. I wonder if this is | |
nationwide or specific to states with disaster prone areas. | |
pixl97 wrote 19 hours 44 min ago: | |
>I suspect it has or will soon reach the point where the Kelly | |
criterion says mathematically I'd be better off to self-insure | |
Heh wait till you go to replace the property/damage. Unless you're | |
doing yourself you'd absolutely crap on the floor once you see how | |
high prices have got for this work. | |
Add to this the increasing incidence of weather/climate related | |
damages to homes and the situation isn't looking good for many | |
states. | |
Kirby64 wrote 20 hours 4 min ago: | |
Assuming it's market condition based and not specific to your | |
house, rents would easily pass along insurance rate hikes to you as | |
well. I don't see much difference in insulation from that for | |
renting vs. buying. | |
nicbou wrote 20 hours 26 min ago: | |
In Berlin, only a small percentage of landlords beat inflation. | |
It's a lot of work and a low return for an illiquid investment. | |
Depending on the timing, many qualify housing as a lifestyle | |
decision instead of an investment. | |
Aside from what you've mentioned, the state can raise the | |
efficiency standard to protect the environment, raise the cost of | |
services, or make you pay to rebuild the street or sidewalk in | |
front of your home. Then come the maintenance: new roof, new | |
windows, new kitchen and so on. | |
If your country has good tenant rights, there are not so many | |
reasons to buy. It's better to invest the money for a while. | |
GenerocUsername wrote 21 hours 2 min ago: | |
You don't HAVE to carry home insurance do you? You can also change | |
policies for different levels of insurance at any time. It's not | |
exactly a debt, but an ongoing service | |
tombert wrote 20 hours 7 min ago: | |
I am pretty sure that at least in NY you are required to have | |
insurance if you have a mortgage. | |
I guess once the mortgage is paid off for whatever reason | |
youâre welcome to not get insurance. | |
quadyeast wrote 20 hours 53 min ago: | |
Banks want to insure the collateral. | |
HeyLaughingBoy wrote 19 hours 21 min ago: | |
To the point where if they're notified that your insurance has | |
lapsed, they will warn you to get replacement coverage, or they | |
will and then bill you for it. | |
I had a not so fun experience with switching insurance | |
providers at about the same time that my bank was about to make | |
the insurance payment out of escrow. | |
tombert wrote 18 hours 47 min ago: | |
That was something we had to worry about when buying our | |
house. | |
The house I have is pretty old and the roof had some issues. | |
I obviously was planning on fixing those, but it became a bit | |
of a catch-22 problem; the insurance I was planning on using | |
(cuz I had a discount from my employer) said that they | |
wouldn't insure me until the roof was thoroughly fixed and/or | |
replaced, but I couldn't fix the roof until the deal closed, | |
and the mortgage company wouldn't close the deal until we had | |
insurance. We were afraid we'd have to pay the insane | |
insurance rates from the mortgage company. | |
Fortunately, after multiple days of shopping, I found one | |
insurance company that agreed to insure me as long as I fixed | |
the roof within 30 days of closing, which I did. | |
vel0city wrote 18 hours 12 min ago: | |
I had a similar issue with buying a house. In the end we | |
just wrote the roof replacement into the contingency of the | |
contract and adjusted the price a bit so both sides paid a | |
little bit into the cost of the new roof. The roof was | |
replaced, we got our insurance, and the house was sold. | |
dhosek wrote 20 hours 55 min ago: | |
If you have a mortgage, you are required to insure the building | |
at the least. | |
recursivedoubts wrote 22 hours 42 min ago: | |
debt for housing, which is a depreciating asset in normal times | |
(housing wears out, land may become more expensive) is not a great | |
idea, but it has been normalized and when you have negative real | |
rates & inflationary policies, as we had for over a decade, it can | |
make a lot of sense | |
debt for productive activity in general makes sense if it isn't | |
compounding (mortgages act like simple interest, btw, although it's | |
complicated since you pay more interest at the start of the loan and | |
so if you move within the first five years you've paid almost | |
entirely interest on the home) | |
debt for consumption is always parasitic | |
that's why it's insane how hard it is to get a business loan and how | |
easy it is to get a credit card: usurers want suckers, not shared | |
risk on productive investments | |
anon7725 wrote 20 hours 28 min ago: | |
> debt for housing, which is a depreciating asset in normal times | |
(housing wears out, land may become more expensive) is not a great | |
idea, but it has been normalized and when you have negative real | |
rates & inflationary policies, as we had for over a decade, it can | |
make a lot of sense | |
Has there been a 20 year stretch of time in the US in which housing | |
is broadly a depreciating asset? | |
Seems that land is definitely, and housing for the most part, an | |
appreciating asset over time due to scarcity. | |
roland35 wrote 14 hours 42 min ago: | |
Depends where you live! There are plenty of cities that have gone | |
downhill. I could easily see some big sun belt cities getting too | |
hot in 2044.. | |
recursivedoubts wrote 18 hours 56 min ago: | |
housing is, by definition, a depreciating asset: it wears out | |
you are asking if real estate prices have fallen over a 20 year | |
period in the US and the answer is not in the modern inflationary | |
era: [1] but that mixes land & housing prices together of course | |
prices have fallen over 10 year periods (sometimes dramatically) | |
however, and the average length of ownership is 8 years, so | |
timing can make a huge difference in outcomes of home ownership, | |
particularly with the leverage involved. | |
[1]: https://fred.stlouisfed.org/series/QUSR628BIS | |
aworks wrote 20 hours 1 min ago: | |
I'm not answering your direct question but for reasons, I'm | |
interested in Indiana farm land in the 1920s and 1930s. From a | |
peak in 1920, price per acre was down 2/3rds and didn't fully | |
recover until 1948. | |
The Great Depression started early for farmers... | |
[1]: https://ag.purdue.edu/commercialag/home/resource/2023/08... | |
pixl97 wrote 19 hours 39 min ago: | |
Not sure if farmland to housing land is a 1:1 comparison in | |
many places. Where you can dig well (and hopefully get safe | |
water) and use septic it may be as you can get power almost | |
anywhere, but some places require utilities which increases | |
prices significantly | |
eadmund wrote 23 hours 59 min ago: | |
> outside of a potential rise of property taxes, my "rent" payment | |
will not exceed a certain number of dollars | |
And home insurance, too. But generally, yes: over the course of | |
decades an American fixed-rate mortgage really is a wonderful thing. | |
There is also the possibility of deflation to worry about, although | |
deflation comes with many other problems. I personally think that | |
worrying about deflation is like worrying about a meteor, or the | |
collapse of the local government: if it happens, so many other bad | |
things will also happen that my mortgage will be the least of my | |
concerns. | |
fire_lake wrote 23 hours 50 min ago: | |
You probably paid more for the house due to the government | |
intervention in the mortgage market, although that likely raised | |
the rents similarly. | |
throw0101d wrote 1 day ago: | |
> I have a 30 year mortgage on my house with a 2.75% interest rate. | |
The author on paying down his mortgage: | |
> It just increased our independence, even if it made no sense on | |
paper. So that's another element of debt that I think goes | |
misunderstood. And a lot of that for both of those points is this | |
idea that people don't make financial decisions on a spreadsheet. | |
They don't make them in Excel. They make financial decisions at the | |
dinner table. That's where they're talking about their goals and | |
their own different personalities and their own unique fears and | |
their own unique skills and whatnot. So that's why I kind of push | |
