GA "needs"

[deonb]

I have Z E R O debt, house, cars, planes, all free and clear.

If you can't buy it outright (if needed) you don't need it.

Go watch "The Big Short" it's on net flix.

I know this is something people like to hold up over other people, but the math actually isn't supportive on that.

For most people it's better having a fixed rate mortgage on your primary home at a ~3.5% rate (about 2.5% after the tax deduction). Then take that money you would have used to buy your own house up front and investing it somewhere else. Your own house is never an investment - even if it accumulates in value over the years, and you sell it, you're just going to have to buy something else to live in, which would have also accumulated in value over the years.

Even if you just buy another property and rent it out - you easily make double or more on rent than what you pay in interest on your primary - and you have an appreciating asset underneath it.

Of course, don't take the money and spend it. Which, granted, is what most people would do. But if you're a disciplined investor, zero debt isn't necessarily your best financial strategy.


PS: I watched "The Big Short". It's a good story, but sucks as a movie. I think even "Boiler Room" is better.

 

[FloridaPilot]

Well that is nothing to do with flying. If they had asked to go bowling she would have said no too. And in this case they have other issues that are not aviation related.

I already have ONE mother, I don't need a second one!

 

[EdFred]

I know this is something people like to hold up over other people, but the math actually isn't supportive on that.

For most people it's better having a fixed rate mortgage on your primary home at a ~3.5% rate (about 2.5% after the tax deduction). Then take that money you would have used to buy your own house up front and investing it somewhere else. Your own house is never an investment - even if it accumulates in value over the years, and you sell it, you're just going to have to buy something else to live in, which would have also accumulated in value over the years.

Even if you just buy another property and rent it out - you easily make double or more on rent than what you pay in interest on your primary - and you have an appreciating asset underneath it.

Of course, don't take the money and spend it. Which, granted, is what most people would do. But if you're a disciplined investor, zero debt isn't necessarily your best financial strategy.


PS: I watched "The Big Short". It's a good story, but sucks as a movie. I think even "Boiler Room" is better.

But what GUARANTEED rate are you going to get that's better than 3.5% as a middle class American? Not projected, not expected, but GUARANTEED? I don't know of any out there.

 

[azure]

But what GUARANTEED rate are you going to get that's better than 3.5% as a middle class American? Not projected, not expected, but GUARANTEED? I don't know of any out there.

A close friend recently lost about a third of her net worth in the last stock market downturn, and this was with a very diverse portfolio following the advice of a nationally known and highly reputable investment advisor. Many of her holdings had been averaging better than 5% until then, but that was scant consolation when the worst happened.

Investing always carries some risk, but things appear to be especially unpredictable these days. For many in what used to be the middle class, the possible avenues with decent expected rates today just seem too risky.

 

[James331]

I know this is something people like to hold up over other people, but the math actually isn't supportive on that.

For most people it's better having a fixed rate mortgage on your primary home at a ~3.5% rate (about 2.5% after the tax deduction). Then take that money you would have used to buy your own house up front and investing it somewhere else. Your own house is never an investment - even if it accumulates in value over the years, and you sell it, you're just going to have to buy something else to live in, which would have also accumulated in value over the years.

Even if you just buy another property and rent it out - you easily make double or more on rent than what you pay in interest on your primary - and you have an appreciating asset underneath it.

Of course, don't take the money and spend it. Which, granted, is what most people would do. But if you're a disciplined investor, zero debt isn't necessarily your best financial strategy.


PS: I watched "The Big Short". It's a good story, but sucks as a movie. I think even "Boiler Room" is better.

Lots of folks who invested money went TU.

I know this is something people like to hold up over other people, but the math actually isn't supportive on that.

For most people it's better having a fixed rate mortgage on your primary home at a ~3.5% rate (about 2.5% after the tax deduction). Then take that money you would have used to buy your own house up front and investing it somewhere else. Your own house is never an investment - even if it accumulates in value over the years, and you sell it, you're just going to have to buy something else to live in, which would have also accumulated in value over the years.

