Search found 3092 matches

by Harold
Thu Jun 15, 2017 8:29 pm
Forum: Personal Finance (Not Investing)
Topic: Help with Second to Die Policy
Replies: 21
Views: 3144

Re: Help with Second to Die Policy

I looked at your single woman age 66 illustration. Your calculations are correct (and you've got an impressive commitment to getting it right). Mathematically what's happening is that using the expected lifetime (i.e. the sum of the probabilities of survival to each year) results in full payments being made throughout the expected lifetime (then a payout occurring with no further activity) whereas using the intervening probabilities sums expected payments/payouts throughout the full possible lifetime. Specifically in the expected lifetime approximation, full premium payments are made in the earlier years, and the insurance payout doesn't occur until the end of the period; whereas in the more actuarially precise approach, partial premium pay...
by Harold
Sun May 03, 2015 6:58 pm
Forum: Personal Consumer Issues
Topic: Will you buy self-driving car?
Replies: 235
Views: 27967

Re: Will you buy self-driving car?

Most drivers who find themselves in a self-driving car are going to be absolutely shocked by what safe driving really is. They're going to be looking for any override they can so they can cruise through crosswalks making pedestrians step back, gun it through the yellow light, speed, cut people off, and on and on. That is, safe driving is so alien to normal driving behavior it's going to seem bizarre as if something is very wrong. I'm probably looking forward to that awakening more than anything about this new technology. I suspect it's going to end up being more like shared car services anyway, at least in the cities. Kind of like Uber technology where you just summon a driverless car to get where you need to go, then summon another one to ...
by Harold
Tue Apr 21, 2015 10:27 am
Forum: Personal Consumer Issues
Topic: Dealing with tourists taking photos. Etiquette question.
Replies: 34
Views: 5630

Re: Dealing with tourists taking photos. Etiquette question

I suspect you'll get different answers, or at least different perspectives, depending on whether someone walks as a primary mode of transportation (e.g. an urban resident) or sees walking as a recreational activity (e.g. suburbanite who drives everywhere). I regularly cross the Golden Gate Bridge on foot -- it's the only way between San Francisco and Marin. As you might imagine I regularly encounter tourists in my way. What people don't seem to consider is that the sidewalk is the pedestrian's traffic lane. If you're blocking the sidewalk, it's as if you were driving and just decided to stop in the middle of the lane to take pictures or do whatever you wanted to do without regard for the people behind you. I don't even break stride. Of cour...
by Harold
Mon Apr 13, 2015 8:55 pm
Forum: Investing - Theory, News & General
Topic: would "flight to safety" go to bonds after all?
Replies: 32
Views: 4198

Re: would "flight to safety" go to bonds after all?

I read these threads and wonder if the investors who think bonds are less safe than stocks or whatever really even understand investing at all. All investing is a claim on future cash. Bonds are contractual/legal claims on precisely defined amounts of cash, and you even get to select the range of risk from iffy issuers to the as rock-solid as there has ever been US government. You can't get more "safe" than that. By contractual/legal definition that is safer than stock cash flows (which depend totally on the future fortunes and judgment of the enterprise), safer than real estate (whose rents will vary depending on the market), and certainly safer than gold (which isn't generating any cash at all). Sure the bond prices will move ar...
by Harold
Wed Apr 08, 2015 10:36 am
Forum: Investing - Theory, News & General
Topic: Do you think Ric Edelman is correct, never pay down mortgage
Replies: 407
Views: 111048

Re: Do you think Ric Edelman is correct, never pay down mort

By your logic, you could say that about nearly every investor in America, including very many bogleheads: anyone who has a mortgage and also holds fixed income while not seeing that their risk level is 'higher' than their portfolio aa suggests is making a suboptimal decision in your view. It has nothing to do with deciding to prepay the mortgage with available cash or not. Yeah, most people tend to lose a little bit of their financial minds when they take out a mortgage to buy a home. There are of course other factors when deciding cost (e.g. the advantages of tax sheltered accounts, taxes on liquidating gains, etc.) but in general most people don't seem to have fully framed it well, understood risks, and thought through the efficiency of ...
by Harold
Tue Apr 07, 2015 7:40 pm
Forum: Personal Finance (Not Investing)
Topic: Nailed it! $223,199/yr: magic# for making it in SF Bay Area
Replies: 117
Views: 20586