people to say like, it's okay to make financial decisions that don't | |
make any sense on paper if they work for you, if they check the boxes | |
of your psychology and your goals that makes sense for you. And for | |
me, extreme aversion, what looks like an irrational aversion today, | |
and I would say is an irrational aversion to debt, is what works for | |
me and what makes me happy, so that's why I've done it. | |
* [1] * | |
[1]: https://rationalreminder.ca/podcast/128 | |
[2]: https://www.youtube.com/watch?v=NSaRb-iFwPA | |
francisofascii wrote 1 day ago: | |
People don't realize how risky housing is compared to other | |
investments. It is risky because it is SO MUCH MONEY and it is not | |
diversified at all. If your house loses half its value, that | |
represents hundreds of thousands in losses. And don't think that | |
can't happen. You buy a penny stock for $2K and lose half, no big | |
deal compared to your house. | |
BUT, we need housing, we need a stable school for our kids, or a | |
comfortable place for our partner, etc. So we have to take this risk. | |
jjav wrote 7 hours 19 min ago: | |
> People don't realize how risky housing is compared to other | |
investments. | |
Do not compare your house to other investments, that's as apple to | |
oranges as it gets. | |
Compare it to renting, since you have to live somewhere. | |
WalterBright wrote 20 hours 30 min ago: | |
Houses have always been a lousy investment for me. Once you factor | |
in all the costs (property tax, insurance, repairs, 6% real estate | |
commissions, the time the house sits empty waiting for a buyer, | |
etc.) the returns are not that good at all. | |
Most people think: "I bought my house for $200,000 and sold it for | |
$300,000, I made $100,000!!!!!" and neglect to do a proper | |
accounting. | |
jjav wrote 7 hours 14 min ago: | |
> Most people think: "I bought my house for $200,000 and sold it | |
for $300,000, I made $100,000!!!!!" and neglect to do a proper | |
accounting. | |
Most people might not do the proper accounting, but not in the | |
direction you suggest. | |
Maybe they made 100K gross profit but after deducting all the | |
expenses they only made $1000. Ok, was that bad? No, it's great | |
because the comparison is to renting where they would've lost | |
tens of thousands of dollars. | |
rqtwteye wrote 19 hours 9 min ago: | |
It depends on where you live. In CA renting is usually cheaper | |
than a mortgage for the same property. Here in New Mexico my | |
mortgage (2.6%) is cheaper than renting the same thing. With | |
higher mortgage rates itâs not that clear but it still looks | |
favorable knowing that mortgage stays stable for the next 15 | |
years vs rents constantly increasing. | |
throwaway2037 wrote 9 hours 21 min ago: | |
To be clear, no one is getting a 2.6% mortgage these days. | |
Your post isn't a very good comparison. It is better to | |
compare renting today vs taking a new mortgage today. | |
bluGill wrote 19 hours 51 min ago: | |
if you don't live there long term houses are a bad investment. | |
Live in the same place for 20 years and it becomes much better. | |
WalterBright wrote 18 hours 55 min ago: | |
Generally, to break even you've gotta stay at least 5 years. | |
The transaction costs of selling a house are enormous. | |
Meanwhile, Microsoft stock is about 10x over the last 10 years. | |
Transaction costs are minimal. I can sell it on a moment's | |
notice. I was paid dividends. No insurance costs, no property | |
tax, no maintenance. | |
I just had to replace the roof on my house. Wow, that was a | |
whopping bill. The roofer told me if I'd delayed another year, | |
the bill would have been a lot higher, as he would charge $150 | |
per sheet of plywood replaced. As it was, only one was water | |
damaged bad enough. | |
rqtwteye wrote 16 hours 11 min ago: | |
"Meanwhile, Microsoft stock is about 10x over the last 10 | |
years. Transaction costs are minimal. I can sell it on a | |
moment's notice. I was paid dividends. No insurance costs, no | |
property tax, no maintenance." | |
If you manage to pick Microsoft in 2014, Apple in 2000, Tesla | |
in 2015 and BTC in 2010, you are definitely way better off | |
not buying a house but keep renting. | |
WalterBright wrote 13 hours 59 min ago: | |
There are a lot of stocks that pay off better than housing. | |
The 10 year return on the S&P 500 is 167%. It would be | |
higher if you leveraged it with margin. | |
On QQQ it's 450%. | |
bluGill wrote 18 hours 45 min ago: | |
you have to live someplace though. Over the 30 year life of | |
that roof it is cheap enogh but that is a large one time cost | |
if you only are there for 5 years. | |
WalterBright wrote 17 hours 59 min ago: | |
Roofs are so expensive they factor heavily into what you | |
can sell the house for. | |
Asphalt shingle roofs are lucky to get 20 years, cedar | |
shingles are even worse. | |
prawn wrote 13 hours 39 min ago: | |
In Australia, some houses have a tiled roof but most have | |
Colorbond (galvanised, pre-painted iron). Life expectancy | |
70 years. Warrantied for 30 years. [1] Not that expensive | |
given the life of it. Mine is 15 years old and you | |
couldn't tell it wasn't new. | |
[1]: https://www.google.com/search?sca_esv=d265e0c6cc... | |
WalterBright wrote 11 hours 41 min ago: | |
I wanted that kind of metal roof, but the pitch of the | |
roof would make it very dangerous to walk on to clean. | |
See my other post for what I did pick. | |
roland35 wrote 14 hours 56 min ago: | |
Too bad metal roofs don't look great on traditional | |
houses... I would love to install that | |
WalterBright wrote 13 hours 56 min ago: | |
I bought a metal replacement roof. I was sold because | |
there's a new kind of metal shingle. It's stamped to | |
have the shape of asphalt shingles, and it has a | |
coating of grit on it to match the color and make it | |
safer to walk on. It's lighter and fireproof, too. | |
(Lighter makes the house more earthquake resistant.) | |
I'm picky and it looks great. | |
giaour wrote 20 hours 0 min ago: | |
The returns might look better if you factor in imputed rent | |
(assuming this is your primary residence). There are definitely | |
investments with higher growth, but the (untaxed!) imputed rent | |
is solid income over the lifetime of the house. | |
Kirby64 wrote 20 hours 5 min ago: | |
Anyone buying a house with a mortgage generally is taking a 5:1 | |
leverage (a 5% down loan is 20:1 leverage) position on the house. | |
Making $100k on a $200k investment, with 5:1 leverage means | |
making 100k on a 40k investment, which isn't a 50% return... it's | |
a 250% return. And it's tax free, assuming it's your primary | |
residence (up to 250k cap gains). You have to spend an obnoxious | |
amount on costs to not have it make sense. | |
temporarara wrote 19 hours 30 min ago: | |
While there is some "leverage" in mortgage, you actually need | |
to pay the whole sum, and with interest too, so taking a $200k | |
loan means you pay usually something like $250k for it in the | |
end, and this means you have to make $50k profit to not lose. | |
And houses age too. If the location is superb you can justify | |
it as an investment, otherwise it's pure nonsense in every way. | |
Thinking normal housing as an investment is one of those | |
reasons why we can't have nice things. | |
jjav wrote 7 hours 13 min ago: | |
> and this means you have to make $50k profit to not lose | |
No, it doesn't. Because the alternative was renting, which | |
isn't free. | |
Even if you end up losing 50K on the home, all told, but if | |
renting for the same number of years would've cost you 100K, | |
you're ahead by 50K. | |
Kirby64 wrote 19 hours 20 min ago: | |
What do you think leverage means? | |
If I take a leveraged position on a stock via margin trading | |
and the stock goes to $0 (or, more realistically, it dips in | |
value enough that I get a margin call) then I owe the whole | |
balance, not just what I put up as capital. This is true of | |
literally any leverage. And on top of that, I pay a margin | |
rate in the form of an interest payment based on the amount | |
of money I have outstanding beyond my capital. Sounds | |
familiar, right? Because it's exactly identical. The only | |
difference between a mortgage and a margin interest payment | |