Even if you just buy another property and rent it out - you easily make double or more on rent than what you pay in interest on your primary - and you have an appreciating asset underneath it.

Of course, don't take the money and spend it. Which, granted, is what most people would do. But if you're a disciplined investor, zero debt isn't necessarily your best financial strategy.


PS: I watched "The Big Short". It's a good story, but sucks as a movie. I think even "Boiler Room" is better.

For me, it's just a peace of mind, I don't need to worry about monthly payments, what I make a month, aside from the normal power, 50buck Internet, 50buck cell phone, etc the rest is at me discretion.

 

[Everskyward]

When I was in high school (1970's) our shop teacher owned two airplanes. A teacher today couldn't afford one, much less two.

I agree that the relative cost is higher, but I think the relative interest was low in the past and still is, even for people who can afford it. I would say that of all the people who get on our airplane, 5% or less ask any questions about it, and it's a rarity for someone to fess up to being a pilot.

 

[EdFred]

And here's what my math says on guaranteed money if you have $3000/mo to throw at a house/guaranteed investment. And I'm going to round off the numbers.
Mortgage Amount: $200,000
Mortgage Rate: 3.5%
Term: 360 months
House Payment $900/mo
Best CD Rate I could find: 5Y @ 2.0%

Scenario 1 - only pay the $900 and dump $2100 into a new 2% CD every month
After 360 months
Interest Paid on mortgage: $123,000
Ending value of 2.0% CD(s): $1,034,000
Net: $911,000

Scenario 2 - take all $3000 and slam it at the house for 74 months to pay it off, then take $3000/month and put it in the same 2% CD each month for the next 286 months.
After 360 months
Interest Paid on mortgage: $23,000
Ending value of 2% investment: $1,098,000
Net: $1,075,000

Pay off the house.

 

[Sundancer]

When I was in high school (1970's) our shop teacher owned two airplanes. A teacher today couldn't afford one, much less two.

Depends on geography and local politics - there are plenty of subrban school districts with very, very generous compensation packages for teachers, including base salary. Some cover nearly all health insurance costs, have fairly early defined benefit retirements, and matching thrift plans. Sure, not nearly so good in poor rural areas, or other bad locations. . .but the suburbs of DC? Oh yeah, those countys pay well, and I know teachers with airplanes.

 

[denverpilot]

And here's what my math says on guaranteed money if you have $3000/mo to throw at a house/guaranteed investment. And I'm going to round off the numbers.
Mortgage Amount: $200,000
Mortgage Rate: 3.5%
Term: 360 months
House Payment $900/mo
Best CD Rate I could find: 5Y @ 2.0%

Scenario 1 - only pay the $900 and dump $2100 into a new 2% CD every month
After 360 months
Interest Paid on mortgage: $123,000
Ending value of 2.0% CD(s): $1,034,000
Net: $911,000

Scenario 2 - take all $3000 and slam it at the house for 74 months to pay it off, then take $3000/month and put it in the same 2% CD each month for the next 286 months.
After 360 months
Interest Paid on mortgage: $23,000
Ending value of 2% investment: $1,098,000
Net: $1,075,000

Pay off the house.

People don't get that even at a "record low single digit interest rate!!!" that they didn't buy a $200,000 house. They bought a $323,000 mortgage.

They won't have the deed to the house for 15/30 years, and they get to maintain it for the lender in the meantime.

 

[cowman]

That 225 number is going to vary based on where you live. Here its way overkill for a starter house. You can find starters all day long under 100 around here. I also know the 5 bedroom under 40 crowd and they are struggling, but they got their show-off house. I paid 45 for my plane, and put some more into it. But I've had it 7 years and am nowhere near 300 into it when you add up every penny spent on flying, maintaining, insuring, and hangaring it.

And your post is aperfect example. No one said go buy a 300 airplane, but that's the number you threw out as a starting point.

I would say your area's housing market and mine aren't too far off at those prices... and again I don't see anyone buying $225,000 starters houses. I see mostly under 100 houses and quite a few 30,000 houses with problems that people fix up themselves one room at a time as they can afford the time/materials.