Re: Nailed it! $223,199/yr: magic# for making it in SF Bay A

One huge draw to the SF Bay Area is the belief that you can get rich quickly here. Many techies flock to start ups in the hopes that Google acquires them or goes IPO. The 50 person startup that got acquired by Facebook for $19 billion? They're heroes here. Nowhere else can some kid in their 20s or 30s become a multimillionaire overnight like here. Obviously the odds are still extremely low to hit it rich, but long odds never stopped a kid from dreaming about making it to the NBA. It's just that now, an unathletic enginerd can now dream that he'll land millions. A young guy I play basketball with here in SF (a software developer) who looks up to me for financial stuff casually mentioned one day between games that all he wants is $2M and he'...
by Harold
Tue Apr 07, 2015 7:30 pm
Forum: Investing - Theory, News & General
Topic: Do you think Ric Edelman is correct, never pay down mortgage
Replies: 407
Views: 111048

Re: Do you think Ric Edelman is correct, never pay down mort

letsgobobby wrote:but that doesn't mean taking on the risk was wrong or irrational.
Of course it doesn't mean taking risk was wrong. A person's desired risk level is the fundamental decision an investor makes. High risk isn't financially wrong, low risk isn't financially wrong.

Where people go wrong is thinking that one is financially better than the other. Once an investor has decided his risk level, the prudent financial decisions are to make the lowest cost (hence highest return) investments at each risk level. That's the crux of why maintaining a mortgage is generally a suboptimal choice. Usually the investor is either at a different risk level than desired or isn't taking the risk most efficiently, often both.
by Harold
Tue Apr 07, 2015 3:55 pm
Forum: Investing - Theory, News & General
Topic: Do you think Ric Edelman is correct, never pay down mortgage
Replies: 407
Views: 111048

Re: Do you think Ric Edelman is correct, never pay down mort

Harold, "People love their debt -- that's the real message from these threads." Far from it. In fact I detest debt but make the mathematically and financially optimal decision to keep my mortgage in spite of my feelings. It's fair to say your interpretation and mine of this thread and this matter could not be more diametrically opposed! The real psychological artifact of interest is why so many of us hold both a mortgage and any fixed income, but that is for another thread. The thing is that it probably wasn't the mathematically and financially optimal decision. Fortunately, it seems to have worked out well for you. Without knowing your details (and I don't need to know), it sure seems like you've used the mortgage to free up mon...
by Harold
Tue Apr 07, 2015 9:51 am
Forum: Investing - Theory, News & General
Topic: Do you think Ric Edelman is correct, never pay down mortgage
Replies: 407
Views: 111048

Re: Do you think Ric Edelman is correct, never pay down mort

People love their debt -- that's the real message from these threads. The rest is just chatter with people trying to rationalize it as being a savvy financial decision, presumably because it frees up more cash to be "in the game" and that makes people feel more like serious players. Since the actual prudent financial conclusions are straightforward, the behavioral finance aspect of it is most interesting to me. The psychological element is almost all on the side of those maintaining their debt (downplaying costs and risk, upplaying gains, misusing math and economics to justify their positions, etc.). Yet the relentless drumbeat is that those who pay off their mortgages are the ones giving in to human psychological weaknesses, push...
by Harold
Sat Apr 04, 2015 3:26 pm
Forum: Personal Finance (Not Investing)
Topic: Renting in Retirement - Considerations?
Replies: 53
Views: 7580

Re: Renting in Retirement - Considerations?

- historically, real estate prices didn't increase as much as stock returns (well, I remember reading it, but didn't gather data points) Here are the most obvious data sets to look through, the Case-Shiller home price index (inflation adjusted) and total S&P 500 return (inflation adjusted, including dividends, with the usual extension backwards to times before the S&P 500 officially existed): http://www.multpl.com/case-shiller-home-price-index-inflation-adjusted/ http://www.advisorperspectives.com/dshort/updates/Total-Return-Roller-Coaster.php I think you will notice that one chart needs a log scale on the y axis and the other doesn't. :wink: That said, there are some very flat periods on both, and any given housing market may dive...
by Harold
Wed Apr 01, 2015 11:42 am
Forum: Personal Finance (Not Investing)
Topic: Another reason why BHs pay off mortgage early?
Replies: 51
Views: 11709

Re: Another reason why BHs pay off mortgage early?

