I recommend bodyweight exercises.
You can get in pretty great shape with pushups/pullups/squats/leg lifts/their variations/other advanced exercises. Risk of injury is much lower IMO.
Search found 454 matches
- Wed Mar 20, 2013 1:08 pm
- Forum: Personal Consumer Issues
- Topic: Football/Hockey/Weight Lifting worth the toll on your body?
- Replies: 42
- Views: 3821
- Sun Mar 10, 2013 4:26 pm
- Forum: Personal Investments
- Topic: Why should young people invest in bonds at all?
- Replies: 87
- Views: 20407
Re: Why should young people invest in bonds at all?
Serious question: Do folks still agree with the "free lunch" phenomenon discussed in this video? http://www.youtube.com/watch?v=zXnbxLtRhrU&feature=player_embedded (from the Bogleheads investment philosophy series). My assumption has been that you can actually maximize the risk/return ratio through diversity between poorly correlated assets (i.e., stocks and bonds), not that bonds are only good for diversifying. I use an age-minus-ten strategy for bonds, and it's largely based on the notion that this will not only protect me from fear of losing and allow for effective rebalancing, but that it will also maximize my return for the quantity of risk being taken. True? Doesn't matter if you believe in it or not, it is real. It can...
- Sun Mar 10, 2013 3:33 pm
- Forum: Personal Investments
- Topic: Why should young people invest in bonds at all?
- Replies: 87
- Views: 20407
Re: Why should young people invest in bonds at all?
Hi market timer,market timer wrote:A portfolio of bonds and stocks with some leverage (the "capital allocation line" below) should offer the same risk as all stocks but with higher returns.MrMatt2532 wrote:As you can see, anything less than 100/0 puts a drag on returns, and the same would be expected going forward.
What kind of assumptions are there for the behavior of the leverage? Clearly if I have to pay say 10% interest rate for the leverage i'm not going to help my risk/return that much.
Edit: Ok, after thinking about it a little bit I think you would have to borrow at the risk free rate to achieve any point on the capital allocation line. Of course this would be pretty hard to achieve in today's environment....
- Sun Mar 10, 2013 2:19 pm
- Forum: Personal Investments
- Topic: Why should young people invest in bonds at all?
- Replies: 87
- Views: 20407
Re: Why should young people invest in bonds at all?
Something has been bothering me about a lot of the responses in this thread. A lot of people are saying you should hold bonds because when the market crashes, you can rebalance your bonds/cash into stocks. If you are saying this, then you believe either 1 of 2 things: 1) A 90/10 portfolio (for example) that is rebalanced regularly has a greater expected return than a 100/0 portfolio. or 2) You can time the market following a crash to increase your return. #1 is incorrect. I'm not saying a 100/0 will outperform a 90/10 portfolio for all periods, but the expectation is that it will for any given perdiod. See the following: http://529investing.files.wordpress.com/2010/02/portstrategies_aaii2.jpg http://www.rickferri.com/blog/wp-content/wpuploa...
- Sat Mar 02, 2013 8:54 pm
- Forum: Personal Investments
- Topic: Asset allocation thought with over 100K in student loans
- Replies: 16
- Views: 1963
Re: Asset allocation thought with over 100K in student loans
You should should in fact consider them this way. In general, IMO, debt should be treated like a negative bond. In that case, paying down the debt has the same effect as buying more bonds.familydaddy wrote: Why not consider payments to my low interest student loan to be like investing in fixed income??
Thoughts please!
There are plenty of other threads on this subject, most notably on mortgages being considered negative bonds.
- Fri Feb 08, 2013 12:09 pm
- Forum: Investing - Theory, News & General
- Topic: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50
- Replies: 155
- Views: 29986
Re: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50
Aside from risk management (of course AA and rebalancing both control that), doesn't the rebalancing add an additional return due to the buy-low sell-high result? Or is that factored into these graphs? As a young investor with income rising I am comfortable with 100% equities, but I maintain an 80/20 allocation because I don't want to miss out on rebalancing returns. Is this wrong? Do the returns of that extra 20% of equity override the rebalancing returns, even if bond yields are around the inflation rate? The rebalancing effects are indeed factored in. So yes I would say if your only reason for holding 80/20 is that you expected it actually gets higher return than 100/0 in a period where let's say stocks outperform bonds, yes you would l...
