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Posted

My opinions only, but the ideas of maxing TSPs, Roth IRA vs. traditional, etc. are moot if one isn't actively involved and up to date with their investments. I believe the days of buy and hold are long gone.....

......Those of you who invested in bonds, I would say you've done well if you bought them when interest rates were high. But, if you have bought recently, watch out. I don't know when, but sometime in the future, interest rates will rise and when they do, I believe the market will be flooded with investors tying to dump their "paper". You risk a big capital loss.

With all due respect, I think you are a little wacko on some of this. With regards to equities and the "buy and hold" stuff - I have mentioned in a few posts, but the broader stock markets are already past their rock bottom after the 2008 crisis. If you started investing before that, you are still way up as opposed if you had settled for lower bond returns. If you invested when the general stock market hit rock bottom after the 2007-2008-2009 crisis (March 6, 2009, the S&P hit rock bottom), you are way ahead on returns. And if you just started investing in the past year or two in the greater stock markets, you are way up as well. Some actual numbers from S&P Return Calculator online (these are returns not taking inflation into account, and assuming reinvestment of dividends):

10 years of solid investment, since April 2003, in the S&P 500 - 112% return, 7.8% annual return

If you picked the absolute worst time in modern memory to start investing, and you put money into the S&P in the summer of 2007, a few months before the subprime crap started the financial crisis - 15.6% total return, 2.6% annual

If you started investing in September of 2008, in the heat of the economic crisis while the Presidential candidates were actually debating on live TV how to "fix" the situation - 41% overall return since then, 7.8% annually.

And if you were prescient enough to wait until all the undisciplined idiots pulled their money out of the stock market (after it went down - you know, the old buy high and sell low strategy) and started investing on March 6, 2009, when the S&P started its long, solid recovery that is still kicking today - 123% overall return, 21.7% annual return.

You can draw own conclusions from above, but the way I see it is that equities over the long run actually perform pretty well - even given the recent crisis. Can there be another crisis on the horizon thanks to ______ (insert asset bubble, Fed Reserve, terrorism, China, inflation or whatever here) that will cause another drop? Sure. But I am literally betting my life savings on the hope that in 30 years or so when I retire, my previous 15 years of solid investing (mostly equities, with a slight rebalance annually to more conservative stuff like bonds) combined with the next 30 years, that I will be ahead of the guys who just invested in bonds from the beginning.

Sure if you are one of those nut-jobs who believes that the whole US government will collapse, the country is about to degenerate into complete anarchy, nobody will accept USD as currency anymore and gold will be THE currency, then by all means hoard your gold.

I don't know if I qualify as a "nut-job," as much as I might try, but I do actually believe this. I don't think it will happen in the next 100-150 years, but it will happen. Something about studying the 5000 years of history that AnimalMother mentioned above leaves me with a sneaking suspicion that the US will indeed eventually disintegrate. But it will be a slow and gradual death, and that worthless paper, I mean fiat currency, will become less and less important in the world.

But at the end of the day, I don't believe in hoarding (or even investing in) gold, because a bigger part of me agrees with Buffet (and mappleby) that gold is just a piece of metal that has stood the test of time as a currency, while other fiat currencies have come and gone. The thing that gets me thinking twice about gold, however, is the fact that some of the smartest investors that I know and read regularly actually purchase no-shit gold coins each month and keep them in a safe in their houses. It just keeps me thinking.

Posted

You are confusing an "ideal" world and the real world. You misunderstood my point about creating a currency entirely. The reality is we have a fiat currency that is legal tender. That currency will not go back to the gold standard. Even if it is more beneficial in the long term that doesn't matter, our government will not impose that restriction on itself. So that leaves you with 2 options. 1) Buy physical gold and attempt to barter with individuals by paying them in gold like we did thousands of years ago. It's not legal tender so nobody can be compelled to take it and the feasibility of that is slim. Option 2, you create a new currency backed by physical gold to compete with the USD. This is what the Liberty Dollar was which was started in 1998 and shut down in 2009. Despite assurances from Treasury that it was legal as long as he didn't call it "legal tender" once the idea gained popularity the Feds raided them, arrested him and seized all the gold and silver backing the currency. THAT was my point about not being able to create a currency backed by gold.