Motivation for this thread: I found in another poll, BHs tend to pay off loans early. I'm trying to explain their behavior. If the poll results are an accurate reflection of the forum in general, there's an even more simple explanation. Forum participants are more financially savvy than average, and paying off the mortgage is generally the best pure financial move. For someone who has thought through his desired risk level, the tax-adjusted mortgage is generally costing more than an investment of equivalent risk -- so the best financial move is generally to pay it off (with a few exceptions such as tax consequences of selling assets tilting the balance towards maintaining the mortgage). In keeping with spirit of the thread, this is simply ...
by Harold
Wed Apr 01, 2015 11:16 am
Forum: Personal Finance (Not Investing)
Topic: Corporate Finance vs Personal Finance
Replies: 9
Views: 3807

Re: Corporate Finance vs Personal Finance

A big one is that many people try to use a personal balance sheet to justify having debt, as if Modigliani-Miller says it doesn't matter how they structure their personal finance. The reality is that maintaining unnecessary debt is generally a suboptimal financial strategy for individuals. (I know people love their debt and will resist that. I don't care to argue about it -- do what you want.) But there are aspects of personal finance that don't seem to apply to corporate finance. How would a corporation value a pension benefit (that it is receiving, not that it is paying) on its books? How about a lifetime annuity? This example is one where it would be the same. There's a clear actuarial approach for determining the value. Corporations use...
by Harold
Thu Mar 26, 2015 10:10 am
Forum: Investing - Theory, News & General
Topic: Why Bonds With 20 Year Horizon?
Replies: 73
Views: 12014

Re: Why Bonds With 20 Year Horizon?

Seems INCREDIBLY likely that stocks will beat bonds over any 20 year period in the next 50 years. In the context of investors questioning whether anyone should own bonds over the longer term, I simply commented that we don't know whether stocks will outperform bonds -- and we don't even know whether stocks are expected to outperform. The responses to my comment included the overly confident - of course we know that , a definitionally incorrect - by definition the expected return of equities as an asset class is higher , and the psychologically interesting - would not hold any stocks if I didn't expect higher returns . An investor holding the latter point of view may well have a distribution in mind with a positive expected return, but that...
by Harold
Wed Mar 25, 2015 10:59 am
Forum: Investing - Theory, News & General
Topic: Why Bonds With 20 Year Horizon?
Replies: 73
Views: 12014

Re: Why Bonds With 20 Year Horizon?

The reality is that we don't know. We don't know the distribution of future returns, and we don't know whether stocks have a higher expected return or not. Of course we know that stocks have a higher expected return. We know that Treasury bonds are virtually risk free and that equities are riskier. Therefore we "expect" that equities will have a higher return because we know that people will demand more reward to take on that risk. (See William Sharpe on CAPM.) But just because we expect something does not mean it will happen. It is a risky investment by definition. No, we don't know that . I realize that many people take it as a given, but that doesn't make it true. (I'm not saying they won't outreturn, and I have plenty of stoc...
by Harold
Wed Mar 25, 2015 10:42 am
Forum: Investing - Theory, News & General
Topic: Why Bonds With 20 Year Horizon?
Replies: 73
Views: 12014

Re: Why Bonds With 20 Year Horizon?

The reality is that we don't know. We don't know the distribution of future returns, and we don't know whether stocks have a higher expected return or not. Of course we know that stocks have a higher expected return. We know that Treasury bonds are virtually risk free and that equities are riskier. Therefore we "expect" that equities will have a higher return because we know that people will demand more reward to take on that risk. (See William Sharpe on CAPM.) But just because we expect something does not mean it will happen. It is a risky investment by definition. No, we don't know that. I realize that many people take it as a given, but that doesn't make it true. (I'm not saying they won't outreturn, and I have plenty of stock...
by Harold
Wed Mar 25, 2015 9:38 am
Forum: Investing - Theory, News & General
Topic: Why Bonds With 20 Year Horizon?
Replies: 73
Views: 12014

Re: Why Bonds With 20 Year Horizon?

I'm just fascinated by the confidence with which people proclaim that stocks will outperform (and in a big way). Whether it's false bravado or simply an illustration of how we fool ourselves into thinking we know more than we really do, it's quite remarkable. (And less interesting, but still predictable, is how the confidence builds after several years of outperformance.) The reality is that we don't know. We don't know the distribution of future returns, and we don't know whether stocks have a higher expected return or not. About all we do know is that structurally stock prices will be far more volatile than bond prices (because the income streams are more volatile) and that future returns are heavily dependent on current prices. (That is,...
by Harold
Tue Mar 24, 2015 10:22 am
Forum: Investing - Theory, News & General
Topic: The one area I disagree with Jack
Replies: 93
Views: 14178

Re: The one area I disagree with Jack

Dandy wrote:Equities also provide an income stream - but just because of that feature we wouldn't think of it as bond like. What is the point of this mischaracterization?
Equities are another example of a capitalized income stream -- same with real estate. The income stream doesn't make a bond a bond, it's the type of agreement and defined nature of the payment.

