Comments on: Aversion to debt http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/ Personal finance, commentary, and spending less the easy way Fri, 19 Mar 2010 14:24:44 -0400 http://wordpress.org/?v=2.8.6 hourly 1 By: mbhunter http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/comment-page-1/#comment-39187 mbhunter Wed, 21 Mar 2007 03:29:54 +0000 http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/#comment-39187 Credit Card User, thanks for your comment. That's a tough one. It's once in a lifetime (hopefully) so you definitely want to do it right. But when you get right down to it, one can get married much more cheaply than what society would deem standard. You can't really do a drive-through hospital stay for an accident or a medical condition. Credit Card User, thanks for your comment.

That’s a tough one. It’s once in a lifetime (hopefully) so you definitely want to do it right. But when you get right down to it, one can get married much more cheaply than what society would deem standard. You can’t really do a drive-through hospital stay for an accident or a medical condition.

]]> By: credit card user http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/comment-page-1/#comment-38953 credit card user Mon, 19 Mar 2007 12:18:04 +0000 http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/#comment-38953 Do you consider a wedding to be an accident or a medical condition? There several types of purchases that are almost impossible to make without having a credit card. And if you are wise in managing your budget you won't have any problems paying that money off. Do you consider a wedding to be an accident or a medical condition? There several types of purchases that are almost impossible to make without having a credit card. And if you are wise in managing your budget you won’t have any problems paying that money off.

]]> By: Foobarista http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/comment-page-1/#comment-9987 Foobarista Sun, 15 Oct 2006 23:21:04 +0000 http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/#comment-9987 Yes, it's 5.5% fixed. Our investments make about 10-12% a year. Yes, it’s 5.5% fixed. Our investments make about 10-12% a year.

]]> By: mbhunter http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/comment-page-1/#comment-9986 mbhunter Sun, 15 Oct 2006 21:35:46 +0000 http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/#comment-9986 Thanks for all of the comments. Enough Wealth, I'm writing a post that responds to your comment. Your points on assessing investment risk are good. Though I don't necessarily agree that the financial markets have gotten more sophisticated since biblical times. They've gotten a lot more complicated with many more exciting ways to hang yourself. But it's still the borrower serving the lender until the debt is repaid, and there is a lot more legislation available for that to happen. (I side with SiK on this one.) Foobarista, I guess you have a fixed-rate mortgage? Thanks for all of the comments.

Enough Wealth, I’m writing a post that responds to your comment. Your points on assessing investment risk are good. Though I don’t necessarily agree that the financial markets have gotten more sophisticated since biblical times. They’ve gotten a lot more complicated with many more exciting ways to hang yourself. But it’s still the borrower serving the lender until the debt is repaid, and there is a lot more legislation available for that to happen. (I side with SiK on this one.)

Foobarista, I guess you have a fixed-rate mortgage?

]]> By: Foobarista http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/comment-page-1/#comment-9981 Foobarista Sun, 15 Oct 2006 06:54:01 +0000 http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/#comment-9981 After our assets went over our balance due on our mortgage a few years ago, we ran the numbers on paying off our mortgage versus keeping our cash and working it down, and the numbers were emphatically on the side of keeping the mortgage, to the tune of several hundred grand. I guess this would be a variant of "debt making an higher-yielding asset available", although the asset is not controlled by the debt. After our assets went over our balance due on our mortgage a few years ago, we ran the numbers on paying off our mortgage versus keeping our cash and working it down, and the numbers were emphatically on the side of keeping the mortgage, to the tune of several hundred grand.

I guess this would be a variant of “debt making an higher-yielding asset available”, although the asset is not controlled by the debt.

]]> By: fivecentnickel.com http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/comment-page-1/#comment-9978 fivecentnickel.com Sat, 14 Oct 2006 23:27:20 +0000 http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/#comment-9978 <strong>Weekly Roundup - 10/13/06...</strong> ... Weekly Roundup – 10/13/06…

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]]> By: Simplicity in Kansas http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/comment-page-1/#comment-9970 Simplicity in Kansas Sat, 14 Oct 2006 15:12:04 +0000 http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/#comment-9970 Yes financial markets are much more complex yet has behavior changed since proverbs 22:7 was written concerning the relationship between lender and borrower? I suggest not... Yes financial markets are much more complex yet has behavior changed since proverbs 22:7 was written concerning the relationship between lender and borrower? I suggest not…

]]> By: Enough Wealth http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/comment-page-1/#comment-9965 Enough Wealth Sat, 14 Oct 2006 08:02:32 +0000 http://www.mightybargainhunter.com/2006/10/14/aversion-to-debt/#comment-9965 You're halfway there... 1. Get rid of all "bad" debt - CC balances, car loans etc. 2. Live "debt free" - save up and pay cash for everything 3. Recognise that capital gains build net worth as much as income, and can be estimated as well as income (eg. share index capital gains vs. dividends). Borrow against existing net worth to invest in additional assets, as long as there is a reasonably expectation that total return (income+CG) will be greater than the interest cost of borrowing. Step 3 requires getting educated about reasonable risk and return estimates for the various asset classes, understanding of your own risk tolerance, planning to control the amount of risk you actually take on. Being frugal, paying off debt, saving and paying cash is better than living off credit. But you have to take on some investment risk if your savings are to earn more than the risk free rate (which is usually around the inflation rate). If you are truly "risk averse" than you won't get past step 2, and your net worth will only ever be a multiple of whatever part of your earned income you can save. eg. Working and saving 10% of your earned income for 40 years and earning the risk free rate on your savings you'll end up with 4x your average salary as your retirement "nest egg". Taking on some risk (eg. including stock/bond assets in your investment portfolio) but with no borrowing you could increase this to 6-8x average salary. To accumulate significant wealth via investments requires some level of debt (gearing). I think the financial markets have gotten somewhat more sophisticated since (Proverbs 22:7) was written. Regards http://enoughwealth.blogspot.com You’re halfway there…

1. Get rid of all “bad” debt – CC balances, car loans etc.
2. Live “debt free” – save up and pay cash for everything
3. Recognise that capital gains build net worth as much as income, and can be estimated as well as income (eg. share index capital gains vs. dividends). Borrow against existing net worth to invest in additional assets, as long as there is a reasonably expectation that total return (income+CG) will be greater than the interest cost of borrowing.

Step 3 requires getting educated about reasonable risk and return estimates for the various asset classes, understanding of your own risk tolerance, planning to control the amount of risk you actually take on.

Being frugal, paying off debt, saving and paying cash is better than living off credit. But you have to take on some investment risk if your savings are to earn more than the risk free rate (which is usually around the inflation rate).

If you are truly “risk averse” than you won’t get past step 2, and your net worth will only ever be a multiple of whatever part of your earned income you can save. eg. Working and saving 10% of your earned income for 40 years and earning the risk free rate on your savings you’ll end up with 4x your average salary as your retirement “nest egg”. Taking on some risk (eg. including stock/bond assets in your investment portfolio) but with no borrowing you could increase this to 6-8x average salary. To accumulate significant wealth via investments requires some level of debt (gearing).

I think the financial markets have gotten somewhat more sophisticated since (Proverbs 22:7) was written.

Regards
http://enoughwealth.blogspot.com

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