Sure if you are one of those nut-jobs who believes that the whole US government will collapse, the country is about to degenerate into complete anarchy, nobody will accept USD as currency anymore and gold will be THE currency, then by all means hoard your gold. But if you recognize that the likelihood of that happening is so slim as to be totally ignored then I suggest you focus your investments on real investments. It is meaningless to say that gold holds it's value and the fiat currencies fluctuate when you can't actually SPEND that gold on anything. Ultimately it's value as denominated by legal currency is what matters. So if the gold you bought in 1987 is worth half the purchasing power in USD today as it was then I would say you made a very poor investment choice.

I certainly agree that we will not see a return to the gold standard anytime soon. However, there has only ever been one end to any fiat currency, when exactly we will see that end is hard to say, I believe we will see it within our lifetimes-well maybe not within Rainman's lifetime-but yours and mine for sure. There are countless case studies which detail the life and times of the government printing press. Furthermore, the utilization of gold and silver coinage would certainly not be anachronistic, many everyday US coins contained actual silver until quite recently. Unfortunately, currency devaluation is a temptation as old as humanity, and eventually gold and silver coinage is replaced with fiat replicas. In response, and in accordance with Gresham's law, money that contains actual gold/silver will disappear from circulation until such a time as its use is again warranted-which usually coincides with the emergence of wheelbarrows and black markets. These economic trends are not theoretical, they are in fact quite real, and we have witnessed their existence time and time again. That does not necessarily mean however, that our country will descend into socioeconomic chaos and anarchy. More often than not, it just means that the middle class citizen will lose his shirt if he has put his savings all in one basket or bank (Cyprus?). As for the Liberty Dollar example, I highly recommend "The Creature From Jekyll Island," by G Edward Griffin, it may shed some light into how the Federal Reserve might feel about such competition and explain their actions. At any rate, while I certainly am a nut-job, the only gold I hoard is the gold I bought for my grill-which I actually paid for in gold I might add. PM me if you're looking for some more interesting reads.

Guest CannonCrashPad
Posted

Think about it this way. Assume that you, like the rest of us, have a nice mixture of debt (mostly in the form of a mortgage, maybe some old student loans or a car payment)...

In my view and experience, it is precisely ensuring that I'm not like "the rest of us" that has resulted in me having more net worth than the vast vast majority of folks I know in the military. The herd is a good thing, being like everybody else, following conventional wisdom....it's a good thing for those who will fleece you.

Where are the dumb ass Dave Ramsey guys that pay cash for everything? Would love to hear what the say. Simple math people. Money is cheap to borrow and making 6% can be done with little effort. So if you are paying down your mortgage, please let me know how 1980 is going. Mortgage interest rates are not above 8% anymore if you haven't noticed.

I love it. Reminds me of cocky non-thinkers who didn't think outside the box, and bought whatever nonsense they were fed about finance. The same way people run their mouths with sound bites to "talk" about politics. The housing market is going up, it's not a bubble, don't pass up the opportunity for free wealth!

No doubt about it, you can leverage debt to make money. You can also lose your ass. I fly airplanes for a living in a service that wants me to do more with less, so I'm not all that comfortable trusting my investment skills in a politically operated and rigged system. So I pay off debt quickly. Debt is ownership of your property until you make that final payment. Think of it this way, if you lost your job today and couldn't find another, how long before the bank took its house or car from you plus all the equity you had in it? And how much would you be worth then, and what would you truly own? Would you own land? Would you OWN anything real?

Oh but as the sheepish viper pilot mentions (good to see you haven't changed), such thinking is tin foil. In a world where our government (and other governments) are MASSIVELY in debt and getting worse, where banks have robbed Americans already through bailouts here in the U.S. without a single shred of accountability, in a world where banks robbed those in Cyprus even more boldly, with sequestration (a joke) talked about on a daily basis, still it's just a "tin foil" thought for the sheep who wish to fit in. But if it did happen, humor me, what would you have to show for it? What would you own if you lost your job and the banks took your shit when you could no longer make the payments? What if much of your money is tied up in the Fed inflated QE-drenched stock market bubble and that crashed? What if those toxic assets (which were never addressed but rather painted over) rear their head despite the fed's printing press? So the bank takes the stuff you "owned" and your electronic assets in the market vanish. Where are you? What do you REALLY own?