Any true investment is a capitalized income stream of value greater than the original capital itself -- that's how capitalism adds economic value. (And if you want further insight into how Bogle is thinking, that's why he doesn't see something like gold as an investment -- because it's not generating income.)
by Harold
Mon Mar 23, 2015 11:05 am
Forum: Investing - Theory, News & General
Topic: The one area I disagree with Jack
Replies: 93
Views: 14178

Re: The one area I disagree with Jack

fake "bonds" You'd come across as less strident and dramatic if you focused on what your concerns apparently are, namely that Social Security isn't a marketable bond and that the use of Social Security is encouraging an unwarranted increase in risk. (I too think the constant drumbeat to increase risk is unhelpful at the least, and probably dangerous.) the mental accounting occurs when you magically turn an income steam into an asset ... counting some present value of future income streams as a bond to fool yourself You're writing this as if you don't realize that bonds are income streams that people turn into an asset. I suppose Mr. Market is a good enough magician that people don't see the alchemy that goes into determining the ...
by Harold
Sun Mar 22, 2015 12:22 pm
Forum: Personal Consumer Issues
Topic: Restaurant tipping
Replies: 200
Views: 55532

Re: Restaurant tipping

For anyone who's counting: I tip 20%. I'd rather that money were already added into the price and we got rid of tipping. I have read that some cities (San Franciso? Portland?) have required wait staff base pay to be minimum wage or more. Are there people who live in those places or have visited and eaten somewhere like that who can comment on how it has affected menu pricing and tipping? In San Francisco, servers are guaranteed the same minimum wage as everyone else. Currently $11.05, it will gradually increase to $15 by 2018. The servers, generally good and professional, fully expect 20% tips on top of that. (As with employees in almost any profession, servers feel they deserve every bit of their pay and more.) Whenever a discussion arise...
by Harold
Sun Mar 22, 2015 11:20 am
Forum: Investing - Theory, News & General
Topic: The one area I disagree with Jack
Replies: 93
Views: 14178

Re: The one area I disagree with Jack

Assets are assets and streams of income are just that. For insight into why some pretty smart people think otherwise, consider that all true investments are streams of income: Stocks - dividends/earnings, Bonds - dividends, Real Estate - rents. The price of each investment "asset" is the present value of those income streams. Capital is converted to an income stream of greater value than the original capital, thereby increasing overall economic assets -- that's capitalism. The only question is where to draw the line. Few (if any) would claim stocks/bonds/real estate aren't assets, many would draw the line at where there are active markets setting the prices for these income streams, and some (e.g. Bogle) include reliable income s...
by Harold
Sat Mar 21, 2015 4:40 pm
Forum: Investing - Theory, News & General
Topic: The one area I disagree with Jack
Replies: 93
Views: 14178

Re: The one area I disagree with Jack

Since capitalizing Social Security (or any income stream) is mathematically straightforward, that part is trivial. Whatever floats your boat. However, your asset allocation should differ depending on which approach you take. That is, whether you capitalize or not shouldn't change the assets you are putting at risk -- you should get the same answer either way. That leads to the more interesting question for me. When did Bogle start saying this, and why? What he clearly seems to be implying is that investors are now able to take more risk. This follows a general trend towards increased risk-taking, which is understandable from the financial industry, but less understandable from Bogle. If there's any validity to the trend, I'd be interested i...
by Harold
Mon Mar 16, 2015 8:11 pm
Forum: Investing - Theory, News & General
Topic: Should you hold bonds and a mortgage at the same time?
Replies: 90
Views: 12592

Re: Should you hold bonds and a mortgage at the same time?

madbrain wrote:he would have significantly less risk by having a house, a mortgage, and a portfolio with some bonds and some stocks
And if he doesn't make his mortgage payments, he risks losing a half million dollar asset.
madbrain wrote:Is it even a serious argument about which approach is more prudent ?
It's not an argument at all. You either see a more comprehensive point of view, or you don't. I've got no intentions of arguing about it.
by Harold
Mon Mar 16, 2015 7:29 pm
Forum: Investing - Theory, News & General
Topic: Should you hold bonds and a mortgage at the same time?
Replies: 90
Views: 12592

Re: Should you hold bonds and a mortgage at the same time?

Under the conditions stated by countmein in the original post, financially speaking he should sell bonds to pay for the house. A prudent investor doesn't willfully choose to lose money. (If he takes on the mortgage, he loses money whether he compartmentalizes his investments or not.) So, you actually think it would be prudent for the investor to sell all his bonds to pay for the house, and then be left with a 100% stock portfolio, which is a completely different portfolio AA than he had as a renter ? That does not seem very prudent to me. Yes, absolutely. It's the purchase of the house that made the shift in assets. He'd still be 100% stocks if he took on a mortgage, he'd just be getting lower returns. If he wants, he can sell some of his ...
by Harold
Mon Mar 16, 2015 7:17 pm
Forum: Investing - Theory, News & General
Topic: Poll: When to pay down debt rather than invest
Replies: 49
Views: 8498

Re: Poll: When to pay down debt rather than invest

Why would the interest rate matter?