is that a mortage is amoritized across the term and is a | |
fixed period, whereas margin interest is indefinite and acts | |
more like a HELOC (i.e., you only pay interest on the amount | |
that you have outstanding... and that amount can vary over | |
time). | |
I absolutely hate the idea that "paying X in interest means | |
that's money you have to earn in addition to make it | |
worthwhile". No, it's not. It's money you are paying to free | |
up extra capital elsewhere that can be invested more | |
efficiently. Unless you're spending well beyond your means | |
(which, admittedly, some people do), then paying interest on | |
a mortgage payment should mean making much much more | |
elsewhere by investing money you would have spent on buying a | |
house in cash. | |
Dylan16807 wrote 16 hours 36 min ago: | |
What you're skipping in this equation is that the amount of | |
leverage drops every month when you make your payment. The | |
average leverage is a lot lower than the starting leverage. | |
That's what makes a mortgage pretty different from a | |
leveraged trade. | |
> Unless you're spending well beyond your means (which, | |
admittedly, some people do), then paying interest on a | |
mortgage payment should mean making much much more | |
elsewhere by investing money you would have spent on buying | |
a house in cash. | |
There's no free lunch. Often, investments will get you a | |
better return than your interest fees. Often they won't. | |
And "much much more" is downright wrong. | |
Kirby64 wrote 16 hours 24 min ago: | |
In today's 7% interest rates, yeah it's potentially a | |
wash. In the era of 3-4% rates, it's free money. 'much | |
much more' is absolutely correct at 3-4%, which a lot of | |
people currently have mortgages at today. | |
temporarara wrote 16 hours 43 min ago: | |
You HAVE to pay back your debt if you want to pocket all | |
your profits. If your down payment is 25k and you buy 250k | |
house, you need to borrow 225k for your "leverage". Now you | |
get lucky and years later, AFTER you have paid 25k + 225k + | |
interest + fees which amounts to at least 300k, prices have | |
gone up and you can sell that house for 400k. Nice you | |
think! I will make 375k profit just by investing 25k! NO, | |
that's not how "leverage" works at all. At that point you | |
have paid at least 300k to get 400k which makes not that | |
great considering it's been 20 years or so. | |
The logic you are using is flawed beyond all reasoning to | |
be honest. People who are in a position to both pay back | |
their mortgages AND invest heavily elsewhere are already | |
rich. | |
Kirby64 wrote 16 hours 28 min ago: | |
You don't make 375k in profit off a 25k investment (in | |
your example) if you sell a house for 400k. You would | |
make 125k in profit using your numbers (minus fees, | |
interest, etc). It's exactly how leverage works, and the | |
equivalent in margin trading is 100% identical. The only | |
difference with a mortgage is that you slowly deleverage | |
yourself over time as a consequence of paying off the | |
loan (principal that goes to value of the loan). | |
As an example, if you sold a house 5 years into owning | |
it, at current interest rates, you would only have paid | |
down approximately 6% of the 30 year loan, so the | |
'leverage' of a 20% down loan would still be ~4.8:1. | |
WalterBright wrote 19 hours 51 min ago: | |
Remember, leverage works both ways. | |
Kirby64 wrote 19 hours 33 min ago: | |
Obviously. Which is why 20:1 leverage (5% down) is kind of | |
foolish, since you can quickly become underwater on a house | |
purchase if the value shifts. At 5:1 leverage though, you | |
still maintain enough equity to weather any valuation swings | |
if you have a need to leave and sell the house. | |
throwaway2037 wrote 9 hours 23 min ago: | |
This post is somewhat misleading. If you put 0% down (yes, | |
it is possible in many places), effectively you have | |
infinite leverage. But let's use your 5% example. If you | |
house price falls by 50%, nothing happens to you -- even | |
with huge negative equity. You keep making monthly | |
payments. There is no "weathering" to be done. Sure, at | |
the end, you might have a giant paper loss, but you still | |
have a roof over your head -- that you own. | |
Kirby64 wrote 1 hour 39 min ago: | |
I agree mortgages cannot be called in, unlike margin | |
trading on stocks, but if youâre wildly upside down on | |
a house then it literally traps you in the house unless | |
you take those losses. If housing prices fall 50% it is | |
also likely that economic conditions may mean you cannot | |
afford the same house anymore. In a situation of missed | |
payment, they can certainly foreclose on your house. | |
pdonis wrote 20 hours 47 min ago: | |
But your primary home isn't an investment, it's a necessity. You're | |
going to live somewhere. The only choice you have is whether to buy | |
or rent the place you live in. So that's the comparison that should | |
be made. Comparing your primary home to your stock portfolio is | |
pointless because you can't live in your stock portfolio. | |
The GP is pointing out a key advantage of buying your primary home | |
vs. renting: you're not exposed to the risk of rising rents. Others | |
have pointed out disadvantages, such as being exposed to the risk | |
of rising property taxes and rising insurance costs. How those | |
things balance out is going to depend a lot on where your home is. | |
glitchc wrote 21 hours 26 min ago: | |
No, it's far less risky to invest in housing. These two graphs over | |
long term illustrate the difference in risk: | |
Average home price since 1965: [1] Average Dow Jones index since | |
1919 [adjust scale to ~1965]: | |
[1]: https://fred.stlouisfed.org/series/ASPUS | |
[2]: https://www.macrotrends.net/1319/dow-jones-100-year-histor... | |
aidenn0 wrote 20 hours 27 min ago: | |
Isn't the latter CPI adjusted, but not the former? | |
glitchc wrote 18 hours 4 min ago: | |
Thank you for that, I forgot to mention it: Both inflation | |
adjusted and log plotting need to be turned off (as checkboxes) | |
for an apples to apples comparison. | |
crooked-v wrote 20 hours 56 min ago: | |
Though it helps to keep in mind that returns there are because | |
the US housing market has been distorted beyond all recognition | |
by under-building that goes back to the civil rights era. | |
jopsen wrote 17 hours 22 min ago: | |
You could also argue that there was population growth, and we | |
might not see that in future. | |
So under-building in the future will be harder, as houses | |
exist. | |
Of course, it's hard to know how population growth will work | |
out in the future. And even harder to know how it'll work out | |
in your neighborhood :D | |
bobthepanda wrote 16 hours 12 min ago: | |
even without population growth, household size decline means | |
that there will be more demand for housing, since the same | |
amount of people divided by smaller household size = more | |
households. | |
Tade0 wrote 21 hours 41 min ago: | |
> If your house loses half its value, that represents hundreds of | |
thousands in losses. | |
I never understood that part. Barring actual damage that would | |
necessarily affect its worth it's still the same house. | |
Or in other words: why should I care what others think my house is | |
worth when I'm not selling, as I currently live there? | |
Negitivefrags wrote 19 hours 43 min ago: | |
You care if you have a mortgage and you live in a non-US country | |
where interest rates can actually go up to price you out of it. | |
Tade0 wrote 16 hours 38 min ago: | |
You mean a situation where I could not afford the installments | |
and therefore would be forced to sell it? | |
In my corner of the world banks are required to assume a 2,5-5 | |
percentage point buffer when calculating mortgage eligibility - | |
the upper bracket is for variable interest rate mortgages. An | |
unlikely scenario, but keeps the risk of what you mentioned | |
low. | |
WalterBright wrote 20 hours 28 min ago: | |
> it's still the same house | |
What a house is worth is what someone else will pay you for it. | |
There is no intrinsic worth to it. | |
schlauerfox wrote 19 hours 40 min ago: | |
A house has intrinsic worth. It is a house, people live in it, | |
it provides shelter by it's nature as a house. | |