- Fri Feb 08, 2013 11:43 am
- Forum: Investing - Theory, News & General
- Topic: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50
- Replies: 155
- Views: 29986
Re: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50
Rebalancing is about controlling risk. If you have chosen to be 100/0, you don't need to rebalance (though potentially between your various stock funds you might). Also, as you can see, there is nothing special about holding mostly stocks and some bonds. On the otherhand, it probably doesn't make sense to be 100% bonds.Dogs wrote:I don't object to the risk of 100% stocks but the ability to rebalance outside equities has got to be worth something! Rebalancing is one of the cornerstones of the whole Bogle approach.am wrote:Thought 80/20 has a better risk adjusted return, plus you can get some additional return from rebalancing.
- Fri Feb 08, 2013 10:57 am
- Forum: Investing - Theory, News & General
- Topic: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50
- Replies: 155
- Views: 29986
Re: 100% Stocks
Most disaccumulation models do not have much worse outcomes at 100% stocks than at some blend of stocks and bonds. Depends what you mean by "much." To me, the big thing is that IF you choose your failure rate FIRST, and make it the sort of reasonably low number most people want when the actually think about it, the real take-home is how little difference asset allocation actually makes either way. Nevertheless, go to Vanguard's Retirement Nest Egg Calculator and plug in a 4% withdrawal rate, set it to 60% stocks, 40% bonds and get this (results actually vary slightly from run to run, it is apparently a real live Monte Carlo simulator): http://i48.tinypic.com/m9uerp.jpg Plug in 100% stocks and get this: http://i46.tinypic.com/ie4h...
- Thu Feb 07, 2013 11:36 am
- Forum: Personal Investments
- Topic: Merrimans Vanguard Monthly Income Portfolio
- Replies: 18
- Views: 3852
Re: Merrimans Vanguard Monthly Income Portfolio
I don't know what you mean by handicap, but here is a page with the returns for that portfolio: http://www.fundadvice.com/fehtml/invest ... /0206.html
You could obviously fill in more data starting in 2002 if you wanted. For the data period on that page, it compared similarly to a 5% Total US Market/95% Total Bond portfolio.
The stock bond portfolio won out a little bit in terms of a little more return for the same risk, or a little bit less risk for the same return.
Matt
You could obviously fill in more data starting in 2002 if you wanted. For the data period on that page, it compared similarly to a 5% Total US Market/95% Total Bond portfolio.
The stock bond portfolio won out a little bit in terms of a little more return for the same risk, or a little bit less risk for the same return.
Matt
- Thu Feb 07, 2013 9:48 am
- Forum: Personal Investments
- Topic: Advisor says I have TOO MUCH CASH!!!!
- Replies: 38
- Views: 4487
Re: Advisor says I have TOO MUCH CASH!!!!
I personally don't look at cash as a percent of the portfolio decision. As an accumulator, I basically keep 1 months expenses+emergency fund in cash.
If I were a retiree, I imagine I would keep 8 months to 2 years in cash.
If I were a retiree, I imagine I would keep 8 months to 2 years in cash.
- Thu Feb 07, 2013 8:52 am
- Forum: Investing - Theory, News & General
- Topic: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50
- Replies: 155
- Views: 29986
Re: Charlie Ellis & Burton Malkiel say 0% bonds OK under 50
I'm surprised the idea of human capital hasn't been brought up in this thread. The idea has been popularized over the last 20 years and has been a major reason for some of the changes to conventional reasoning and rules of thumbs. Most the models I've seen all suggest sometime between age 35 to age 50 as for when one should start ramping down from 100% equities. Note that this means those same models suggest the investor should be leveraged prior to this point. Most of the Target Retirement funds utilize human capital in their research to come up with the asset allocation vs age/(time until retirement). For example, even the research that went into the vanguard target retirement funds cite human capital and in their analysis they find aroun...