What do I know. Chances are I know my net worth is greater than probably anybody who has posted in this thread, and that's just mine - my wife makes much more money than I do. I could be wrong though, but I doubt it.

TLDR: Stay the F away from debt, and don't believe the conventional wisdom.

Posted
plus all the equity you had in it?

Say again?

What do I know. Chances are I know my net worth is greater than probably anybody who has posted in this thread, and that's just mine - my wife makes much more money than I do. I could be wrong though, but I doubt it.

That's the dick-measuring contest you want to start here...?

Posted

No, it's fine. They could lose their income, but still pay off all those things that are financed and pay them off because they "have" the money, but just chose to finance... To, you know, get a higher credit score or get some 1% rebate or something.

Give me a break.

If you are paying on it, you don't own it. That includes stuff you pay for with a credit card. I don't care when you pay it off. All of those points and rewards do the square root of fuck-all to your net worth. I'd go so far as to say they will ultimately negatively impact it.

But what do I know... Apparently I'm the one that can "control myself" with money enough to borrow from a third party for something I could just pay for in cash. I seriously LOLed at that.

Young guys: if you are reading this thread, you are trying to maximize your income to secure a comfortable retirement. Owing people money, even for a "short" time and even if you can "afford" it does not contribute to your net worth. Millionaires don't get to where they are and say, "Man, those credit card rewards really helped me get here." They got there by living within their means, which means they did not BORROW MONEY.

It continues to blow my simple mind as to why this such a difficult concept to grasp.

Posted

"Millionaires don't get to where they are and say, "Man, those credit card rewards really helped me get here." They got there by living within their means, which means they did not BORROW MONEY. "

Champ, that actually isn't true in my experience. I sold private jets for a couple years and talked to literally hundreds of people who could stroke a check for a $2 million jet. A common thread of these folks is that they took some big risks-and debt-to succeed in whatever business they are in. In fact, I noticed two common threads in these folks (aside from them all having a new wife that is 20 years younger!): they started a business in the field they had already worked in for years and they borrowed every penny they could to launch their business. I realize there is a line between business and personal finance, but that line is narrow with many entrepreneurs....who are now millionaires.

Posted

In my view and experience, it is precisely ensuring that I'm not like "the rest of us" that has resulted in me having more net worth than the vast vast majority of folks I know in the military. The herd is a good thing, being like everybody else, following conventional wisdom....it's a good thing for those who will fleece you.

Besides being totally condescending and trying to throw hator-ade ® into the conversation, you make a good point or two. First off, it would be impossible to see if you had more or less net worth than anyone on this board considering the thousands of parameters - college you chose to go to, wife's income, part of the country you live in, what you did before the military, etc. So why even try to bring that up?

But, on a brighter note, I think most people on this board don't really have debt, except in the form of possible student loans (if you didn't do ROTC or the Academy or whatever) and a mortgage - both of which are generally considered "good" because they directly contribute to society. One contributes to human capital while the other allows people to be productive members of society while working and bringing up a family (if that is still in our values). Yes, I know you can play your cards better and get a degree with no debt, but a lot of things have to line up - scholarships, ROTC, or whatever. I personally chose to go to a top engineering school and left with a moderate amount of debt - about $15K. I think it was worth it for the years I worked as an engineer before joining the Air Force. I doubt I would have had that work or that salary without my degree, which is why I have no regrets about not going to a "cheaper" school. But there's a lot of speculation in there, especially because I obviously didn't know I would join the military five years later.

I have had a bunch of long, nerdy, philosophical discussions with some smart friends (lawyers, financial planners) about the issue of mortgages and if they were generally "good or bad." The alternatives to not taking out a mortgage are pretty much to rent (not wealth building) or live with family. You can only do that so long if you are trying to raise your own family, etc. Plus there are other limitations to such a strategy, such as your parents house being too small due to downsizing in retirement, etc. Although I disagree with it, I can acknowledge your philosophy of trying to have people bust their ass and sacrifice in order to completely save for a small home without having to take out a mortgage. I still don't think it is very realistic in today's world, however.

Guest CannonCrashPad
Posted

Say again?