How many dollars it's worth to others is extrinsic, but it | |
certainly has intrinsic value. | |
WalterBright wrote 18 hours 57 min ago: | |
> A house has intrinsic worth | |
It's value is only what people will pay for it. | |
For example, a relative of mine died some years ago. She had | |
a house full of expensive furniture. You couldn't give that | |
furniture away, even though it was in perfect condition. It | |
had no value. | |
The average estate value, excluding land, houses, and cars, | |
is about $900. I have friends who ran an estate liquidation | |
service. You'd net something like 5 cents on the dollar. | |
This is one reason why I buy stuff at the thrift store. I | |
bought a perfectly good chainsaw there for $10. | |
prawn wrote 13 hours 47 min ago: | |
That's furniture and not a house though. I'd guess that the | |
average estate being that low value is not including | |
outright-owned property/land. It's old people with a 20 | |
year old car they've nursed through retirement, antiques | |
that aren't in fashion, and bric a brac. | |
At least where I live, there would be a gulf between the | |
estates of people who bought into the property market and | |
those that rented their entire lives. Latter will have some | |
furniture no one wants and scraps. The owners will have a | |
$2m property and then investment property that get split up | |
between their kids. | |
krisoft wrote 16 hours 51 min ago: | |
> It's value is only what people will pay for it. | |
If that is how you define it then by definition that is | |
true. It is not the only possible definition though. | |
In my world I prefer to sleep in a place where the rain | |
doesnât fall on me. Having a place with a roof over me is | |
value to me. If this meaning of the word âvalueâ does | |
not work for you then simply we are talking different | |
languages. | |
Perhaps try thinking about âhow much would i need to pay | |
to provide the same neccesity if I | |
wouldnât own this placeâ. Maybe that puts it into | |
economic terms what we are talking here. | |
WalterBright wrote 14 hours 12 min ago: | |
The value of it to you is how much you're willing to pay | |
for it. There really isn't much getting away from that. | |
Vegenoid wrote 17 hours 16 min ago: | |
You are thinking of worth and value only in the monetary | |
sense, and the person you are responding to is referring to | |
a house's ability to be valuable to individuals, even if | |
nobody else will pay for it, because it provides them | |
shelter, satisfying a basic necessity. | |
This is most of where its monetary value comes from | |
(obviously not universally true, many properties have | |
simply become investments), and its monetary value would | |
probably only completely evaporate if the house were so | |
degraded that it could not function as a shelter. | |
The monetary value of most houses is rooted in their | |
ability fulfill a basic human need, as opposed to the | |
monetary value of some other things, like gold or bitcoin, | |
which are valuable primarily because of what they are worth | |
to other people. Even if you disagree with using terms like | |
'worth' and 'value', you must agree that a house has | |
utility that is not affected by its market price. | |
WalterBright wrote 11 hours 44 min ago: | |
> you must agree that a house has utility that is not | |
affected by its market price | |
The market price is determined by how much people want | |
it, of which utility is a large component. | |
Vegenoid wrote 31 min ago: | |
Agreed, but it is the utility that is the root of the | |
value, and the relationship from utility as shelter -> | |
market value is one way. | |
Nevermark wrote 20 hours 10 min ago: | |
That isn't true. | |
The marketplace valuation is just where individual suppliers' | |
and demanders' valuations cross. | |
The individual valuations are the foundational reality, or the | |
market wouldn't work. | |
Every time you buy, sell, or decline to sell or buy something, | |
you are operating based on your own valuation. So there is | |
nothing theoretical about it. | |
WalterBright wrote 19 hours 52 min ago: | |
> That isn't true. | |
People find out it is true when they try to sell something. | |
> If you wouldn't sell your house for $1M, then it is worth | |
$1M to you | |
If you're willing to pay $1M for it, then it's worth that to | |
you. | |
Nevermark wrote 15 hours 53 min ago: | |
>> If you wouldn't sell your house for $1M, then it is | |
worth $1M to you | |
(Sorry, deleted that phrase after getting distracted while | |
making my comment. In my mind the edit was instant!) | |
> What a house is worth is what someone else will pay you | |
for it. There is no intrinsic worth to it. | |
> People find out it is true when they try to sell | |
something. | |
Of course there is intrinsic value. A buyer has to pay you | |
what you want for your house. | |
You are setting the market price. | |
If someone wants it, thats what they will need to give you. | |
We often use the word âworthâ to mean âwhat would be | |
the best offer I might get. But you wonât sell it if it | |
is âworthâ more than that to you. Which âworthâ�… | |
usually obvious from context. | |
Valuations happen on both sides of every trade, and most | |
often both participants end up with surplus value. The | |
seller getting more than their minimum price, the buyer | |
paying less than their maximum price. | |
Even market makers commonly post prices with surplus | |
relative to their neutral trade valuation, and typically | |
move their price if their are no takers. They want a trade | |
at X, but will try for as much surplus as they can before | |
settling for X if they have to. | |
WalterBright wrote 14 hours 10 min ago: | |
> A buyer has to pay you what you want for your house. | |
You are setting the market price. | |
A buyer offers what he wants to pay for it. You negotiate | |
until reaching an agreement. That is the market price. | |
I.e. The Law of Supply and Demand. | |
If you think the seller sets the market price, try | |
selling your car for $10 million. | |
Tade0 wrote 7 hours 10 min ago: | |
Don't you think that your take is a little bit | |
reductionist? | |
There are plenty of things which are valuable or bring | |
value, but are never sold or bought. | |
Case in point: how much is the Sun worth according to | |
you? | |
Nevermark wrote 6 hours 37 min ago: | |
I donât have any ability to make choices about it | |
that depend on any conscious valuation. | |
But do you doubt I value it because I am not buying | |
or selling it? | |
I suppose near infinite, in that I would certainly | |
sacrifice everything I have to protect it - given it | |
represents the survival of all of us - which for me | |
at least would be the apex of value. | |
It is worth noting that value can often be measured | |
in currency, but not always. It is ultimately an | |
ordering of everything, by kind and quantity. | |
In the end, even money is just another âthingâ | |
which we value on a gradient and relative to context | |
(what we need to survive, we value a lot. To live | |
Without stress, a lot, but less. More than that, even | |
less, even if we are ambitious.) | |
Market value comes directly from each of our | |
personal, âintrinsicâ as another commenter called | |
it, valuations. There is no market value where there | |
are no personal valuations. But there can be personal | |
valuations where there is no market. | |
Each of us still prioritizes what we have against | |
what we want, and the costs to us of that, even if we | |
were hermits. Each of spends our time, the ultimate | |
resource, based on our relative values of things. | |
That is the source of all âvalueâ or âworthâ… | |
Individual or (and before) collective. | |
fwip wrote 21 hours 36 min ago: | |
Well, you don't always know if you're going to want to sell | |
later. Maybe you lost your job, maybe you need to move to another | |
city, maybe you just hate the neighborhood. | |
francisofascii wrote 18 hours 20 min ago: | |
Right, all it takes is for the large local employer to suddenly | |
downsize, causing both the loss of job, and the crash of the | |
local housing market simultaneously. | |
llukas wrote 17 hours 9 min ago: | |
Shouldn't this be priced into the house value in this local | |
market? | |