Interest rates are the result of what the market is willing to pay for cash flows at varying levels of risk. At any given time, your debt is either costing you in comparison to investments of equivalent risk, or it's making you money (most likely the former).

Or maybe you all are changing how much risk you are taking, based on what returns are -- which is an undisciplined and potentially dangerous approach. (And conversely, if you are doing that why do it only when rates are low?)
by Harold
Mon Mar 16, 2015 7:02 pm
Forum: Investing - Theory, News & General
Topic: Should you hold bonds and a mortgage at the same time?
Replies: 90
Views: 12592

Re: Should you hold bonds and a mortgage at the same time?

acegolfer wrote:
KlangFool wrote: Johno,

TS has 1 millions in investment asset. Follow your logical thinking, he should sell his bond to pay for the house. So, he has a 400K house and 600K investment. Now, does this make any financial sense??
KlangFool
To others,

Is this financially wrong? Can anyone enlighten me?
Under the conditions stated by countmein in the original post, financially speaking he should sell bonds to pay for the house.

A prudent investor doesn't willfully choose to lose money. (If he takes on the mortgage, he loses money whether he compartmentalizes his investments or not.)
by Harold
Mon Mar 16, 2015 9:52 am
Forum: Investing - Theory, News & General
Topic: Should you hold bonds and a mortgage at the same time?
Replies: 90
Views: 12592

Re: Should you hold bonds and a mortgage at the same time?

If it's already been made, then what is there to talk about ? Seems clear to me he's asking whether to sell his bonds to buy the house, or whether to take out a mortgage instead. Further he says the mortgage is at a significantly higher interest rate than the bonds are paying, and that tax/capital gain consequences are negligible. Based on that, from a pure financial perspective the answer to his question is no -- he shouldn't hold bonds and a mortgage at the same time. The mortgage would cost him more, and the "negative bond" approach helps him see that (but the mortgage still costs him more even if he doesn't use the "negative bond" approach and considers housing totally separate from investing). you are simply are no...
by Harold
Sat Mar 14, 2015 7:38 pm
Forum: Investing - Theory, News & General
Topic: Should you hold bonds and a mortgage at the same time?
Replies: 90
Views: 12592

Re: Should you hold bonds and a mortgage at the same time?

My way out is simply to declare that the house is something special and not incorporate it into the AA. After all, it is saving you rent and that rent wasn't part of the AA either. (I am not confusing the house asset with the mortgage asset here -- it's the former that's saving you rent, not the latter). Living in the house isn't saving rent either. It's consuming the imputed rental income that the owner would have received if he were renting it to someone else. The usual way out of that is to pretend that the house isn't an asset generating income (i.e. isn't an investment). But that of course is problematic too, ignoring major assets/investments merely due to convenience. Well, except I would never want to be a landlord and take care of ...
by Harold
Sat Mar 14, 2015 7:18 pm
Forum: Investing - Theory, News & General
Topic: Should you hold bonds and a mortgage at the same time?
Replies: 90
Views: 12592

Re: Should you hold bonds and a mortgage at the same time?

ogd wrote:My way out is simply to declare that the house is something special and not incorporate it into the AA. After all, it is saving you rent and that rent wasn't part of the AA either. (I am not confusing the house asset with the mortgage asset here -- it's the former that's saving you rent, not the latter).
Living in the house isn't saving rent either. It's consuming the imputed rental income that the owner would have received if he were renting it to someone else. The usual way out of that is to pretend that the house isn't an asset generating income (i.e. isn't an investment). But that of course is problematic too, ignoring major assets/investments merely due to convenience.
by Harold
Sat Mar 14, 2015 6:02 pm
Forum: Investing - Theory, News & General
Topic: Should you hold bonds and a mortgage at the same time?
Replies: 90
Views: 12592

Re: Should you hold bonds and a mortgage at the same time?

Aptenodytes wrote:2) There's absolutely no way that you could justify, on the merits, 1:1 fungibility between a house and bond investments. House values are far more volatile than bond prices. A major function of bonds is to provide ballast to what would otherwise be a very volatile portfolio. Your new house will not provide that function. Your house value could fall by a third and never recover -- bonds won't do that.
He's not asking whether he should own bonds and a house at the same time -- he's asking whether to hold bonds and a mortgage at the same time.