It means that if you pay X into your mortgage, but your mortgage is X+100, and you lose your income and are unable to pay your mortgage, not only can the bank take your house, but it also takes X. Thanks for playing. So you should try to pay that debt off quick. Unless you think the economy is rosy and everything is dandy, and it won't actually get bad and you won't actually lose your job, which means you are oblivious to history and current events which makes you a complete idiot. And there are many of those.

That's the dick-measuring contest you want to start here...?

I'm beyond measuring dicks. But to prove a point for some young impressionables, I'm willing to pony up some numbers for comparison. I may be beat by some lucky gamblers who have posted in this thread, but I doubt it. I can promise you though that I'm FAR more financially successful with my "debt is a threat" and live well below your means viewpoint (and I'm not even a Dave Ramsey guy), than 99 out of 100 dudes in the military, my rank, my time and service.

Posted

But if it did happen, humor me, what would you have to show for it? What would you own if you lost your job and the banks took your shit when you could no longer make the payments? What if much of your money is tied up in the Fed inflated QE-drenched stock market bubble and that crashed? What if those toxic assets (which were never addressed but rather painted over) rear their head despite the fed's printing press? So the bank takes the stuff you "owned" and your electronic assets in the market vanish. Where are you? What do you REALLY own?

If the shit really hit he fan and the government started to collapse and seize assets ala Cyprus style, what would be the difference between them seizing your fully paid-for house versus my half-paid for house? If things really got that bad, do you really think that "they" would not take your shit simply because you already paid for it? What are you going to do, move your physical house out of the country? In your nightmare scenario, I would actually bet better off because I would have excess cash on hand that I did not pre-pay on the house. I would feel better about trying to transfer those funds to the backwoods of Wyoming, or to Mexico, or Switzerland as opposed to trying to move my house, where a bunch of my wealth was tied up in.

Guest CannonCrashPad
Posted

Besides being totally condescending and trying to throw hator-ade ® into the conversation, you make a good point or two. First off, it would be impossible to see if you had more or less net worth than anyone on this board considering the thousands of parameters - college you chose to go to, wife's income, part of the country you live in, what you did before the military, etc. So why even try to bring that up?

But, on a brighter note, I think most people on this board don't really have debt, except in the form of possible student loans (if you didn't do ROTC or the Academy or whatever) and a mortgage - both of which are generally considered "good" because they directly contribute to society. One contributes to human capital while the other allows people to be productive members of society while working and bringing up a family (if that is still in our values). Yes, I know you can play your cards better and get a degree with no debt, but a lot of things have to line up - scholarships, ROTC, or whatever. I personally chose to go to a top engineering school and left with a moderate amount of debt - about $15K. I think it was worth it for the years I worked as an engineer before joining the Air Force. I doubt I would have had that work or that salary without my degree, which is why I have no regrets about not going to a "cheaper" school. But there's a lot of speculation in there, especially because I obviously didn't know I would join the military five years later.

I have had a bunch of long, nerdy, philosophical discussions with some smart friends (lawyers, financial planners) about the issue of mortgages and if they were generally "good or bad." The alternatives to not taking out a mortgage are pretty much to rent (not wealth building) or live with family. You can only do that so long if you are trying to raise your own family, etc. Plus there are other limitations to such a strategy, such as your parents house being too small due to downsizing in retirement, etc. Although I disagree with it, I can acknowledge your philosophy of trying to have people bust their ass and sacrifice in order to completely save for a small home without having to take out a mortgage. I still don't think it is very realistic in today's world, however.

If there was any condescension, it was in response to a couple of knuckle draggers (Butters being one - that ######er is about as dumb as they come) using some strong language against people who *OH MY* think it's good to stay out of debt. The level of incompetence to make such statements given our world events is stunning to say the least. But you can always count on a Butters to say it anyway (and probably misspell it while doing so).

Please don't think I'm dogging on those who disagree with me. I don't. A ton of money can be made leveraging debt. In fact, debt is one of the primary reasons western nations have succeeded. And on the individual level, I have a good buddy from college who leverages debt all the time on million dollar contracts and has a ton of money. He throws his Black Card around at the bars. Still, I would not advocate that approach to others (at least not with a Butters-######-Dave-Ramsey tact) for a few reasons:

1) You are gambling with money you do not own

2) The house rules are going to change - believe it

3) How much money do you really need?