I'm going to a $300,000 airplane because that's on the low end of what they cost new today. I'm well aware few people are buying new(how could they?).... but remember in 1956 the Cessna 172 cost $8,700 which would be $76,840.19 in today's money. That was what a NEW state of the art airplane cost and while I don't have figures on the used market in the era I'm sure we can agree used...even a couple of years old should be significantly less.

Now, I have a great airplane and I'm very fortunate to have it but the thing is 38 years old and I paid 56k for it. Fortunate... and I am.. to afford a 38 year old airplane. What would something like that run if it could be purchased new for $150,000(which is almost twice what it cost in the 50s)? That seems like something that could be achieved if there was a will and we could strategically deregulate the right things in the right ways.

I don't believe for one second this notion that there's something inherently lacking in young people today vs those of decades before. That's just nonsense. If you make civil aviation as affordable as it used to be, the young pilots will return.

 

[timwinters]

Depends on geography and local politics - there are plenty of subrban school districts with very, very generous compensation packages for teachers, including base salary. Some cover nearly all health insurance costs, have fairly early defined benefit retirements, and matching thrift plans.

Rural Missouri in that case. He might have made the equivalent of $40 to $50k in today's dollars...

 

[exncsurfer]

I would say your area's housing market and mine aren't too far off at those prices... and again I don't see anyone buying $225,000 starters houses. I see mostly under 100 houses and quite a few 30,000 houses with problems that people fix up themselves one room at a time as they can afford the time/materials.

I'm going to a $300,000 airplane because that's on the low end of what they cost new today. I'm well aware few people are buying new(how could they?).... but remember in 1956 the Cessna 172 cost $8,700 which would be $76,840.19 in today's money. That was what a NEW state of the art airplane cost and while I don't have figures on the used market in the era I'm sure we can agree used...even a couple of years old should be significantly less.

Now, I have a great airplane and I'm very fortunate to have it but the thing is 38 years old and I paid 56k for it. Fortunate... and I am.. to afford a 38 year old airplane. What would something like that run if it could be purchased new for $150,000(which is almost twice what it cost in the 50s)? That seems like something that could be achieved if there was a will and we could strategically deregulate the right things in the right ways.

I don't believe for one second this notion that there's something inherently lacking in young people today vs those of decades before. That's just nonsense. If you make civil aviation as affordable as it used to be, the young pilots will return.

Agree, its mostly the money, isn't it always?

 

[MooneyDriver78]

And here's what my math says on guaranteed money if you have $3000/mo to throw at a house/guaranteed investment. And I'm going to round off the numbers.
Mortgage Amount: $200,000
Mortgage Rate: 3.5%
Term: 360 months
House Payment $900/mo
Best CD Rate I could find: 5Y @ 2.0%

Scenario 1 - only pay the $900 and dump $2100 into a new 2% CD every month
After 360 months
Interest Paid on mortgage: $123,000
Ending value of 2.0% CD(s): $1,034,000
Net: $911,000

Scenario 2 - take all $3000 and slam it at the house for 74 months to pay it off, then take $3000/month and put it in the same 2% CD each month for the next 286 months.
After 360 months
Interest Paid on mortgage: $23,000
Ending value of 2% investment: $1,098,000
Net: $1,075,000

Pay off the house.

you are ignoring tax savings, it would close the gap depending your tax bracket and any financial adviser that base their fees off the amount of money you have invested is going to recommend a large mortgage for obvious reasons.
I probably would split the difference, if you need money it would be nice not to have given it all to the bank and have to go borrow again and a high interest rate

 

[EdFred]

Sure, pay out 100,000 to save 20,000.
Dumbest. Recommendation. Ever.

That 3000 number doesn't affect what you should be saving for emergencies each month.

 

[denverpilot]

you are ignoring tax savings, it would close the gap depending your tax bracket and any financial adviser that base their fees off the amount of money you have invested is going to recommend a large mortgage for obvious reasons.
I probably would split the difference, if you need money it would be nice not to have given it all to the bank and have to go borrow again and a high interest rate

Ummmm have you done the math on what most people "save" on taxes from mortgage interest?