(Whatever volatility the house has is going to be the case whether he has a mortgage or not.)
by Harold
Thu Mar 12, 2015 3:45 pm
Forum: Personal Finance (Not Investing)
Topic: What are some common misconceptions found in this forum?
Replies: 209
Views: 26909

Re: What are some common misconceptions found in this forum?

Even that is unproven. Economics would suggest that the price increases to capture any excess expectation due to risk. An open question is that if it doesn't (i.e. if a positive expected return remains) why? There are varying estimates of how much expected return should remain -- including zero, which means there would be no higher expected return at all. Whatever the ultimate answer turns out to be, there's certain to be more volatility with riskier investments as prices continually recalibrate based on uncertain cash flows -- and an investor can win big with upward volatility. But rather than being the self-evident statement of fact that is usually made, positive expected return is at the moment not known. Interesting. T/F? High risk, hi...
by Harold
Thu Mar 12, 2015 3:36 pm
Forum: Personal Finance (Not Investing)
Topic: What are some common misconceptions found in this forum?
Replies: 209
Views: 26909

Re: What are some common misconceptions found in this forum?

Higher risk means higher expected returns - Past data says yes, economic/financial principles say no I thought that's the investments principle. What does the economics say? The economic principle is higher undiversifiable risk means higher expected return. That adjective makes all the difference (and by some definitions makes it a tautology.) Even that is unproven. Economics would suggest that the price increases to capture any excess expectation due to risk. An open question is that if it doesn't (i.e. if a positive expected return remains) why? There are varying estimates of how much expected return should remain -- including zero, which means there would be no higher expected return at all. Whatever the ultimate answer turns out to be,...
by Harold
Thu Mar 12, 2015 2:46 pm
Forum: Personal Finance (Not Investing)
Topic: What are some common misconceptions found in this forum?
Replies: 209
Views: 26909

Re: What are some common misconceptions found in this forum?

You all are going for the lighter topics, but I prefer to remove bricks from the foundations of investor psyches: Higher risk means higher expected returns - Past data says yes, economic/financial principles say no -- and perhaps the biggest open problem in finance to prove one way or the other. Stock risk diminishes over longer holding periods - As with the above, this assertion is reliant on past data and is counter to economic principles -- unproven one way or the other, and dependent on which aspects of risk are considered. Risk outside of retirement accounts should be ignored when choosing an asset allocation - Mortgages and other loans, as well as other non-retirement risks, should be considered -- in no small part because people with...
by Harold
Mon Mar 09, 2015 10:20 pm
Forum: Personal Finance (Not Investing)
Topic: Do you consider mortgage payments as savings?
Replies: 414
Views: 46567

Re: Do you consider mortgage payments as savings?

basspond wrote:Thanks for setting me straight on this. My actual personal finances aren't in the same shape as my government's, because I do not count these virtual savings.
You're still completely missing the concept, and quite frankly you're very likely making financial mistakes that could be avoided.
by Harold
Mon Mar 09, 2015 7:18 pm
Forum: Personal Finance (Not Investing)
Topic: Do you consider mortgage payments as savings?
Replies: 414
Views: 46567

Re: Do you consider mortgage payments as savings?

basspond wrote:All the reasons I have seen to classify debt payments as savings just don't add up in the real world. The virtual world, maybe.
No, they align perfectly in the real world. It's a crisp and clear method of classifying income that serves many people well (and serves governments well, in the accounts of individual income that comprise national income and GDP).

It just differs from how your mind is currently viewing it.
by Harold
Mon Mar 09, 2015 3:50 pm
Forum: Personal Finance (Not Investing)
Topic: Do you consider mortgage payments as savings?
Replies: 414
Views: 46567

Re: Do you consider mortgage payments as savings?

No it isn't. Most loans are taken out by consumers to buy stuff with. I took a $60 loan on my Visa card last night to buy dinner with. In fact, I will essentially SPEND some of my retirement savings to pay that short term loan off... My response was in the context of the traditional definition. You are free to define terms however you would like. The definition you made up has an obvious shortcoming though. Once money is loaned, it is no longer tied to its original purpose. In your example, the $60 loan could be seen as paying for dinner but it could also be seen as replacing the $60 in your wallet that would otherwise have gone to paying for dinner. Or better for the context of this thread, probably everyone with a mortgage reading this o...
by Harold
Mon Mar 09, 2015 9:42 am
Forum: Personal Finance (Not Investing)
Topic: Do you consider mortgage payments as savings?
Replies: 414
Views: 46567

Re: Do you consider mortgage payments as savings?