- Wed Feb 06, 2013 8:12 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
As a consumer that has chosen to buy a house to live in and not sell it: I plan on getting consumption money from stocks, bonds, (minus) debt, human capital, pension, SS, and real assets (not including my personal home). As a consumer that has chosen to rent: I plan on getting consumption money from stocks, bonds, (minus) debt, human capital, pension, SS, and real assets. As you can see, for both situations my consumption money comes from the same places. It's not about what I would otherwise have or would be doing as a a renter/homeowner. It's about the assets and liabilities I currently have that that have an effect on my future spending money. MrMatt, so your approach is the equivalent to the following... Imagine a person that likes to ...
- Tue Feb 05, 2013 5:26 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I'm not talking about my net worth: I'm talking about my portfolio in which I only consider items that I expect will provide me cashflow. Sure I can sell the house, but I'd probably go and buy another house that costs the same. Again, I treat my personal house that I live in as a consumption item. I can consume two things, a rental or a house. A rental: I pay the consumption cost every month. The house: I pay the large consumption cost upfront. I promise you I'm not ignoring the benefit of not having to pay rent every month, but the idea is I paid for it upfront. Again, I plan on utilizing my stocks, my bonds, my SS, my pension, my human capital, and minus my debt to pay for consumption items. I won't be using my personal house to pay for ...
- Tue Feb 05, 2013 1:45 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Yeah I too am a little perplexed at the comment. As discussed on the previous page he sold cash/bonds/stocks.magician wrote:Presumably he decreased liabilities by using $345K in assets, likely cash. His net worth probably didn't change much.YDNAL wrote:am wrote:All asset allocation, neg. bond aside, I was paying about 1k a month on my 345k 30 year fixed mortgage at 3.5%. That is a a big chunk for me.
You have now decreased Liabilities by $345K and increased Net Worth accordingly.
- Tue Feb 05, 2013 11:37 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I think we all agree on how to put together a balance sheet and how to calculate a net worth, so i'm not sure why the arguing persists.
This is a separate idea than an asset allocation. In my mind an asset allocation represents at a bare minimum your stocks and bonds. These are assets that you plan on drawing on for future consumption. What is being proposed is to expand this line of reasoning to include other assets and liabilities that you plan on drawing on for future consumption. For this reason, something like a house might not be considered because one doesn't plan on using the house for consumption. Instead the house is a consumption item. This has nothing to do with a house being an asset as I think everybody would agree with that.
This is a separate idea than an asset allocation. In my mind an asset allocation represents at a bare minimum your stocks and bonds. These are assets that you plan on drawing on for future consumption. What is being proposed is to expand this line of reasoning to include other assets and liabilities that you plan on drawing on for future consumption. For this reason, something like a house might not be considered because one doesn't plan on using the house for consumption. Instead the house is a consumption item. This has nothing to do with a house being an asset as I think everybody would agree with that.
- Mon Feb 04, 2013 11:45 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
4. You no longer need 'age in bonds' or some equivalent if you are factoring in human capital. The reason for age in bonds is because of human capital. So if you factor in human capital your portfolio already has a ramp of sorts built in. That's a good and interesting point MrMatt. If human capital is factored in, is there some other rule of thumb you'd prefer for allocation between higher risk assets and lower risk assets? And I'd be interested in any reasons you might share in support of that rule of thumb. Two ideas: 1. Often it's recommended to consider your maximum tolerable loss and choose your stock allocation to be roughly two times this value. This can apply for the expanded portfolio in addition to the financial portfolio. 2. Mos...
- Mon Feb 04, 2013 7:08 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Think about Persons 1,2 and 3 again - and plug in some additional info - play with the variables a bit - and see how you feel about their situations: Person 1 - age 30 - master's degree - annual income $200k - NYC resident 100k stocks 0k bonds 0k debt 100k home equity Person 2 - age 50 - high school diploma - annual income $0 - Detroit resident 100k stocks 100k bonds 100k debt 20k home equity Person 3: - age 40 - BSEE - annual income $130k - San Jose resident 50k stocks 50k bonds 0k debt 100k home equity Good post Jim. One thing missing that I think is important. I see incomes, but I don't see their expenses/how much they save. I've done this analysis before but for 17 different combinations of savings/pension size/debt/financial asset siz...