bobthepanda wrote 16 hours 13 min ago: | |
it usually isn't because banks are not all-seeing and | |
cannot tell which local employer or industry is likelier to | |
go bust. in that sense all metro areas are often equally | |
risky. | |
roland35 wrote 17 hours 19 min ago: | |
Not just one employer, sometimes the entire industry goes | |
down! Just look at the housing market in Detroit or | |
Youngstown | |
dehrmann wrote 23 hours 45 min ago: | |
If you ask a financial advisor for advice on investing half your | |
net worth on 5x leverage in an liquid asset with one customer and | |
one location, they'd think you're crazy. | |
sokoloff wrote 22 hours 8 min ago: | |
When that one customer is "your family", it's a little bit | |
different, though. | |
PS: From context, I suspect you meant to say "illiquid asset". | |
dehrmann wrote 10 hours 59 min ago: | |
> When that one customer is "your family", it's a little bit | |
different, though. | |
I think it makes it worse. | |
sokoloff wrote 7 hours 46 min ago: | |
How so? You control the customerâs buying decision and the | |
product on offer is âliving indoorsâ, something that | |
youâre not going to easily decide to cut from your budget. | |
edmundsauto wrote 23 hours 5 min ago: | |
But most of them would not think youâre crazy once itâs | |
specified to real estate. This means either financial | |
professionals are blind to the similarities or there is something | |
critical missing from your description. | |
deadbabe wrote 1 day ago: | |
Are you going to live in that house for 30 years? Whatâs your plan | |
when you need to move? | |
HeyLaughingBoy wrote 19 hours 14 min ago: | |
I might. I've lived in it for pretty damn close to 20 years at this | |
point. | |
psunavy03 wrote 23 hours 50 min ago: | |
The purpose of a 30-year fixed mortgage is to build up equity in a | |
home you otherwise couldn't afford. If OP moves, they now only | |
have to take on a smaller mortgage for their new home and then keep | |
paying that new mortgage off. | |
The goal is that by the time you reach retirement age, you have | |
paid off the mortgage and own your home free and clear. Thus, you | |
only have to pay the property taxes and have more financial | |
security than someone who never built up equity because they always | |
paid rent. | |
Furthermore, if you have children, that home is potentially a | |
source of generational wealth. They can sell it after you pass and | |
invest the proceeds, or live in it themselves if they want. Worst | |
case, if you find you didn't save enough for retirement, you can | |
tap into the home equity to keep food on the table, although this | |
is not optimal. | |
pmg101 wrote 19 hours 56 min ago: | |
Isn't the common use case that the equity in your home can be | |
exchanged for elder care in your latter years? | |
psunavy03 wrote 18 hours 18 min ago: | |
Depends on the size of someone's nest egg. The goal should | |
arguably be to use your other investments first. | |
tombert wrote 1 day ago: | |
Even if I don't stay in the house for thirty years, it's still | |
better as long as I stay for awhile. When I'm paying my mortgage | |
payments, I'm building some degree of equity into the house, so the | |
only "wasted" money is whatever I pay to interest. | |
So my plan if I move is exactly what it sounds like: I sell the | |
house and then buy a new one wherever I'm moving to. As long as I'm | |
staying for like 5+ years at that location I think it's still worth | |
it. | |
coldpie wrote 1 day ago: | |
Sure, why not? I can't speak for OP specifically, but generally | |
living in the same house for decades is very common. I'm coming up | |
on 15 years in my house with no plans to move, and most of my | |
neighbors have been there even longer. My parents lived in the | |
house I grew up in for 40 years until my father passed away and my | |
mom needed to downsize. | |
In any case, if they move, then the price of the home they are | |
selling will have gone up (or down) more or less the same as | |
everyone else's, so it basically works out to a wash. | |
leononame wrote 1 day ago: | |
I think the article still holds up. A financial crisis where you lose | |
your job, a war causing deflation, a housing bubble bursting are all | |
events that could lead to you paying _much_ more than rent. If you | |
can't pay, they'll take your house and everything else until they | |
decide that the debt is paid. In case of a bubble bursting this can | |
mean that you _still_ owe money after they took your house. This has | |
happened to people. | |
I also have a mortgage on my apartment and I also think it's a decent | |
choice, especially considering that I'll have less income after | |
retirement. But most people are only a couple of bad turns in life | |
away of losing everything they own. | |
All in all, I'd say the way to think this article presents does hold | |
up to mortgage as well. | |
bluGill wrote 20 hours 0 min ago: | |
If there is a war you leave your house behind. If you rent you can | |
save the difference in a foreign savings account. | |
the point is there is alway risk and many different situations. | |
depending on details there are different results. | |
WalterBright wrote 20 hours 37 min ago: | |
> they'll take your house | |
Yes, and they'll sell the house to cover the debt. But the amount | |
they receive from selling the house in excess of the debt goes to | |
you. | |
I.e. you'll get the equity portion. | |
It's in your mortgage contract. Worth reading. | |
tsimionescu wrote 18 hours 17 min ago: | |
If your house is still worth enough to cover the debt. If the | |
sale of your house is not enough to cover it (which can happen if | |
you bought during a bubble that burst), will your whole debt at | |
least be forgiven? | |
throwaway2037 wrote 9 hours 37 min ago: | |
In short: yes. Imagine you bought a home using a mortgage in | |
the year 2000 in Silicon Valley. Then you go bankrupt in 2007. | |
Your home will probably have appreciated 100-200% during this | |
crazy period. It is very possible you will receive money back | |
from the bank after they sell your home. | |
tsimionescu wrote 7 hours 44 min ago: | |
My question was specifically about the opposite case, so I'm | |
not sure what your point is. | |
Specifically, I'm asking if the mortgage deals the poster | |
above was discussing would help if the house is now worth | |
less than the mortgage. | |
dmoy wrote 17 hours 26 min ago: | |
It's not forgiven, even in a non-recourse mortgage. So it can | |
still e.g. hurt your credit score. They just legally can't | |
pursue you for it. | |
With a recourse mortgage, they can go through normal debt | |
channels (including wage garnishment, etc). | |
throwaway2037 wrote 9 hours 34 min ago: | |
"[R]ecourse mortgage": It would be better to say "recourse | |
loan". Mortgages are specific to properties. Loans are | |
generic for anything. In my personal experience, | |
non-recourse loans are basically payday loans with horribly | |
high rates. You would never do it, if given the choice. I | |
guess that 100% of home mortgages (in highly developed | |
countries) are recourse by legal requirements. | |
dmoy wrote 27 min ago: | |
> I guess that 100% of home mortgages (in highly developed | |
countries) are recourse by legal requirements. | |
Not necessarily so in the US. In several states (including | |
the biggest ones like CA and TX), non-recourse mortgages | |
are the default. In other states, sometimes non-recourse | |
mortgages exist too. | |
E.g. right now I'm sitting on a 2.5% fixed 30 year | |
non-recourse mortgage. | |
AstralStorm wrote 19 hours 36 min ago: | |
Unless you're backpaid enough so that they take equity in a | |
penalty. | |
And now you're homeless and with your equity you cannot acquire | |
capital. Your credit is also tanked due to the default... | |
Remember, most people do not own multiple houses and having no | |
stable address can really mess you up legally even. | |
edmundsauto wrote 19 hours 31 min ago: | |
What would be different in this situation if the person were | |
renting? Usually costs are similar per month for comparable | |
places. I guess the down payment is a difference? But if | |
youâre that far in arrears on rent youâre really still bad | |
off⦠| |
I donât feel convinced that having a mortgage debt is that | |