Old fashioned American values are pretty damn valuable. Paying your debts as quickly as possible, saving, buying real property/assets and actually owning them in case SHTF. The Casino is due for a shit storm. Sure, some people can make a lot of money playing those games, but that isn't something I would encourage others to do online. It's also something I would not do myself (although, as I said, I'm a pilot and not a professional investor). But that being the case, I'm still better off financially than most of the O's I meet. I'm just talking about my finances. Not my wife's. She is in a whole different league than I am.

If the shit really hit he fan and the government started to collapse and seize assets ala Cyprus style, what would be the difference between them seizing your fully paid-for house versus my half-paid for house? If things really got that bad, do you really think that "they" would not take your shit simply because you already paid for it? What are you going to do, move your physical house out of the country? In your nightmare scenario, I would actually bet better off because I would have excess cash on hand that I did not pre-pay on the house. I would feel better about trying to transfer those funds to the backwoods of Wyoming, or to Mexico, or Switzerland as opposed to trying to move my house, where a bunch of my wealth was tied up in.

Good question. Here is the answer. If the SHTF, and I have paid off property, and there are those who wish to steal it like they did in Cyprus.... I have reduced the THIEF CHAIN to simply government. Banks have no claim to my shit. It's just the government. That makes it more simple. Not only that, but with property it's pretty tough to make it vanish. I can defend it from thieves, and even if I fail, I can always try to take it back.

Electronic accounts? Money in a bank? Your "excess cash?" Good luck with that. Thieves will come for that first electronically, and there will be little you can do should they come for it. Money in the mattress? Maybe. But inflation is going to take a chunk of that too.

REAL property. That is the answer. Property that you actually own and can actually defend from thieves. That's the key in my opinion. If what you "own" is through debt, you don't own it and it will be taken from you.

Posted

No, it's fine. They could lose their income, but still pay off all those things that are financed and pay them off because they "have" the money, but just chose to finance... To, you know, get a higher credit score or get some 1% rebate or something.

Remember from past posts, Champ, most of the guys arguing with you on this stuff don't have credit card debt. More of them are like me and have their credit cards set up to auto-debit the entire balance each month, so there is no chance of late fees or interest I have not had CC debt since I first went in the hole $2K about 15 years ago to get basic furniture for my first apartment. Right now, I have about 5 active cards. I put all my groceries on that Amex card that gives me 6% cash. According to my Amex year-end summary last year, my grocery bill with kids in the house was in the $20K range. 6% cash back on that puts $1200 of real cash in my pocket, without incurring a nickel of debt of paying a nickel of interest.

I also put all my gas on that PenFed platinum card which give me back 5% on all gas purchases. That's a 5% discount on all gas, no matter how you slice it. It's simply foolish to not do it. I think our total fuel bill at the end of the year was in the $10K ballpark (they didn't give me an annual summary), so again, that another $500 of cold cash in my pocket for not incurring any debt or paying any interest or fees.

I will tend to agree with you in that the 1% BS that a lot of these cards tease people with probably have more of a psychological effect of making them buy more (which I think you mentioned in a previous post) than they would have had they just used cash. That's a valid point. But I am pretty sure that I would have consumed the same amount of groceries and fuel for the car whether I used cash or the above cards. Besides, 5-6% cash back is no joke over the years versus the shitty 1% airline mile crap.

Owing people money, even for a "short" time and even if you can "afford" it does not contribute to your net worth.

Dead wrong. Paying the minimum on a 2.5% mortgage while investing the rest at 7.8% annual return (see my above post 253) does indeed contribute to your net worth as opposed to paying down the mortgage first with every available extra dollar. Like I said before, by saying you hate debt is saying that you have investments, because every dollar you divert to the mortgage is one less that you can invest.

Millionaires don't get to where they are and say, "Man, those credit card rewards really helped me get here." They got there by living within their means, which means they did not BORROW MONEY.

Dead wrong again. I am not an expert on millionaires, but my wife's family is sort of connected to the old-money part of society here, so I know a few. Most of them (or their Dad's) had businesses that were indeed massively financed by loans or other debt. And once able, those companies "went public" in order to take on more debt in the form of bonds or equities sold, thus increasing the wealth of the owners even more. We studied startup after startup in business school, and one thing most of them had in common was some sort of outside loan and huge risk (meaning loan) being taken.