- Mon Feb 04, 2013 6:35 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I won't be using my personal house to pay for consumption items: it is a consumption item! Unless you really get in a jam. You lose your job and really need to down size. You get old and decide you can no longer take care of the house (seen this one with a few different elderly neighbors). You need to move to assisted living and need more cash. Seen that happen too. You need to move to a dementia unit and needs lots more cash. Seen that happen too. Some of these folks started out saying the same thing you are saying. Many have a strong personal preference to stay in their house until the end (some are able, seen that too). Unless you have enough that you can self insure, the value of your house may come into play. Personally I have run sce...
- Mon Feb 04, 2013 6:21 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
2. Regardless of how a house should be treated, I wouldn't include it anyways as I don't expect to get any future cashflow out of it (at least my personal house that I live in). Hi MrMatt, If the mortgage is included as a negative bond or negative low risk asset, I think the house needs to be included as an asset. A house can be sold and it usually appreciates over long periods of time. You focus on the lack of cashflow received from an owner-occupied house, but the rent the owner is avoiding by owning her house is something of large value to her, and you seem to be ignoring that. Here is Investopedia's definition of "Owners' Equivalent Rent - OER" ( http://www.investopedia.com/terms/o/owners-equivalent-rent.asp#ixzz2Jyj6ATou ): ...
- Mon Feb 04, 2013 5:53 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Hi MrMatt, I see real estate as somewhere in the middle ground between stocks and bonds with respect to volatility. But the rent or owner equivalent rent from real estate comes in almost as steadily as a bond, but with the nice kicker of almost always going up over the years. I find one attractive alternative would be to divide assets into lower risk and higher risk, and put about half of real estate and about half of high yield bonds into the higher risk category and the other halves in the lower risk category. Investment grade bonds would go in the lower risk category and stocks would go in the higher risk category. As for human capital, I'd say it usually should be put about 1/2 in the higher risk and 1/2 into lower risk, but that could...
- Mon Feb 04, 2013 3:27 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I feel that the problem of the younger investor has been glossed over several times by the proponents of this method but never addressed. Could one of you provide a meaningful response to this scenario? Younger Investor lives in a high-cost area but has dutifully saved for both a down payment and retirement. Before purchase - $150k stocks/$50k bonds in retirement accounts. $150k in cash for down payment and e-fund; not part of retirement AA. After house purchase of $600k - $150k stocks/$50k bonds in retirement accounts. $20k in cash for e-fund after closing costs and down payment. Mortgage of $480k. Now what? Negative bond accounting would lead to what AA? Really what you are identifying is an issue with the traditional approach, in that i...
- Mon Feb 04, 2013 2:10 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
It's comical to me that in so many of your threads you seem to be disagreeing with me, but then I read threads like your last one in which we agree with almost everything..... 2. I invest investable Assets based on expected return/risk to meet goals (no guarantees, of course). I can't invest or rebalance future SS/Pension benefits, so, SS/Pension benefits are projected "income streams" to pay bills in retirement. Human capital today allows me to pay bills and save for the future. Human capital in 10 years may be a large unknown for many (most?) - just ask the 20.3 million unemployed or underemployed Americans today. http://www.bls.gov/news.release/pdf/empsit.pdf I hesitated to post because the discord is unpleasant, but I found i...
- Mon Feb 04, 2013 12:05 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Descrip. With home Without Home $100 $0 Asset Mtge (debt) ($50) ($50) Liability Stocks $60 $60 Asset Bonds $50 $50 Asset Net Worth $160 $60 When we attempt to selectively exclude certain financial Assets, yet include certain financial obligations, "Stock Market" risk is SIGNIFICANTLY distorded. 60/60 = 100% of Net Worth using "one-sided" Accounting :twisted: 60/160 = 37.5% of Net Worth using GAAP Accounting. 60/110 = 54.5% of investable Assets (Stocks & Bonds). YDNAL, It's comical to me that in so many of your threads you seem to be disagreeing with me, but then I read threads like your last one in which we agree with almost everything. I only have a few comments regarding this fine point about including your home i...