much worse than not having one, if you lose your job and war | |
and other bad things. | |
olddustytrail wrote 20 hours 23 min ago: | |
Yes but I think they're referring to negative equity. | |
phkahler wrote 23 hours 53 min ago: | |
>> If you can't pay, they'll take your house and everything else | |
until they decide that the debt is paid. | |
This is new. Mortgages in the US traditionally took just the home | |
as collateral. Thanks for the reminder that this is now a thing to | |
look out for, as I may need to borrow one more time than I ever | |
expected. | |
AstralStorm wrote 19 hours 31 min ago: | |
That is just the mortgage. I assume that you also defaulted on | |
media and anything else you had on credit, such as student loans. | |
And those do not have such nice terms either. | |
Nifty3929 wrote 23 hours 30 min ago: | |
I think it's actually the reverse. The house is the only | |
collateral, but traditionally you would still owe the deficit if | |
the collateral couldn't be sold to pay off the whole loan. This | |
is what's changed in recent decades. A lot (most? all?) | |
primary-residence home loans in the US are non-recourse, meaning | |
that you aren't liable for the deficit - you only lose the house. | |
voisin wrote 22 hours 51 min ago: | |
> A lot (most? all?) primary-residence home loans in the US are | |
non-recourse, meaning that you aren't liable for the deficit - | |
you only lose the house. | |
This is wild. In Canada not only do we all take interest rate | |
risk every 5 years maximum as we canât lock in for longer | |
(which seems to make our whole society less robust), we canât | |
refinance early if rates drop without massive penalties | |
eliminating any incentive to do so, but all of our mortgages | |
are full recourse. | |
I canât believe how much worse this seems, on a societal | |
level, than the US. | |
throwaway2037 wrote 9 hours 30 min ago: | |
You should ask your parliament to create the equivalent of | |
Fannie Mae and Freddie Mac in your country. Gov't backed and | |
buys loans from retail/commercial banks under strict | |
guidelines. This helps to create a huge fixed rate mortgage | |
market in the United States. I agree: Fixed rate mortgages | |
are terrific for increasing home ownership. Plus, it moves | |
the interest rate risk from retail people (less | |
sophisticated) to institutions (banks, etc.) (more | |
sophisticated). | |
ckcheng wrote 19 hours 25 min ago: | |
> In Canada ... all of our mortgages are full recourse. | |
Except in Saskatchewan and Alberta [1]: | |
[1]: https://financialpost.com/personal-finance/mortgages... | |
voisin wrote 14 hours 47 min ago: | |
Wow thanks for sharing. I had no idea. | |
WalterBright wrote 20 hours 34 min ago: | |
I read my mortgage papers carefully before signing. I made | |
sure there was no early payoff penalty. | |
This worked out fine when interest rates dropped and I | |
refi'd. I've refi'd many times whenever the interest rate | |
dips :-/ | |
voisin wrote 19 hours 51 min ago: | |
In Canada? Who was your lender? I did an exhaustive (I | |
thought!) search when I last got a mortgage and could not | |
find a fixed rate option that did not have a large | |
prepayment penalty. | |
WalterBright wrote 19 hours 48 min ago: | |
In the US. I don't know much of anything about Canada. | |
intuitionist wrote 20 hours 50 min ago: | |
I mean, manufacturing 30-year fixed rate fully pre-payable | |
non-recourse mortgages does not happen in a free market. It | |
takes a lot of government subsidies to make that happenâin | |
particular the government assumes the credit risk on | |
something like 85% of US mortgages. The United States | |
government is very into the idea of spending its resources to | |
subsidize homeownership. Canada has made different policy | |
decisions, like single-payer healthcare. If the societal | |
choice was between universal healthcare and extremely | |
borrower-friendly mortgages (and I donât think that it | |
really works that way, at least not in such stark terms) | |
Iâm not sure Iâd pick the mortgages. | |
voisin wrote 19 hours 49 min ago: | |
> It takes a lot of government subsidies to make that | |
happen | |
No doubt, but the upside is a populace not especially at | |
risk to interest rates which is absolutely crushing and | |
systemically risky currently. | |
> in particular the government assumes the credit risk on | |
something like 85% of US mortgages. | |
In Canada, CMHC does something similar so I am not sure we | |
get away with anything special that the Americans are not. | |
bluGill wrote 19 hours 55 min ago: | |
It can happen. There is risk, but the reward is very high | |
and so it is worth it. | |
However the government often will not allow you to get the | |
full reward and so while the numbers work out for everhone | |
in a free market it doesn't happen. adjustable rate | |
mortgages in the us are lower interest rate. Often in the | |
us they are a better deal - we are just looking at one case | |
where everyone in a fixed rate two years ago is better off | |
than those with adjustable rates. | |
anon7725 wrote 22 hours 45 min ago: | |
A couple of other good points vs Canada: most fixed-rate US | |
mortgages donât have a prepayment penalty, and many offer | |
the option to ârecastâ, which means you can make a | |
lump-sum payment and reamortize your loan while keeping the | |
rate and end date the same. This has the effect of lowering | |
your monthly payment and is often used as an alternative to | |
refinancing if youâre buying and selling a home in | |
sequence. | |
tzoompy wrote 17 hours 32 min ago: | |
In Canada, it's actually worse than stated. You do have a | |
prepayment penalty as long as current interest rates are | |
lower than your loan's interest rate. | |
Now that interest rates are higher than they were a couple | |
of years ago, TD Canada Trust waived all my prepayment | |
penalties. They were happy to let me prepay as much as I | |
wanted. | |
It's incredible how one-sided the Canadian system is. | |
Prepayment is acceptable as long as the bank benefits. | |
Prepayment is not ok when the person taking out the loan | |
benefits. | |
voisin wrote 19 hours 47 min ago: | |
Thanks for this. Iâd never heard of this option and once | |
again I am shocked at how much better Americans have it | |
than Canadians when it comes to mortgages. | |
dmoy wrote 1 day ago: | |
> and everything else | |
Unless you live in a no-recourse state, where they can't take | |
everything else. | |
In AZ, CA, TX, WA, and a handful of other states, banks can't go | |
after your other assets, just the house that's mortgaged. | |
PopAlongKid wrote 18 hours 29 min ago: | |
In CA, only the original mortgage used to buy your residence is | |
non-recourse. If you refinance, the new mortgage is almost | |
certainly recourse. | |
There is also a similar process, non-judicial foreclosure[0], | |
which is similar to non-recourse in some ways, but not for tax | |
purposes (e.g. cancelation of debt income). | |
[0] | |
[1]: https://www.nolo.com/legal-encyclopedia/how-foreclosure-... | |
trogdor wrote 23 hours 8 min ago: | |
Interesting. Do you know if mortgage rates in those states are | |
higher, to compensate lenders for the increased risk? | |
mikestew wrote 21 hours 13 min ago: | |
WA resident: our mortgage is 2.5% from the credit union. I've | |
not noticed that current rates are any worse than other states | |
I've checked. OTOH, in 25 years of living here, I've never seen | |
house prices go down, only stay steady. | |
jp191919 wrote 19 hours 48 min ago: | |
Home prices definitely went down during the great recession. | |
AstralStorm wrote 19 hours 33 min ago: | |
So did the wages, and those went down more. If you lost a | |
job during that time, you're pretty screwed. | |
dmoy wrote 22 hours 10 min ago: | |
I think it matters a lot more for commercial mortgages. In any | |
event, it's like 20-30bps or less according to the Fed. So | |
higher, but not that much higher even for commercial mortgages, | |
and even less for residential where there's a lot more federal | |
protection going on. | |
The bigger impact, I believe, is that housing prices can go | |
more crazy. People will take more risk if they know they can | |
walk and leave the bank holding the bag, so there isn't that | |