Valuethinker wrote:maybe the problem is people cannot get their heads around 2 separate but related things?

- paying down a loan (which is a form of investing)

- increasing your housing equity (which is a volatile asset)

You can pay down your mortgage but still lose money if the housing market drops.
It's probably that. And even more basic, they're probably stuck on the (flatly incorrect) old saw that their mortgage is their rent -- so they're convinced that their mortgage is their housing consumption.

edit: fixed the quoting
by Harold
Mon Mar 09, 2015 9:27 am
Forum: Personal Finance (Not Investing)
Topic: Do you consider mortgage payments as savings?
Replies: 414
Views: 46567

Re: Do you consider mortgage payments as savings?

swaption wrote:since a reply implies some form of debate
And Amen to that!

Folks here will endlessly argue fully known topics, as if they were some modern-day Thales needing to make sense of the world around them without using a framework established by prior thinkers.

(And it's not like there aren't topics that are unknown -- there's at least one unsupported and unproven one that is fully accepted as true on this forum, but it's got nothing to do with mortgages.)
by Harold
Mon Mar 09, 2015 9:22 am
Forum: Personal Finance (Not Investing)
Topic: Do you consider mortgage payments as savings?
Replies: 414
Views: 46567

Re: Do you consider mortgage payments as savings?

madbrain wrote:
Harold wrote: Paying down the mortgage is economically equivalent to investing in stocks, or anything else you might do with savings.
By your own definition, paying down the mortgage is equivalent to spending, since spending is, after all, "something you might do with your savings".

Paying down the mortgage is more "economically equivalent" to paying down the margin loan you used to buy stocks. It is not equivalent to buying the stock itself.
No, you are incorrect (at least using established definitions -- you are free to make your own definitions). I gave an ample explanation for why, for you to read if you would like.

Paying down any loan is savings.
by Harold
Sun Mar 08, 2015 11:55 am
Forum: Personal Finance (Not Investing)
Topic: Do you consider mortgage payments as savings?
Replies: 414
Views: 46567

Re: Do you consider mortgage payments as savings?

With all this discussion, you'd think this was about the greatest unsolved economic problem of all time! The fields of economics and finance have already arrived at solid definitions providing a useful framework for organizing our economic and financial lives, from the global affairs of nations to the day-to-day interactions of individuals. In that framework, the question of whether a mortgage payment is savings is crystal clear. When someone buys a house, it's a transfer of assets/liabilities. Either it's a direct exchange (e.g. sells $500K in stocks to buy the house in cash) or he takes out a mortgage (i.e. takes on a $500K liability to get $500K cash), or more generally a combination of the two. This is just a transfer, with no relation ...
by Harold
Wed Mar 04, 2015 3:33 pm
Forum: Personal Finance (Not Investing)
Topic: Not Interested in Ever Owning Real Estate
Replies: 35
Views: 5405

Re: Not Interested in Ever Owning Real Estate

You can put your mind at ease. Financially speaking, if you're a disciplined saver it flat out doesn't matter. (Well it does matter, but there's no way to know now whether buying or renting is the better choice, just as you don't know whether domestic or international stock investing is the better choice.) The value of the house is the net rents it generates. When you buy a house to live in, you pay all the rents up front and consume the rental income during the time you live there (by not receiving the cash proceeds from your investment). Then when you sell the house someone else gives you the value of the rents it will generate from that point forward. If instead of buying a house to live in, you rent -- then you can buy some other invest...
by Harold
Thu Jan 22, 2015 6:37 pm
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 12062

Re: What counts as "saving"?

leonard wrote:Argument clarifies ideas. Have no idea why you view that as negative.
Quite honestly, I don't see ideas being clarified. I see muddled thinking and hardened "argue to win, rather than patiently learn where one is mistaken" stances. If you like that, that's fine -- but to most rational people that would be viewed as negative.
by Harold
Thu Jan 22, 2015 5:10 pm
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 12062

Re: What counts as "saving"?

What benefit do you get from calling loan prepayment "savings"? You pose the question as if you are looking for an answer, but the tone of your responses suggest you may be merely interested in arguing. I'll respond in the spirit of the former, but have no interest in the latter. Using the Economics definition, paying down debt from income is savings. You're free to define words however else you would like, but you're not going to find agreement -- and without clearly defined terms arguments are pointless. From a personal finance perspective, a clear advantage to using the word savings in the traditional economics manner is that people will have a better perspective on debt repayment decisions. Over and over again you'll see peop...
by Harold
Tue Jan 20, 2015 7:09 pm
Forum: Personal Consumer Issues
Topic: Why are fruits not cheaper in California?
Replies: 28
Views: 5171

Re: Why are fruits not cheaper in California?