I even know a millionaire who made all of his money just by investing in puts and calls in the stock market. He said his initial strategy was, in his words, to "be mortgaged up to his eyeballs" for as long as possible and take that money to put into his investment business. It takes money to make money, and if you are an extreme risk taker, than using other people's money is the only way to do it. But like mentioned before, you can also lost it all (but we are talking about millionaires only here).

Very rarely is the average Joe going to work for the man, live within his means, and then start investing or start up a new business with no debt and make it to the millionaire status. Even higher profile people like Trump or Gates initially borrowed in order to get rich.

Guest CannonCrashPad
Posted

Dead wrong. Paying the minimum on a 2.5% mortgage while investing the rest at 7.8% annual return (see my above post 253) does indeed contribute to your net worth as opposed to paying down the mortgage first with every available extra dollar. Like I said before, by saying you hate debt is saying that you have investments, because every dollar you divert to the mortgage is one less that you can invest.

Unless you lose your job and your ability to pay your mortgage, and your electronic investments dry up with a market crash. At which point you also lose that property that was mortgaged.

Look around you, do you not see that as a real possibility?

Pay off the debt with haste on real property. That way you own it. Real property that matters. You can live on it, you can grow food on it. It has real value, not this inflated nonsense value that is so often seen.

Posted

Unless you lose your job and your ability to pay your mortgage, and your electronic investments dry up with a market crash. At which point you also lose that property that was mortgaged.

Look around you, do you not see that as a real possibility?

Pay off the debt with haste on real property. That way you own it. Real property that matters. You can live on it, you can grow food on it. It has real value, not this inflated nonsense value that is so often seen.

This basically sums up my thoughts on my decision. I never intended for my question to turn this thread into a high school girls locker room fight, but I do appreciate everyone's perspective. My big picture game plan is to diversify my investments and minimize my risk. I'm putting a lot of money into Roth TSP for long-term security and I'm still going to aggressively pay the mortgage down. That gives me a lot more security in the near future. If something goes terribly wrong in the short or mid-term money/career wise, having a piece of paid-off real estate sure will be a nice cushion to that blow. If I still owe money on the real estate and I'm saddled with a payment every month, it doesn't do me much good.

Guest CannonCrashPad
Posted

No, it's fine. They could lose their income, but still pay off all those things that are financed and pay them off because they "have" the money, but just chose to finance... To, you know, get a higher credit score or get some 1% rebate or something.

Give me a break.

If you are paying on it, you don't own it. That includes stuff you pay for with a credit card. I don't care when you pay it off. All of those points and rewards do the square root of ######-all to your net worth. I'd go so far as to say they will ultimately negatively impact it.

But what do I know... Apparently I'm the one that can "control myself" with money enough to borrow from a third party for something I could just pay for in cash. I seriously LOLed at that.

Young guys: if you are reading this thread, you are trying to maximize your income to secure a comfortable retirement. Owing people money, even for a "short" time and even if you can "afford" it does not contribute to your net worth. Millionaires don't get to where they are and say, "Man, those credit card rewards really helped me get here." They got there by living within their means, which means they did not BORROW MONEY.

It continues to blow my simple mind as to why this such a difficult concept to grasp.

Absolutely right. There will be a few dudes who get lucky, game the system, and then write books about how to get rich gambling on assumptions that are anything but secure. Just look around you, how many people even have a positive net value? I would wager VERY few in the military. I would wager VERY VERY few outside the military. We are in debt up to our eyeballs. Is debt really the answer? It sure seems to be causing some serious problems around the world and I promise it's coming to America far more than the BS sequestration debates we see today. When it does, and those dominoes begin to fall, people will look at the Great Depression like it's the good ole days.

Posted

Young guys: if you are reading this thread, you are trying to maximize your income to secure a comfortable retirement. Owing people money, even for a "short" time and even if you can "afford" it does not contribute to your net worth. Millionaires don't get to where they are and say, "Man, those credit card rewards really helped me get here." They got there by living within their means, which means they did not BORROW MONEY.

It continues to blow my simple mind as to why this such a difficult concept to grasp.

It's amazing to me how such supposedly smart people are so incredibly stupid when it comes to money.

As one of the "young guys" I'm very glad I have enough financial knowledge to know how shitty Champ's advice is. At least JS seems to understand things like opportunity cost and interest rates. These are probably the most basic things in finance.