limiting factor on prices. | |
(Though I suspect, but obviously can't confirm, that the effect | |
from non-recourse mortgage is absolutely dwarfed by other | |
factors, especially out here on the west coast where we have | |
very restrictive zoning policies, weaponized environmental | |
policies inside urban areas, etc) | |
vlunkr wrote 1 day ago: | |
I tend to agree with Dave Ramsey on this point. A home loan is just | |
about the only âgoodâ type of debt for an individual to have. | |
Because it tends to retain or gain value with little risk. He also | |
recommends a 15 year loan instead of 30, which has been amazing for | |
me. | |
avgDev wrote 22 hours 41 min ago: | |
While I think Dave can be helpful for some, having 30 year old loan | |
makes more financial sense if you are financed at 3%. You can pay | |
it off sooner if you want. | |
The further you get from the initial purchase date the dollar will | |
have a lower value, and in theory you should be making more money. | |
Plus, even tbills are returning over 5% and are state tax exempt. | |
yowlingcat wrote 20 hours 53 min ago: | |
That's not always the case if you have a prepayment penalty on a | |
mortgage (which isn't always the case but certainly something to | |
watch for). | |
avgDev wrote 20 hours 15 min ago: | |
Very uncommon in the US but one needs to do their due | |
diligence. | |
tombert wrote 1 day ago: | |
I thought Dave Ramsey was pretty much completely wrong about | |
student loan debt, at least if I remember his position on it being | |
"you shouldn't have student loans". | |
But I agree that most debt is probably bad to have. | |
CalRobert wrote 1 day ago: | |
It might be extreme but 15 years ago he was telling people not to | |
be so flippant about taking on enormous amounts of debt for | |
degrees with a questionable payback and I think he was right. | |
I always thought the snowball method was dumb but as time goes on | |
I can see how it makes sense psychologically, even if not | |
mathematically. | |
muffinman26 wrote 20 hours 59 min ago: | |
I do think the snowball method also makes sense mathematically, | |
depending on the loan terms and what you're optimizing for. | |
If your loans have a minimum payment and a penalty for missing | |
a payment above and beyond interest (which seems to be common | |
for loans in the US), the snowball method gives you more | |
flexibility. Paying off a loan completely eliminates that part | |
of your monthly minimum payment. | |
If in 2 or 5 years your income decreases unexpectedly (layoff, | |
etc.), but by that point you've completely eliminated 1 or more | |
loans, you're more likely to be able to continue making minimum | |
payments. | |
vlunkr wrote 23 hours 30 min ago: | |
> I can see how it makes sense psychologically, even if not | |
mathematically | |
He acknowledges this. It's about the psychological effect of | |
seeing your list of debts grow smaller. I think a big part of | |
his audience are people who have historically been very bad | |
with money, which is why some of his advice seems strange to | |
people who are already financially responsible. People with a | |
bunch of maxed out credit cards and loans on ATVs and crap. | |
tombert wrote 1 day ago: | |
Sure, I've said a few negative things about Ivy Leagues being | |
overpriced here in the last few weeks, so I'm not saying you | |
should necessarily get into $400,000 of student loan debt. | |
What I didn't like about his take was that it also kind of also | |
excluded getting into like $20,000-$40,000 of debt to go to a | |
decent state school. That's a bad take; getting a degree (at | |
least in a technical field) substantially increases your | |
earning potential, and while $40,000 is a lot of money, it's | |
not out of reach for virtually anyone working in tech or | |
engineering or something adjacent, at least not in the US. | |
I guess my frustration with his perspective is that it felt | |
extremely reductive; he acts like the only student loan debt | |
you can get into is Harvard-level stuff, but I think that's | |
just not true, and not even the average case. Most people | |
don't get into Harvard, (I think) most people who go to college | |
end up at a state or local university, and as such they're not | |
getting into the obscene levels of debt that you'd get from | |
these yuppie private schools, particularly if they state within | |
state. | |
somenameforme wrote 19 hours 25 min ago: | |
You age is showing a bit with your post. Randomly picking | |
Penn State you get annual costs of $60k+ for out-of-state and | |
$40k+ for in-state. [1] The cost listed on the page is only | |
for tuition/housing. Use the calculator to get estimates for | |
everything else. And that's an anti-cherry picked example, as | |
I wanted to avoid absurdly expensive places like California, | |
but while also going for a well regarded school. | |
You can easily get well into the 6 figures of debt even at | |
state schools now. You'll find even rando state universities | |
are hitting $30k+/year. Education costs have done exactly | |
what you'd expect them to do when you convince people | |
something is priceless and then give them unlimited and near | |
unconditional loans to buy it. | |
I don't really see the point in this when you can instead | |
attend English language programs in e.g. Europe or Asia and | |
pay less for your entire education than you'd pay for a | |
semester at rando state school in the US. Do a work-study | |
program and you could graduate with a tidy chunk of change | |
saved up, instead of graduating buried in enough debt to buy | |
a house. | |
The ironic part is that this advice is even more pertinent | |
for those coming from low income backgrounds, or from parents | |
with limited education. But they're probably the people most | |
unlikely to take advantage of such options, if not only | |
because they probably just don't consider it. [1] - | |
[1]: https://admissions.psu.edu/costs-aid/tuition/ | |
tombert wrote 19 hours 5 min ago: | |
Fair enough, but in fairness not all state schools are | |
created equal. For example, at least one SUNY college | |
(SUNY Empire) is only about $3,535 per semester (at least | |
for tuition) for in-state [1], so assuming eight semesters | |
roughly $30,000. I grew up in Florida, and the first | |
college I went to was Florida State, and tuition is roughly | |
$5,500 as of last year for in-state [2]. I feel like there | |
are plenty of options for perfectly decent universities | |
that fall roughly into that price range I specified in most | |
states, so I think my point still stands. | |
That said, I'm a huge fan of European/UK universities. I | |
do graduate school in the UK, it's a lot cheaper than a | |
comparable program in a lot of American universities. I've | |
been trying to get my considerably-younger brother in law | |
to consider applying to European schools. [1] [2] | |
ETA: | |
Sorry, I didn't see the "housing" part of your first | |
sentence. That certainly does make the costs add up, | |
particularly if you stay in the dorms, which I think are | |
kind of a scam in most schools. I think to save money, a | |
lot of people would benefit from trying to stay with their | |
parents a bit longer instead of partaking in the dorms. | |
[1]: https://catalog.sunyempire.edu/undergraduate/tuiti... | |
[2]: https://admissions.fsu.edu/first-year/finances/ | |
bluGill wrote 19 hours 46 min ago: | |
State schools are not ivy league expensive, but they are not | |
cheap anymore. | |
of course the degree matters. You pay about the same for art | |
and engineering degrees but one will earn far more than the | |
other. | |
galdosdi wrote 1 day ago: | |
The way I think about this is: | |
You already are in "debt" by being alive. You have the huge | |
liabilities of needing food and housing and maybe sometimes some | |
healthcare, in order to stay alive. | |
By buying a perpetual source of one of those you aren't investing or | |
expanding your liabilities-- just the opposite, you are hedging | |
against and closing out your liability by prepaying for it. To take | |
this idea further, this is why I think buying a little bit of stock | |
in energy and agriculture companies is "risk free" because while they | |
could go down if those things get cheaper, you would then win out as | |