- Mon Feb 04, 2013 11:10 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Rod, you seem like a thoughtful academic type -- I'm genuinely curious why you're so reflexively opposed to this concept. It seems very much a refreshing new angle of viewing a situation that is imperfect under the traditional way. (That is, the kind of thing thinkers would typically find interesting.) Seems to me that people should do whatever works best for them, but some version of a "negative bond" approach does address a huge hole in the traditional way -- namely that you get to borrow to invest without acknowledging any additional risk. Not that I would expect the principles to be widely adopted or understood (heck, we can't even get most investors to buy into the index fund concept), but the awareness could help everyone w...
- Mon Feb 04, 2013 9:45 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I follow you now. The debt/mortgage lowers the value of my entire portfolio. So going 60k stocks/40k bonds/50k mortgage essentially leaves me with a 50K portfolio of which 60k are stocks. Therefore the mortgage makes me leveraged since I am borrowing to invest? Never thought of including my mortgage that way into my portfolio. So if I am 120% stocks 0% bonds, I see how a 10% loss leads to 12% losses. But if I am 80% stocks/20% bonds/0% mortgage, a 10% loss leads to an 8% loss. I guess you have to buy into the concept of the mortgage being a negative bond which I do. Yeap. Also, a little nitpicky, but in the example you would be 120% stocks, -20% bonds. Or, for those of you that aren't ready to call debt a negative bond: 120% stocks, 80% bo...
- Mon Feb 04, 2013 9:32 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
It doesn't. I'm confused about what you are asking. You have 60k stocks out of a 50k portfolio (stocks+bonds-debt). Therefore a 120% exposure to stocks.am wrote:So than my previous debt would be a negative bond essentially cancelling my bond exposure so essentially I am 60k stocks and -10k bonds. How does that lower my stock exposure to 50k?
- Mon Feb 04, 2013 9:12 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
So I don't have your numbers, but I can give an example. Let's say you had 60k in stocks, 40k in bonds, and 50k in debt, or 50k net. Now, if stocks go down 10% (6k), your overall portfolio goes down 6/50 or 12%. Also, note that in this example you have 120% stocks/-20% bonds, so a 10% change in stocks, leads to a 12% change overall.am wrote:Before I was 60/40 with a mortgage. Not sure how my portfolio went down more than 8 percent before since mortgage is independent of stock movements?
- Mon Feb 04, 2013 8:59 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
That's correct. You can prove it to yourself pretty readily too. Currently, if stocks go down 10%, your overall portfolio (including (no) debt) will go down 8%. Before, if stocks went down 10%, your overall portfolio (including debt) would have went down by more than 8%.am wrote:So I sold all my bonds, some cash reserves, and about 30-40% of stocks to payoff mortgage. Now I am debt free and 80% stocks/20% bonds. Is this reasonable? Seems like I have less risk now?
- Mon Feb 04, 2013 8:35 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Here's how to approach letsgobobby 's question. (A) Decide what you would do if you were to believe that your mortgage is a negative bond. (B) Decide what you would do if you were to believe that your mortgage is not a negative bond. You should come to identical conclusions in both cases. In other words, whether or not you consider your mortgage to be a negative bond, should make absolutely no difference to what you think you should do. If it makes a difference, then there is a fundamental flaw in your financial thinking, and you need to change it. Your approach to finances should be semantically invariant . +1000 I have made the same comment myself many times. This is an obvious check of one's thought process. And, indeed, semantics canno...
- Sun Feb 03, 2013 10:41 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I'm sure this post is tongue in cheek, but I'll bite anyways. If the payoff money is coming from bonds/cash, then your overall asset allocation essentially remains unchanged. If your payoff money comes from stocks, your overall asset allocation becomes significantly more conservative, in which case a rebalance or change in your financial asset allocation may be in order to maintain your same overall risk before and after the mortgage payoff...assuming that is your goal.letsgobobby wrote:So if I payoff my mortgage, should I change my asset allocation to accommodate?
- Sun Feb 03, 2013 6:12 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Here you go: http://www.bogleheads.org/wiki/Owning_vs_RentingRodc wrote:FWIW: I Googled "negative bond" and in 10 pages there is no link other than to Bogleheads. The owners of this site should trademark or copy-write the term because apparently it is otherwise unknown.
Did find some links to bonds and negative yields.
Woops, I misread your post. Try googling "calculating a family's asset mix". The first link should do it: a mortgage is mentioned as a short bond position.