Posted

Unless you lose your job and your ability to pay your mortgage, and your electronic investments dry up with a market crash.

True. Both would have to happen. I was going to argue that you would own your $200K house, while I would owe $100K and have $100K in liquid investments (actually a little more, because I would be earning the spread between the mortgage rate and my investment returns). I would rather have the liquid cash as opposed to having it all tied up in the house. You can't get the money out if you need it, such as in the emergency situation that you bring up if you lost your job.

But, if as you mention, I both lost my job and allof my very conservative investments dried up to 0, then you would be right. But this begs the question - how long will I be out of work? What about my wife's job? What about my emergency fund? Does my $100K investment account (in my above example) really have a chance to instantly dry up to 0? If that is the case, then I think you are agreeing with my when I say that "if you hate debt, then you hate investments," because you are basically not putting the slightest amount of trust into the investment philosophy, the overall economy, or the "good faith and credit" of the government. So it sounds like you hate all forms of investments because they are too risky, right? You might be right, but I think in the end, you are so risk-averse that it is costing you net wealth.

Like I mentioned above with my illustration of S&P returns - the overall market has always gone up. I read a study that was similar to my illustration above, only it went back to when they first started tracking stock indexes like 100+ years ago. They basically said that if you had "good" timing and invested after the depression, you were way ahead on returns over the 80+year horizon, even taking into account all of the depressions and recessions. If you had the worst possible timing, and began investing at the height of the pre-depression boom, you were still ahead over the 40,60, or 80 year horizon. In other words, the broader market always goes up over the very long term.

At least JS seems to understand things like opportunity cost and interest rates. These are probably the most basic things in finance.

True - those two concepts probably sum all of the multiple paragraphs of rambling that I have spouted out over the past few pages of these threads. I would also throw in the concept of risk-aversion in there too, because I think the anti-debt, cash-only folks either don't truly understand the risk/reward concept, or they are intentionally choosing to bring their risk (and their inherent "reward") down to near zero.

Posted

My big picture game plan is to diversify my investments and minimize my risk. I'm putting a lot of money into Roth TSP for long-term security....

Not minimizing your risks at all. You are assuming the risks of the broader markets in return for the growth that your retirement plan will hopefully achieve over the next 40 years.

My big picture game plan is to diversify my investments and minimize my risk. I'm putting a lot of money into Roth TSP for long-term security and I'm still going to aggressively pay the mortgage down. That gives me a lot more security in the near future.

Not diversifying your investments at all, nor is this giving you security in the future. Having your wealth tied up in the house, where you can't access it in an emergency (such as losing your job or having your riskier investments collapse like Cannon mentions) is not low-risk nor is it diversified. It's actually the complete opposite on both counts - you risk not having cash if you need it in an emergency, and you are 0% diversified if 100% of your excess money is in the house.

Posted (edited)

Unless you lose your job and your ability to pay your mortgage, and your electronic investments dry up with a market crash. At which point you also lose that property that was mortgaged.

Look around you, do you not see that as a real possibility?

Pay off the debt with haste on real property. That way you own it. Real property that matters. You can live on it, you can grow food on it. It has real value, not this inflated nonsense value that is so often seen.

Anyone who buys a house in cash in full essentially pays 100% per share for their investment in a house, when 10 or 20 percent down was the ticket to join the home-owner party. Diversifying investments isn't just about stocks-bonds-cash. It's also across your entire assets. This is an "eggs all in one basket" scenario that is easy to avoid. If you've got a cool $500K in the bank, I'd keep that baby diversified, not all together in a place on the lake risking something as simple as a single housefire or flood to wipe it all away when the insurance company comes up short (combined contingencies, sorry). I am mostly reiterating JS and 75% of this thread I suppose.

Edited by addict
Posted (edited)
It means that if you pay X into your mortgage, but your mortgage is X+100, and you lose your income and are unable to pay your mortgage, not only can the bank take your house, but it also takes X.

I understood the words you used in your original post. I was wondering if you understood how foreclosure works. It is now apparent that you do not.