ROFLMAO. I'm going to guess "no".

That phrase is another great scam that realtors just LOVE to repeat.

Here's a hint. There is no jump in "tax brackets" that will make a measly tax rebate on a mortgage pay off better than paying off the mortgage.

Here's why, and I bet you don't realize this:

When you change "tax brackets" only the money made ABOVE the break point is taxed at the higher rate. It's NOT a jump that taxes EVERYTHING you make at the higher rate.

(The number of people that don't know this, astounds me. If you knew it, apologies, but you're using all the key phrases that indicate you don't.)

You also have to make A LOT of money to get into the really high "tax brackets" and if you're making that kind of coin and whining that you can't pay extra on the mortgage... Well... Anyway...

15% tax to 25% tax a married couple filing jointly has to make over $80,000 a year in taxable income. Only the money above $80,000 is taxed at 25%.

25% to 28% tax a married couple filing jointly has to make over $150,000 a year of taxable income. Only the money made between $80,000 and $150,000 is taxed at the 28% rate.

Etc. 2015 numbers rounded off.

A one time tax rebate on mortgage interest is so rarely going to beat paying down an interest rate that *multiplies* continuously, it's laughable to even consider it.

But beyond that, the mortgage deduction only applies ABOVE the standard deduction. Most people completely forget that nearly everyone gets the standard deduction so the effective tax rate is significantly lower than their "tax bracket".

Any house interest on a loan smaller than roughly about $200,000 (depending on local property taxes also) doesn't even pop up above the standard deduction amount for a typical income married couple.

You have to buy a very expensive house to get even $1000 back in a typical budget.

In other words, Ed's right. On a relatively inexpensive house you'll end up "saving" only about $20,000 over the entire life of the loan in tax deductions after you bust the standard deduction line and start actually having enough interest to get any money back.

Mortgage interest tax deductions are a "feel good" thing that doesn't benefit someone as much as they think it does. It's a way to sell houses.

It's also a diminishing returns thing because most mortgages are front loaded with interest. Your best "interest deduction" year is year one. It'll never get any better than that year and it will diminish to $0 at the last payment.

The mortgage interest deduction is number 1 on Forbes list of tax myths that most people believe.

 

[azure]

When you change "tax brackets" only the money made ABOVE the break point is taxed at the higher rate. It's NOT a jump that taxes EVERYTHING you make at the higher rate.

(The number of people that don't know this, astounds me. If you knew it, apologies, but you're using all the key phrases that indicate you don't.)

It astounds me, too, that someone would not know this. Then again, if you have ALWAYS had a preparer do your taxes, maybe you wouldn't realize this. It should be obvious to anyone who has ever done their own taxes.

 

[EdFred]

I've known a number of people that keep their mortgage because they think the tax deduction saves them money. Guess how they are doing financially.

 

[denverpilot]

I've known a number of people that keep their mortgage because they think the tax deduction saves them money. Guess how they are doing financially.

People worry about the catastrophic unlikely ways to go bankrupt and rarely take the time to understand they're going bankrupt by their own actions the long slow way on the payment plan.

Waaaaay back in the day, this was what really ****ed me off about the "cash for clunkers" thing, even though it didn't have the total effect it was aiming for. Taking thousands of operable machines that young broke folks could afford to buy outright and operate at costs for insurance and fuel that were long term WAY lower than a new vehicle, and destroying them, was totally inept and stupid. Destroying the engines and engine blocks instead of allowing them to be salvaged as parts, was even stupider.

 

[MooneyDriver78]

Yes, I know how tax brackets work.
If you make enough to be in the upper brackets and live in a high tax state, like California, you could save 50%.
It's not a tax myth, it just doesn't work for everyone.
And the real estate taxes are also deductible...for anyone in the higher tax brackets, they probably have enough charity donations to put them over the standard deduction limit anyway.

 

[EdFred]

A deduction is not a credit - you never get it all back, so you aren't saving anything. The fact that you think you are saving certainly makes it seem like you don't know how it works.