a consumer. You will need food and energy down the line anyway, so a | |
modest investment in those closes out that hedge rather than | |
expanding liability | |
anon7725 wrote 22 hours 40 min ago: | |
There are lots of ways that stock in food and energy companies | |
could go down while prices go up. A drought or pipeline disruption | |
come to mind. | |
yowlingcat wrote 20 hours 55 min ago: | |
Absolutely. And I think the same is true for the commodities | |
market correlates there; if memory serves correctly, crude | |
commodity futures went negative for a break period during the | |
supply chain volatility spike during the beginning of the | |
pandemic. | |
mlrtime wrote 2 hours 14 min ago: | |
You are correct, for oil contracts near expiration. All oil | |
containers (in certain areas) were full, so anyone taking | |
delivery would need a place to store the oil. | |
The market needed a way to transfer this risk (risk of | |
delivery) so prices went negative meaning you were paid to find | |
a place for the oil. | |
It's really neat actually and shows how almost all of the | |
financial system is really a big "risk transfer" mechanism. | |
pif wrote 1 day ago: | |
TL;DR: having tons of cash is better than having debt. | |
mym1990 wrote 1 day ago: | |
Having both can often be the ideal situation. Itâs also really | |
dependent on what the debt is, how is it being servicedâ¦etc. For | |
some people, not having any debt at all is extremely liberating, and | |
that benefit outweighs any of the benefits of getting marginal | |
returns. | |
coopertyme wrote 1 day ago: | |
>For some people, not having any debt at all is extremely | |
liberating | |
Indeed. | |
I lived with my parents into my 30s, saved up for ~10 years and | |
bought a nice house cash, no mortgage. | |
Was it financially optimal? Probably not, but the peace of mind of | |
being immune to market crashes or interest hikes (we tend to not | |
have 20+ years fixed mortgages here) is just really nice. | |
sssilver wrote 1 day ago: | |
You simply restructured your debt and borrowed from parents | |
instead, no? | |
That is to say, you owe them for those ten years. | |
Not saying thereâs anything wrong with it. Most people in | |
average circumstances owe a lot to their parents. | |
mym1990 wrote 21 hours 30 min ago: | |
This is a very transactional view of it, but I can see the line | |
of thinking. My mom gave me everything I needed to succeed as | |
an adult, and I owe her a lot, so now whatever she needs, I try | |
to take care of it. Hopefully other people come to the same | |
conclusion, but I don't think parents usually expect a | |
financial ROI on raising kids haha. | |
phkahler wrote 1 day ago: | |
>> You simply restructured your debt and borrowed from parents | |
instead, no? | |
>> That is to say, you owe them for those ten years. | |
To me that seems like a strange take on it. I saw no indication | |
of a debt owed in the GPs comment. | |
bryanlarsen wrote 1 day ago: | |
I think the OP used "owe" in the second dictionary sense: | |
2: to be attributable | |
an idea that owes to Greek philosophy | |
falcolas wrote 1 day ago: | |
I thought the "The more debt you have, the less financially resilient | |
you are" was the more important message. | |
mym1990 wrote 1 day ago: | |
But this isnât true, one has to consider the debt ratio, not just | |
the debt. Someone with a million dollars of debt is financially | |
resilient if they have a debt ratio of .1 | |
its_ethan wrote 14 hours 43 min ago: | |
It's still true though. If push comes to shove, having no debt | |
will increase your odds of surviving volatility - it the debt | |
ratio just expands or tightens what range of volatility you can | |
survive (which he did write about). Even if you have $5 of debt | |
and $5m in the bank, you would still be measurably better off to | |
have had $0 of debt in financial "survival". | |
phkahler wrote 1 day ago: | |
If your other millions are not liquid then the one million of | |
debt is still a potentially significant liability when adverse | |
events happen. If it is liquid then why bother borrowing for | |
something so small? The spent cash can be replenished quickly | |
when there are no debt payments. | |
mym1990 wrote 21 hours 26 min ago: | |
Very true, I think the article is pretty high level, and so are | |
my comments. Actual financial health can be difficult to | |
evaluate given that world events are pretty open ended and | |
anything can happen. | |
triceratops wrote 1 day ago: | |
Debt to income or debt to asset is the only way of evaluating if | |
someone's debt is high or low. I thought it was obvious that's | |
what GP meant. | |
mym1990 wrote 21 hours 41 min ago: | |
I did not get that assumption from "The more debt you have, the | |
less financially resilient you are". Debt is an absolute value, | |
and debt-to-asset ratio is...not. You can also evaluate debt | |
loads by debt-to-income ratio, which is not to be overlooked as | |
most homeowners buy homes based on their income, rather than | |
their savings. As others have said, debt-to-asset is also not a | |
golden ratio, because if your assets are not liquid and you get | |
called for your debt, you still have a bad situation. | |
triceratops wrote 15 hours 31 min ago: | |
> You can also evaluate debt loads by debt-to-income ratio, | |
which is not to be overlooked | |
Debt to income is literally the first thing I wrote in my | |
comment. I didn't overlook it. | |
The absolute value of a debt is a meaningless number so "more | |
debt" should always be evaluated in that context. And that's | |
how I took the comment I originally responded to. Some | |
extremely obvious things are being rehashed for no apparent | |
reason in this thread. | |
When evaluating relative debt load, asset values should have | |
a multiplier to reflect both liquidity and volatility. | |
leononame wrote 1 day ago: | |
That's only true if the rest of their bet worth isn't tied up in | |
some high risk investment where they could lose everything. Just | |
because it's financially more optimal to have some debt in some | |
situations doesn't mean that it's also more resilient. Yes, debt | |
ratio plays a role (although a debt ratio of 0.1 is almost like | |
having no debt at all), but no debt is for sure more resilient | |
than debt. | |
mym1990 wrote 21 hours 47 min ago: | |
I think my point was more that 1 million dollars of debt is a | |
pretty large sum to most people, but not much to someone who | |
has substantial assets. You can draw up "that's only true" | |
scenarios on basically any situation, so its not very helpful | |
to go back and forth. | |
I will say the point about having debt limits your future | |
possibilities is very true, and if someone would like to | |
maintain an open future, stay away from large amounts of | |
debt(homes, expensive cars, boats, etc...) | |
vlunkr wrote 1 day ago: | |
True, but that is not the situation most of humanity is facing. | |
mym1990 wrote 21 hours 37 min ago: | |
That was exactly my point...a million dollars of debt is | |
astronomical for the majority of people, but adding another | |
data point such as DTA or DTI would make for a clearer picture | |
of what the debt load actually is. Its like putting down a | |
100kg kettle bell and asking a group of people "is it hard to | |
lift"? For the average person sure...but you're going to get a | |
variety of answers if you put that kettle bell in front of kids | |
vs a group of gym rats. | |
Edit: I guess a smaller amount like 10k USD might be better to | |
illustrate the point. | |
necovek wrote 1 day ago: | |
I read that as an example to illustrate a point: it could also | |
have said debt of $1000 with a debt ratio of 0.1 which is still | |
pretty resilient. | |
falcolas wrote 22 hours 32 min ago: | |
Resilient? Sure. Realistic for anyone with only $10k in | |
assets? Not even remotely. Not in the market we have today. | |
There are too many people who are using debt just to get | |
their basic needs met, let alone something with enough | |
permanence to be considered an asset. | |
mym1990 wrote 21 hours 35 min ago: | |
We're just using arbitrary numbers to demonstrate a point, | |
we aren't trying to assess anyone's actual financial | |
health. | |
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