You obviously haven't tried shopping for produce in San Francisco's Chinatown.

It's a wide variety being sold under pure frenetic competition, and the prices reflect that.
by Harold
Tue Jan 20, 2015 7:07 pm
Forum: Personal Consumer Issues
Topic: Florida in the summer [thinking about moving there]
Replies: 132
Views: 18858

Re: Florida in the summer

englishgirl wrote:isn't there also a cognitive bias that you think we are trying to defend our choices of suffering through a miserable summer, because we feel we have to defend where we live as being perfect?
Perhaps. For whatever reason, whether on my end or theirs, I'm fascinated by the phenomenon.

People everywhere adapt to, and even learn to enjoy, whatever their prevailing climate is. But Floridians stand out as particularly boastful about theirs, and the uncomfortable heat and humidity -- which even Floridians find uncomfortable, otherwise they wouldn't be blasting air conditioning everywhere -- makes that boasting seem a bit without substance and at least raises the question of why bragging is needed.
by Harold
Tue Jan 20, 2015 11:06 am
Forum: Personal Consumer Issues
Topic: Florida in the summer [thinking about moving there]
Replies: 132
Views: 18858

Re: Florida in the summer

VictoriaF wrote:cognitive biases
Remarkable how biases shape how people think and view the world around them. The "Florida defense" is indeed a good illustration, and quite frankly the main reason I continue reading this forum is because I'm enthralled by the behavioral finance cognitive biases continually being displayed -- with those displaying them apparently having no idea and getting very defensive when questioned. Fascinating stuff!
by Harold
Tue Jan 20, 2015 9:42 am
Forum: Personal Consumer Issues
Topic: Florida in the summer [thinking about moving there]
Replies: 132
Views: 18858

Re: Florida in the summer

If you want wonderful year-round weather, move to California. If you can tolerate miserable summers (and they are miserable) move to Florida. If you can tolerate brutal winters, stay where you are. Of course climate control helps with both the Florida summer and the northern winter.

No doubt Florida's got many attributes (every place people live has something interesting and worthwhile about it) -- but it's beyond me why people brag about the weather there as if it were perfect. Best I can tell, it's just that it's a lot better than the northern-tier states where those bragging came from.
by Harold
Tue Jan 20, 2015 9:32 am
Forum: Personal Finance (Not Investing)
Topic: What counts as "saving"?
Replies: 128
Views: 12062

Re: What counts as "saving"?

From an Economics perspective, saving is very clearly defined as deferred consumption. One is either spending his income on consumption, or he is saving it for future consumption. Debt repayment is, from an Economics perspective, saving. That isn't merely semantics valid in an abstract academic world -- it can help people make solid financial decisions. Often (usually, always?) paying down debt is the most prudent investment one can make. People who view debt repayment as something different often struggle with whether to pay off debt or invest, without realizing that economically speaking there's no distinction between the two -- and often end up making imprudent financial decisions (or at least make the process unnecessarily complicated)....
by Harold
Tue Jan 13, 2015 7:41 pm
Forum: Personal Finance (Not Investing)
Topic: Will young get social security?
Replies: 13
Views: 1769

Re: Will young get social security?

I would expect anyone forced to pay into a system to demand their due share as an entitlement People would be far less angry if they used language displaying an understanding of the system. Rather than being "forced to pay into a system", they are being taxed -- and presumably they don't get frothing angry about their sales tax or whatever. And there is no "due share" -- their taxes are paying benefits to someone (maybe even someone they care about). When they retire, they'll get benefits that someone else is paying for. And so it goes. About your question itself, nobody knows the answer for sure -- but given the unpreparedness of current retirees, the system is needed more than ever. Hard to imagine a scenario where it...
by Harold
Fri Jan 09, 2015 7:55 pm
Forum: Investing - Theory, News & General
Topic: Help clarify "expected future return"
Replies: 12
Views: 1315

Re: Help clarify "expected future return"

Say a stock trading at $100 a share is expected to earn 10% annually. That is, at some point we expect 10% annual returns to be realized.

To keep it simple, let's say we're expecting the share to be worth $110 a year from now.

Now, let's say halfway through the year the share price has dropped 1.6% to $98.39. Since we thoroughly analyzed the business and so on, we're still confident it will be worth $110 at the end of the year. That means we're now expecting a 25% annual return.

There are all kinds of problems with this manner of thinking (starting with nobody knowing what the expected return of any stock or stock index is, whether the new price reflects a new economic reality, and so on) -- but that's beyond the scope of the question.