 

[deonb]

And here's what my math says on guaranteed money if you have $3000/mo to throw at a house/guaranteed investment.
Best CD Rate I could find: 5Y @ 2.0%
<snip>

Pay off the house.

Well, yes of course it doesn't make sense to invest with any guaranteed rate that by nature will have to be lower than the post-tax mortgage interest rate. Efficient market theory and such. But I assume since you're willing to put this money into a property anyway, you think that real estate is a valid investment, even though it's not an absolute guaranteed one.

So I'll give you scenario 3:

Scenario 3 - Pay $900 on your house payment for 360 months and use $2100 to buy additional properties - let's say every 60 months you pull that money out of your 2% CD and buy a property for $130'000 and rent it out. You should be able to get at the very least $650 net in rent on that after management fees, upkeep reserve/HOA, insurance, and 90% avg. occupancy rate. This is from a $1000 rental income - a quick scan tells me that $130k condos in my area rents out for $1150, so $1k is very reasonable.

After 360 months:
Interest Paid on mortgage: $88,500 (the 123,000 figure above is wrong. It doesn't take the tax effect into account. I'm using the 28% bracket to get to $88,500).
Rent received and adjusted at 2% inflation rate + then re-invested at 2% CD: $515,191
Combined property values (excluding primary) after 360 months at 2% inflation: $810,317
Total received: $1,417,000
Net: $1,328,000

I'm using extremely conservative numbers above. I've never seen them that low over an extended period, even across the recession. With those numbers, after 30 years, rent at $1000 would increase to $1570, and a house bought for $130k would be $204k. And I'm allowing for $50'000 of repairs per unit over 30 years. If you think this sounds unreasonable or far fetched then that is about risk aversion rather than financial math.

If I plug in the actual rates I historically got from my own properties over the last 10 years (which spans the bubble & burst), I get a Net of about 1.75m using the starting figures above. YMMV of course.

Even if you bought at the peak of the bubble and use a 1% deflation of the property value itself, (so buying at $126k is worth $100k after 30 years), you'd be at at net of $1.070m, which is close to the CD. This has never historically happen though. It could, but then this shouldn't be your only investment.

 

[deonb]

People don't get that even at a "record low single digit interest rate!!!" that they didn't buy a $200,000 house. They bought a $323,000 mortgage.

They won't have the deed to the house for 15/30 years, and they get to maintain it for the lender in the meantime.

Yeah, except you need somewhere to live...

So you can either pay me $150'000 in rent while you save up for 10 years to buy that $200k house cash that will be closer to $240k by the time you buy it, costing you $390k overall. Or you can take out a mortgage.

As a landlord I don't personally mind - I see it as karma on those kids who didn't pay attention in math class and kept throwing paper airplanes into the back of my head.

 

[EdFred]

So you only subtract out the taxes on the interest paid but not on the income to make your numbers look better. You didn't work for the savings and loans in the 80's did you?

 

[deonb]

So you only subtract out the taxes on the interest paid but not on the income to make your numbers look better. You didn't work for the savings and loans in the 80's did you?

You would pay taxes on the CD income as well. Even worse, because CD is taxed at income tax rates all the way, where the property value escalation is taxed at capital gains rate, and only the rent received is taxed at income tax rates.

Yes, I realize both would look much worse after the effect of taxes (unless you buy them in an IRA, which you can do with both), but this is just to compare the two against each other, not to give an indication of actual value at the end.

 

[denverpilot]

Yeah, except you need somewhere to live...

So you can either pay me $150'000 in rent while you save up for 10 years to buy that $200k house cash that will be closer to $240k by the time you buy it, costing you $390k overall. Or you can take out a mortgage.

As a landlord I don't personally mind - I see it as karma on those kids who didn't pay attention in math class and kept throwing paper airplanes into the back of my head.

You assume I suggest people pay cash for houses, I don't.

I suggest they rent until they have an income level capable of paying off a traditional mortgage at a very high rate of speed, effectively turning the $100,000 they'd lose paying it over the life of the mortgage into some much much smaller number.