- Sun Feb 03, 2013 5:13 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
The idea of a (fixed rate) mortgage as a negative bond seems simple enough to me. But more importantly, it captures a key fact: if you have a mortgage and interest rates go way up, the value of that mortgage to you will go way up because your payments will not increase, yet you can make your payments with inflated dollars. Whereas, if you had a 15- or 30-year bond and interest rates go way up, the value of that bond will go way down. Best, Neil But if you truly believe that, then you have to buy an equivalent amount of bonds to counteract the negative bond and get you to the desired asset allocation. Which brings me to the main reason that it falls apart for me. People with substantial mortgages would need to have all or nearly all their i...
- Sun Feb 03, 2013 2:15 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I think all of these things are mentioned in the wiki, but not necessarily on the same page.dbr wrote:Maybe there should be a page in the Wiki that the respective answers are ??? =YDNAL wrote: is a mortgage ???? Is SS a ???? Is a Pension a ????
mortgage
SS
Pension
respectively.
Debt (including mortgage) is a negative bond, SS and pensions are positive bonds. I believe these are the standard academic opinion as well. I know Larry Swedroe counts debt as a negative bond and Bogle has specifically mentioned to include pensions/social security in your portfolio as a bond.
- Sun Feb 03, 2013 1:09 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
How do you justify including the liability without including the asset that that liability was incurred to purchase? That seems . . . well . . . bizarre. I consider the home a consumption item, not an investment. Oh. I submit that it's still an asset, whether you consider it an investment or not. Hi Magician, yes I can agree with that. As I've mentioned, in some situations I would consider it part of my asset allocation and some not. For example, I would consider it for estate planning. Clearly there is value that will be realized by somebody. I would also consider it as sort of a worst case scenario where if needed I can get value out of the house. BUT, for planning purposing, I plan on actually using my house and not selling it, therefor...
- Sun Feb 03, 2013 12:36 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Again: simple answer as previously talked about. I consider the home a consumption item, not an investment. Now, as I've demonstrated you can include the home in the portfolio if you really want, the choice is yours!magician wrote: How do you justify including the liability without including the asset that that liability was incurred to purchase? That seems . . . well . . . bizarre.
- Sun Feb 03, 2013 12:30 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I just don't see how anyone can run a scenario and seriously want to consider a mortgage a negative bond for investing purposes[1]. Let's look at something: 1. A house with a mortgage of 100k. 2. About 300k in 401(k) and IRAs, no taxable money (so nothing that can be "thrown at" the mortgage). So, what is the portfolio? If the mortgage is a negative bond, then it has to be included in the portfolio as a negative asset. So is the portfolio size 200k? If the person desires a 70/30 asset allocation, does that mean 140k stocks, 60k bonds? Then in reality your accounts hold 140k stocks and 160k bonds. Yes this is all correct thinking. The part about the portfolio being worth $200k is not correct thinking. Sure it is. Depends what you ...
- Sun Feb 03, 2013 12:19 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I just don't see how anyone can run a scenario and seriously want to consider a mortgage a negative bond for investing purposes[1]. Let's look at something: 1. A house with a mortgage of 100k. 2. About 300k in 401(k) and IRAs, no taxable money (so nothing that can be "thrown at" the mortgage). So, what is the portfolio? If the mortgage is a negative bond, then it has to be included in the portfolio as a negative asset. So is the portfolio size 200k? If the person desires a 70/30 asset allocation, does that mean 140k stocks, 60k bonds? Then in reality your accounts hold 140k stocks and 160k bonds. Yes this is all correct thinking. I agree there are issues with young investors/investors where mortgage is greater than other assets. ...
- Sun Feb 03, 2013 10:28 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
YDNAL, I don't know what to say. As market timer pointed out, it is important to separate the debt from the asset itself. You seem to be trying to confuse the situation by adding a house to some of the people and not the others when I clearly say all else is equal. To say that a mortgage is not a negative bond, because it was used to acquire a house, is akin to saying credit card debt is not a negative bond, because it was used to acquire some other stuff. Both mortgage and credit card debt are negative bonds. It is helpful to be able to separate conceptually debt used to acquire an asset from the asset itself, or else you might end up paying more in interest than needed. Let me try to make my example clear one more time for you: Person 1: ...