I'm beyond measuring dicks. But to prove a point for some young impressionables, I'm willing to pony up some numbers for comparison. I may be beat by some lucky gamblers who have posted in this thread, but I doubt it. I can promise you though that I'm FAR more financially successful with my "debt is a threat" and live well below your means viewpoint (and I'm not even a Dave Ramsey guy), than 99 out of 100 dudes in the military, my rank, my time and service.

Nope, no dick measuring here....

EDIT: grammar/clarity

Edited by Jughead
Posted

Not minimizing your risks at all. You are assuming the risks of the broader markets in return for the growth that your retirement plan will hopefully achieve over the next 40 years.

Not diversifying your investments at all, nor is this giving you security in the future. Having your wealth tied up in the house, where you can't access it in an emergency (such as losing your job or having your riskier investments collapse like Cannon mentions) is not low-risk nor is it diversified. It's actually the complete opposite on both counts - you risk not having cash if you need it in an emergency, and you are 0% diversified if 100% of your excess money is in the house.

Dude, no need to be a dick. Especially an ignorant dick. FYI, I have a substantial emergency fund that I can last about 5-6 months on if I lost my job. It's completey liquid, in a savings account. In just a few years, I'll have the house completely paid off. That will give me a steady flow of secondary income if I lost my job or had some other large financial stress. If I really needed a large amount of money, I could sell the place. My Roth TSP is diversified in a number of funds, not just one. In my view, what I just laid out is an acceptable amount of risk and safety.

Posted

Anyone who buys a house in cash in full essentially pays 100% per share for their investment in a house, when 10 or 20 percent down was the ticket to join the home-owner party. Diversifying investments isn't just about stocks-bonds-cash. It's also across your entire assets. This is an "eggs all in one basket" scenario that is easy to avoid. If you've got a cool $500K in the bank, I'd keep that baby diversified, not all together in a place on the lake risking something as simple as a single housefire or flood to wipe it all away when the insurance company comes up short (combined contingencies, sorry). I am mostly reiterating JS and 75% of this thread I suppose.

Correct me if I'm wrong, but if I only owned 10-20% of my home, and something like a housefire/flood happened, and the insurance company came up short... wouldn't you be even more screwed than the guy who owns 100% of the house? You would still owe the mortgage company, and you would be equally screwed by the insurance company coming up short. I would much rather be the guy who can collect all the insurance money and walk away in that scenerio.

Guest CannonCrashPad
Posted

I was wondering if you understood how foreclosure works. It is now apparent that you do not.

Well perhaps you'll educate me? While terms may differ depending on what bank and what mortgage contract you sign, I'm under the impression that when you have a mortgage that contract includes language giving the bank the ability to seize the mortgaged asset if you are unable to pay your mortgage payment. I understand they may "work with you," but that is the bank's call. They can just take the property plus the money you threw in paying off the mortgage. If this is not a true statement, then by all means, please educate me.

Posted (edited)

JS posted in regards to my opinion about buy and hold

"With all due respect, I think you are a little wacko on some of this. With regards to equities and the "buy and hold" stuff - I have mentioned in a few posts, but the broader stock markets are already past their rock bottom after the 2008 crisis. If you started investing before that, you are still way up as opposed if you had settled for lower bond returns. If you invested when the general stock market hit rock bottom after the 2007-2008-2009 crisis (March 6, 2009, the S&P hit rock bottom), you are way ahead on returns. And if you just started investing in the past year or two in the greater stock markets, you are way up as well. Some actual numbers from S&P Return Calculator online (these are returns not taking inflation into account, and assuming reinvestment of dividends):"

JS, of course I'm not going to agree with your assesment that I'm a little wacko. We may be from different generations - I don't know. I started investing about 25 years ago (several years after I graduated UPT). Granted I have done some buy and hold via $$ cost averaging with mutual funds. Fidelity Contrafund has been very good to us. But, I believe its a different environment now. When I first started, the Fed wasn't propping up assets prices with cheap money. I would say the value was more real back then and the market didn't respond with such big moves to Fed policy. Also there were not as many hedge funds that were hugely leveraged nor ETFs. Those two entities move the markets in ways I didn't see 25 years ago. It seems to me more of a trader's market than an investor's market. Here's a link to an article that speaks to some of what I'm trying to communicate. https://www.cnbc.com/id/100654075 . You may be far smarter and successful with it than me. Good luck with it. Regards, RF.

Edited by Red Fox

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