They have to do the math for themselves to decide what they want to pay NET for the house. My point was that people rarely price housing at NET cost. They buy a house on what the asking price was, and think that's what they're paying for it.

Let alone upkeep, improvements (if they like that sort of thing) knowing what the property taxes are going to be before purchasing, and whatnot.

Heck here in CO, something like 90%+ pay their lender to escrow their taxes for them, and it's not required. Open a savings account and pay them yourself, save $100 or $200 a year.

Or PMI. There's a fun one. Paying PMI on top of the asking price.

Point has been and will continue to be: Figure out NET cost you're willing to pay, and then shop, and have a plan for the mortgage.

Salesman babble about "you'll save on taxes with interest deductions" is debunked in five minutes with a calculator or a spreadsheet.

That's just ONE of the lies someone selling will say to you. There's plenty more. My favorite catch word in housing is when something is described as "charming"... Oh that place is going to eat you alive.

 

[deonb]

For me, it's just a peace of mind, I don't need to worry about monthly payments, what I make a month, aside from the normal power, 50buck Internet, 50buck cell phone, etc the rest is at me discretion.

This is not a bad argument. I spend dozens of hours each year managing investments and having to worry about macro-economic factors. It works out, but I certainly wouldn't want to do that after I retire.

 

[KFD]

I have Z E R O debt, house, cars, planes, all free and clear.

If you can't buy it outright (if needed) you don't need it.

Go watch "The Big Short" it's on net flix.

I don't get the The Big Short reference? He didn't play it safe he took a risk, a big risk, that paid off big. If it hadn't he would have lost everything and almost did. You could say he was heavily in debt until his bet paid off.

 

[deonb]

I suggest they rent until they have an income level capable of paying off a traditional mortgage at a very high rate of speed, effectively turning the $100,000 they'd lose paying it over the life of the mortgage into some much much smaller number.

Even the high rate of speed of payment doesn't actually work out beneficial financially. See my other post.

And that is just one way - there are other low-risk investments that return much more than you would pay in mortgage. Lending Club for example has been very good. Even during the recession rates held up to about 2% and it's around 6% the rest of the time.

The one thing you SHOULDN'T do is to buy more house that you can afford.

So I agree with you in principle - and to buy a house that you could pay off at a high speed (e.g. 7 years), but then don't actually do that. My mortgage has always been around 1 years' salary. I know for the typical American it's closer to 3 years. I can easily pay that off by selling other investments, but there's just no math that ever shows it being a good idea to do that.

This would be different of course if I was closer to retirement.

Or PMI. There's a fun one. Paying PMI on top of the asking price.

Well, do the math on that. A PMI will increase your interest rate by an effective 0.3% to 1% for you to be able to increase the mortgage value by 20%.

It has never worked out for me in planning before, but if a lender goes and offers me e.g. 0.2% I would do the math again to see where it lands. Probably still not - but point is - take control of your own finances and run all the numbers, and don't go by bullet points you read on the net.

 

[exncsurfer]

A close friend recently lost about a third of her net worth in the last stock market downturn, and this was with a very diverse portfolio following the advice of a nationally known and highly reputable investment advisor. Many of her holdings had been averaging better than 5% until then, but that was scant consolation when the worst happened.

Investing always carries some risk, but things appear to be especially unpredictable these days. For many in what used to be the middle class, the possible avenues with decent expected rates today just seem too risky.

Which downturn was that? If your friend sold at the 'bottom' that is the reason for the loss. If she didn't sell, it was a temporary 1/3 net worth loss and she is at all time highs again.

Then again, maybe I have no idea what I'm talking about.

 

[KFD]

Which downturn was that? If your friend sold at the 'bottom' that is the reason for the loss. If she didn't sell, it was a temporary 1/3 net worth loss and she is at all time highs again.

Then again, maybe I have no idea what I'm talking about.

