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No your point is mute, I cannot go back in time and insist that my parents teach me proper financial intelligence. That falls along the same lines as "picking better parents."
No your point is mute, I cannot go back in time and insist that my parents teach me proper financial intelligence. That falls along the same lines as "picking better parents."
It's actually moot not mute. The point isn't moot though and has zero to do with picking better parents. If you made into your 20s without this knowledge it is your parent's fault. Should this be something covered in school? Absolutely. Parents however should be the ones to give their children the best opportunity to succeed at the end of the day
... The current state of affairs in America is simply the result of man's being hardwired to look out for his own self interest. ...
I agree. This is a very good thing. Individuals acting in their own enlightened self-interest clearly generates the best economic outcome for the country.
At 27, I had 3 jobs (slept little) and was $600K in debt (and would have gladly been more in debt if the bank would have given me the money). Now (nearly 20 years later), experience has only reinforced my belief that good debt, leverage and financial risk, particularly at younger ages, can be very good. Penny-pincing savings and high-salary can only get you so far.
This is taught by parents. And it is not "told," but "shown." Shown by how the parent operates their own finances/business affairs, how they model behaviors, what they expect from their children, how they encourage money-making, investment, risk, assertiveness, creativity, competition, ideas....what they give them and don't give them.
Often, this is counter to what the schools (or peers) are teaching, which is often merely to be passive workers/ followers/ students/consumers - rather than creators and leaders. Parents often need to counter this mentality by offering/encouraging other experiences that create financial drive/passion. At 14, my son is making $250/weekend, has an investment account, is building a business - this was modeled/encouraged. And yes, he has good grades, does sports/extracurriculars, is preparing for college. IMO too many put limits on what they (or their children) can do financially. Maybe they find money-making and debt distasteful, or are afraid of risk or to try new things. Maybe they are lazy. I do not think our current educational system is helping the situation.
Well, it depends on the terms of the debt contract.
If I could borrow $10,000,000 interest only at 0.5% with principal repayment delayed for 40 years, I would go for it. This would be virtually risk-free as I could just buy 30-year t-bonds and "enjoy" interest rate spread.
If I could borrow $10,000,000 with zero payments due for 40 years at 4.5% apr, I'd probably take it as well, since I could invest most in the stock market and some in other asset classes like bonds or real estate and be virtually guaranteed to come out ahead, assuming low fees and proper diversification.
However, neither of those is actually available to me in the real world.
In the real world, if I had a credit score (and it was decent), I might be able to get a $10,000 unsecured personal line of credit at 8% interest, with repayment over 3-5 years. The problem here is that if I borrowed more money and invested it in the stock market, there's a good chance my portfolio wouldn't survive the withdrawals needed to make the loan payments. If I bought t-bonds instead, I would be 100% guaranteed to lose money since I'd be borrowing at a higher rate than my capital earned. So in fact this credit line would be completely useless to me in the sense that I couldn't really expect to make money without a very large risk.
What about margin? With only ~$27,000 of equity, I couldn't get an attractive enough interest rate to make it worthwhile. The big firms only offer sub-4% rates with ginormous balances like $250,000 or $500,000. With a small balance, the interest rate would be so high (7% ish) that I have a considerable risk of a margin call within 10 years in the absence of any payments, unless I only borrowed a very small amount like 20% of the portfolio. Even then, I'd only juice my return by a very small amount. The risk of forced asset sale at the bottom of the market is not worth it in order to juice the return by a little bit.
What about consumer loans like house or car loans? The problem here is that the underlying asset has extremely high costs of ownership/upkeep and is not diversified at all.
So I have yet to be convinced that having credit would be useful to me at all without taking considerable income or asset risks - and I don't even bother to have a credit score at all. I'd change my stance if there were more attractive offers on the table, but I highly doubt that will ever happen. So I expect to stay out of debt.
Just on the margin deal we'd be closer to 8.5% on balances under 25k, 5mm plus is where it would drop under 5%. We do have flexability around that but that's the standard
Just on the margin deal we'd be closer to 8.5% on balances under 25k, 5mm plus is where it would drop under 5%. We do have flexability around that but that's the standard
Which makes me very curious how that poster got ahead by being $600,000 in debt.
I can't think of any way that I could possibly personally benefit from being $600k in debt without very large risk.
I agree. This is a very good thing. Individuals acting in their own enlightened self-interest clearly generates the best economic outcome for the country.
Really?
I don't think H. Sapiens , being a social species, would even survive without some level of altruistic behavior, much less prosper.
Well, it depends on the terms of the debt contract.
If I could borrow $10,000,000 interest only at 0.5% with principal repayment delayed for 40 years, I would go for it. This would be virtually risk-free as I could just buy 30-year t-bonds and "enjoy" interest rate spread.
If I could borrow $10,000,000 with zero payments due for 40 years at 4.5% apr, I'd probably take it as well, since I could invest most in the stock market and some in other asset classes like bonds or real estate and be virtually guaranteed to come out ahead, assuming low fees and proper diversification.
However, neither of those is actually available to me in the real world.
In the real world, if I had a credit score (and it was decent), I might be able to get a $10,000 unsecured personal line of credit at 8% interest, with repayment over 3-5 years. The problem here is that if I borrowed more money and invested it in the stock market, there's a good chance my portfolio wouldn't survive the withdrawals needed to make the loan payments. If I bought t-bonds instead, I would be 100% guaranteed to lose money since I'd be borrowing at a higher rate than my capital earned. So in fact this credit line would be completely useless to me in the sense that I couldn't really expect to make money without a very large risk.
What about margin? With only ~$27,000 of equity, I couldn't get an attractive enough interest rate to make it worthwhile. The big firms only offer sub-4% rates with ginormous balances like $250,000 or $500,000. With a small balance, the interest rate would be so high (7% ish) that I have a considerable risk of a margin call within 10 years in the absence of any payments, unless I only borrowed a very small amount like 20% of the portfolio. Even then, I'd only juice my return by a very small amount. The risk of forced asset sale at the bottom of the market is not worth it in order to juice the return by a little bit.
What about consumer loans like house or car loans? The problem here is that the underlying asset has extremely high costs of ownership/upkeep and is not diversified at all.
So I have yet to be convinced that having credit would be useful to me at all without taking considerable income or asset risks - and I don't even bother to have a credit score at all. I'd change my stance if there were more attractive offers on the table, but I highly doubt that will ever happen. So I expect to stay out of debt.
I can not speak of the particulars of your situation. I only invest in the 2 things I know: real estate and hands-on business ownership in specific industries. I know enough about the market trends, pricing/costs, regulations, tax incentives of these particular areas, but I only learned this because of the risks/failures I had in my 20's.
I do not consider cars, or even primary residences, good investments as I am not deriving income from them and they have offer no appreciation for me. Cars, primary homes, vacations, TVs, etc. are living expenses and I do not finance these. I only use loans/credit lines to 1) fund receivables/construction for businesses I know or 2) invest in real estate I know.... In my 20's, would I take out $27K @ 8% for a passive/high risk stock option play or even a fancy car? Heck no. I can do that now in my 40's because it is play $ to me now - not the instrumental tool to my success as it was in my 20's.
Those in their 20's should ask: Am I investing enough in what I know? Do I take enough risks (financially and career-wise) to potentially reap the long-term rewards? Am I overanalyzing before making key moves and missing opportunities (analysis paralysis)? If one is completely comfortable with a conservative, low-risk approach during their 20's that is fine, but it makes it harder to achieve a higher net worth later in life.
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