- Sat Feb 02, 2013 3:06 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
My post will probably be glossed over, but I feel that it provides a new insight into the discussion. If we're going to include our mortgages as a negative bond (which I agree with since it is a fixed payment out every month), then we should also include our jobs as a positive bond (since it is a fixed payment in every month). You could find a particular amount of money and invest it in some bond such that you would be indifferent between your salary and the fixed income from that bond. What more, this bond grows yearly, more than by inflation for most people. In my case, I make close to 8,000 per month or 96,000 per year. This is fixed income, or otherwise could be treated as a bond. Let's assume that my salary grows by 4.5% per year (not...
- Sat Feb 02, 2013 2:10 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
YDNAL,
Yes, in fact all else is equal. When I say all else is equal that's exactly what it means. You could pretend none of the three people own a house, or you could pretend they all own 100k house. or any other scenario you think up. The idea is besides the amount of stocks, bonds, and debt, all else is equal. It's a simple idea really.
Yes, in fact all else is equal. When I say all else is equal that's exactly what it means. You could pretend none of the three people own a house, or you could pretend they all own 100k house. or any other scenario you think up. The idea is besides the amount of stocks, bonds, and debt, all else is equal. It's a simple idea really.
- Sat Feb 02, 2013 10:29 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
I'll give you my argument. We all need shelter. We basically have two choices. Either buy a house and pay it's associated costs (utilities, repair,home insurance ...) or pay rent and it's associated costs (utilities,renter insurance,...). These are the choices we have. These are consumption choices. I can either choose as a consumer to buy a house or pay for rent. That's it. As to whether or not I need to get a mortgage for buying a house is a separate issue. If you do need to take out a mortgage then you should treat it as a negative bond, all the other stuff is a consumption choice. What is the difference? Why is one a bond and the other a consumption item? In either case you owe a steady payment to continue to live in the place you want...
- Fri Feb 01, 2013 4:04 pm
- Forum: Investing - Theory, News & General
- Topic: mortgage theory
- Replies: 6
- Views: 1315
Re: mortage theory
We have another thread going about mortgage being treated as negative bonds where this topic you bring up is talked about.
You need to realize that taking out debt means you are leveraged, so therefore your portfolio as a whole is at greater risk. Think about how wild the market has been for the last 5 years and multiply that by some factor depending on how leveraged you are. This means that you probably wouldn't want to do this unless you think you can handle greater risk than 100% stocks gives you.
Nevertheless, for a long term investor, with 25+ years until the money is needed, leverage can make sense.
You need to realize that taking out debt means you are leveraged, so therefore your portfolio as a whole is at greater risk. Think about how wild the market has been for the last 5 years and multiply that by some factor depending on how leveraged you are. This means that you probably wouldn't want to do this unless you think you can handle greater risk than 100% stocks gives you.
Nevertheless, for a long term investor, with 25+ years until the money is needed, leverage can make sense.
- Fri Feb 01, 2013 3:02 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
For most people, borrowing to buying a home is a huge deal. Promising a lender a stream of payments, with their being able to take your home if you don’t fulfill that promise has a pretty significant effect on your financial picture. How is that any different than renting? You have to live somewhere, and most of the time it's not free. And if you don't pay, you get asked to leave. The fact that the mortgage is only part of the overall cost of living in the house is irrelevant. I'll say again, does someone who rents have a negative bond? Why not? Because it isn't broken into principal and interest? It's still a monthly payment due to live there. Brian I'll give you my argument. We all need shelter. We basically have two choices. Either buy ...
- Fri Feb 01, 2013 1:32 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
If stocks lose 10%, portfolios 1 and 2 lose 10%, and portfolio 3 loses 5%. Therefore, portfolio 3 has the least risk as a 50/50 portfolio, whereas portfolios 1 and 2 are 100/0 portfolios. I think you missed Rodc's point. Person 1 and 2 lose 10k in dollars and person 3 loses 5k in dollars. Person 3's portfolio is not less risky because it is 50/50, but because it only had 50k at risk in stocks. To not confuse things further, Rodc was replying to a different example and not the one you are talking about. In the example Rodc was replying to, the amount in stocks was 50k for both cases. Back to this most recent example: yes, person 3 allocated 50k out of 100k total towards stocks...aka a 50/50 stock/bond asset allocation. Person 1 and 2 alloca...