No it's a good question. The stock market took a dive six months ago and it is at an all time high now. If she lost in 2008 again the stock market is also at an all time high relative to that. You can look at any point in the past at any large correction in the stock market in history, and then find a future point where it is higher. The key is diversification which any decent money manager can ensure subject to your risk profile. It is tempting when the market drops to sell out.., you've got to ride the waves and look at the long term picture. I personally did very well in 2014, and the first half of 2015. Then things got ugly but as of this month fully recovered.

 

[EdFred]

How is spending 100k more in interest beneficial? That's money that's just gone, if you want you can just give me 100k if it's so beneficial.

 

[EdFred]

Well, if a company declares bankruptcy and erases the stock there's no bounce back from that. GM for example.

 

[KFD]

Well, if a company declares bankruptcy and erases the stock there's no bounce back from that. GM for example.

Well that is why you diversify. If you buy only one stock... then you're an idiot pure and simple.

 

[exncsurfer]

How is spending 100k more in interest beneficial? That's money that's just gone, if you want you can just give me 100k if it's so beneficial.

Stock market maybe? 11% average returns on 20-30 year hold periods.

 

[hindsight2020]

Now there's an idea I can get behind! Can you imagine what would happen to the housing market nationally if everybody held staunchly to a 1x salary to mortgage ratio? Yeah buddy, real estate remoras and the like would be screaming and crying like scolded toddlers with soiled pants.

Instead, what we get is the assertion that 1x salary ratio gets you a dangerous shack in the ghetto, which is another way of rationalizing house-poverty. Yet nobody bats an eye or challenges the normalcy behind accepting that premise...

 

[exncsurfer]

Anyway we're getting off on a tangent, GA needs to be cheaper so I don't have to make as much in the stock market or by paying off my house to afford it.

 

[bflynn]

In terms of inflation adjusted dollars, the disposable income for Americans is 1/4th what it was 40 years ago.

It's money. If anyone wants to improve GA participation, it needs to become more affordable. Figure out how to make a brand new 140 kt airplane and sell it for under 50k and the world will beat a path to your door.

 

[KFD]

Now there's an idea I can get behind! Can you imagine what would happen to the housing market nationally if everybody held staunchly to a 1x salary to mortgage ratio? Yeah buddy, real estate remoras and the like would be screaming and crying like scolded toddlers with soiled pants.

Instead, what we get is the assertion that 1x salary ratio gets you a dangerous shack in the ghetto, which is another way of rationalizing house-poverty. Yet nobody bats an eye or challenges the normalcy behind accepting that premise...

Yeah, that's a great idea. Live in a ghetto house and then when you die leave all that cash you saved for someone else to spend.

 

[azure]

No it's a good question. The stock market took a dive six months ago and it is at an all time high now. If she lost in 2008 again the stock market is also at an all time high relative to that. You can look at any point in the past at any large correction in the stock market in history, and then find a future point where it is higher. The key is diversification which any decent money manager can ensure subject to your risk profile. It is tempting when the market drops to sell out.., you've got to ride the waves and look at the long term picture. I personally did very well in 2014, and the first half of 2015. Then things got ugly but as of this month fully recovered.

I don't recall exactly when - might have been 6 months ago, might have been longer. It was a major slump, made the national news in a big way. She planned to fire her financial planner and ask the firm for someone else, but I'm not sure what came of that. Yes, I told her the best thing she could do is ride it out... not that I'm any kind of expert since I don't play the stock market (not with past savings, anyway... my 401k invests in funds that are linked to it though). We haven't talked about it for a while so I'm not sure what she did. But my understanding is that even if she hung on, whether and how much she recovered depends on exactly what stocks she holds. Is my understanding incorrect?

 

[EdFred]

Well that is why you diversify. If you buy only one stock... then you're an idiot pure and simple.

What if you worked there, and were given a bunch of stock - or it was 1/3 of your portfolio, because, well, it' GM and it had always been solid. So you don't sell, because you're going to ride it out, and then boom, nothing.

Stock market maybe? 11% average returns on 20-30 year hold periods.

Guaranteed 11%/year? You gonna pay me out of your own pocket if I don't hit that? Better be careful answering question 18 on your medical, because you are smoking something.