- Fri Feb 01, 2013 11:42 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
All these percentages depend heavily on choice of what to include in the numerator and denominator. People are talking about the signifance of a mortgage as part of ones financial picture, but human capital (one's future income) is generally even far bigger in magnitude. Repeating my earlier post It could be argued, to the contrary, that if your mortgage has higher interest than your bonds, then you shouldn't own any bonds until you pay off the mortgage. If you take the totality of all your current and future assets and liabilities, then think of that as a round hole, while percentage-based asset allocation is a square peg. Forget about percentage-based asset allocation in the context of your entire financial picture. It's too simplistic o...
- Fri Feb 01, 2013 8:14 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
The other point is that it's about controlling risk. If my only assets are stocks and bonds, 50k in stocks, 50k in bonds, I have some expectation regarding my portfolio's risk/return (a 50/50 stock/bond portfolio). If my stocks lose 10k, then I will have lost 10%. Now if I also have a 50k mortgage, then my total portfolio will actually behave as a 100/0 stock/bond portfolio and if stocks lose 10k, then I will have lost 20%. I suggest percent here is the wrong measure. You have the same real dollar loss either way. That is all that matters. You may have missed my point. Let's take a different approach. Here's another example: Person 1: 100k stocks Person 2: 100k stocks 100k bonds 100k debt Person 3: 50k stocks 50k bonds Assume all else is e...
- Fri Feb 01, 2013 7:11 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
The idea of a (fixed rate) mortgage as a negative bond seems simple enough to me. But more importantly, it captures a key fact: if you have a mortgage and interest rates go way up, the value of that mortgage to you will go way up because your payments will not increase, yet you can make your payments with inflated dollars. Whereas, if you had a 15- or 30-year bond and interest rates go way up, the value of that bond will go way down. Best, Neil But if you truly believe that, then you have to buy an equivalent amount of bonds to counteract the negative bond and get you to the desired asset allocation. Which brings me to the main reason that it falls apart for me. People with substantial mortgages would need to have all or nearly all their i...
- Fri Feb 01, 2013 6:55 am
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Expectantly, a mortgage now is free money, free leverage. Its the kind of situation, where a guy in econ 101 class in 2030(most likely/expectantly), will read about and go, hey, I would load the heck up. What were those primitives thinking? As a younger person, I have a high stock allocation despite having a mortgage (and being leveraged). However, I wouldn't say that this is free leverage, as I am paying interest on the loan... Over 30 years, if after tax your interest rate is 3 percent, its "expectantly free in real terms". A lot is happening inside that preceding quote (not that I said exactly that maybe, but just quote to set off what I am saying now). Nominal vs real. Time value of money. Implicit referral to the average inf...
- Thu Jan 31, 2013 8:31 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
As a younger person, I have a high stock allocation despite having a mortgage (and being leveraged). However, I wouldn't say that this is free leverage, as I am paying interest on the loan...LH wrote: Expectantly, a mortgage now is free money, free leverage. Its the kind of situation, where a guy in econ 101 class in 2030(most likely/expectantly), will read about and go, hey, I would load the heck up. What were those primitives thinking?
- Wed Jan 30, 2013 10:00 pm
- Forum: Investing - Theory, News & General
- Topic: Treat your mortgage as a "negative exposure" to bonds?
- Replies: 188
- Views: 14977
Re: Treat your mortgage as a "negative exposure" to bonds?
Most people have enough trouble trying to figure out a simple Asset Allocation -- why muck it up throwing something irrelevant into the mix! Because it's not irrelevant, hence the question and discussion. Having a mortgage exposes you to greater risks as you are leveraged. Kind of silly if you ask me to lend money to the gov., corporations etc. at 1.6% via TBM when you have a mortgage that is higher in %? Is it not a no brainer to first pay off mortgage before lending money at a lower rate? I agree with the concept of a negative bond. That is why I payed off my mortgage this week. It hit me all of a sudden. Plus, the market is at near highs and I am afraid that this could be the last opportunity for a while to do this given that I sold som...