The Wrong Way to Think About Debt - The White Coat Investor

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dharrythomas
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by dharrythomas »

Jim,

Love this blog post. Sending it to a relative.

I have no regrets paying off our mortgage early. Debt free is the way to live.
novemberrain
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by novemberrain »

JackoC wrote: Fri Oct 16, 2020 4:47 pm Looking forward from when I started making good money in my 30's, my concerns were long term security of income and investment returns, in view of a young family (I didn't make enough to consider at all expensive cars before I had a family). The fact that family and financial security worked out happily is the headline, being too frugal with cars is a footnote.
I can relate. I didn't splurge on anything in my 20s either. I too was worried about long term security and family etc. But once I reached mid to late 30s and income went up quite a bit, I am starting to spend on fun non-boglehead-approved things and experiences.

Based on my current trajectory, that will mean the difference between 5m vs 10m at retirement.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by Kaktus »

It is a big issue for sure; Should I spend now or in 20 years. Personally I dont think that article hits home. I dont expect anyone who is not already super frugal to read it and shout to his family "right!, no skiing until the motgage is paid of in 30 years!" Besides not bery realistic it is not the best guide either. Your debt is not the only number that is important. Zero debt, zero savings and zero skiing experience, that would be a terrible place to be at your 60th birthday.
EnjoyIt
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by EnjoyIt »

Toons wrote: Fri Oct 16, 2020 10:30 am Debt Free=
"Options"

:mrgreen:
One has far more options with invested assets compared to being debt free compare:

$350k house with no mortgage and $100k invested
Vs
$350k house with $300k mortgage and $400k invested.

Much more options having invested assets.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
CycloRista
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by CycloRista »

Dude2 wrote: Tue Oct 13, 2020 5:56 am
JonnyDVM wrote: Mon Oct 12, 2020 8:43 pm Scoffing at 3% deductible mortgage debt is extreme.
I would be uncomfortable to see a person light up a cigar with $100 bill. The median price of a home in the US is $329,000. At the start (assuming 20% down), we will be burning nearly $8000.
Another factor most do not consider is inflation. In my case, I purchased a home in the early 2000's and have had the good fortune of it appreciating in value along the way. Even with appreciation when inflation is factored in, I am essentially breaking even if I sold it today.

Side note: median home prices are the tip of the iceberg- try moving somewhere like Austin, TX, Bozeman, MT and elsewhere in the US where there is essentially hyperinflation due to interlopers turbo boosting housing market demand. This phenomena is on the rise in other areas too as more people are moving out of major cities seeking more living space (to continue working from home) and open/less congested areas outdoors due to the pandemic.

Risk of owning a principal residence is actually higher than one might imagine in terms of when you step on the merry go round and when you sell to move elsewhere. Not far from where I live, some homeowners are still under water on their home purchases prior to the Great Recession. They were in the unfortunate situation of purchasing a home at the height of the market. I'd have a difficult time continuing to pay down a mortgage on a short sale and know of more than a few who are in that situation (in a major suburban metropolitan area).

I've serendipitously manged buy and sell homes at favorable times and have avoided debt other than the mortgage on my primary residence. While I don't light cigars with Ben Franklin's, I do spend some and consider carrying sub 3% debt "good enough" as we cannot take our winnings with us.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by pennywise »

JBTX wrote: Wed Oct 14, 2020 10:28 pm
What really mattered?

1. Making more
2. Spending less
3. Owning my job(s)
4. Staying the course with a reasonable financial plan

The rest is noise. Yes, leveraging the mortgage can make a big difference, but not as big a difference as taking out half the mortgage in the first place.
While this point is valid, it is more valid to MDs (which your article was obviously directed towards) than other professions.
[/quote]


I disagree; WCI's points are equally valid across most people's financial lives.

We're not doctors, we were college administrators who bought what we could afford as young parents then stayed in a quite adequate house for 30 years while watching many friends do the move on/move up cycle into much larger and more luxurious places with larger and more burdensome debt loads.

And because we bought modestly and paid off the house in a few years we were able to cash flow excellent educations for our kids then, after they were grown and flown, we were able to retire on our terms debt free. We steadily put part of our paychecks into retirement funds too, made easier since we had no mortgage to siphon off that monthly contribution.

Even better, that modest paid off home appreciated enough that we sold it and used the profits-all of which went into our pocket since we owed nothing-to trade up to a waterfront, large, luxurious home in a resort paradise that makes us happy every day. Makes us even happier knowing we own this place with no mortgage either. Plus those retirement accounts compounded over the years into a very secure nest egg, again thanks to being able to keep funneling in the money we were NOT using for debt service.

White Coat Investor said it all and he said it well. It's the big things that get you where you want to be in life and being debt free is the biggest of all.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by Ben Mathew »

pennywise wrote: Sat Oct 17, 2020 6:52 am I disagree; WCI's points are equally valid across most people's financial lives.

We're not doctors, we were college administrators who bought what we could afford as young parents then stayed in a quite adequate house for 30 years while watching many friends do the move on/move up cycle into much larger and more luxurious places with larger and more burdensome debt loads.
I think it's important to separate two things:

1. how much you spend on a house, and
2. whether you pay off the mortgage before investing

The two may be related--i.e. those planning to aggressively pay off the mortgage might be less tempted by a more expensive house. That seems to have been the driver of the difference between your experience and those of your friends who traded up to more expensive houses.

But if a person early in their career has

1. the self-discipline to not buy too much house, and
2. the self-discipline to save and invest in stocks

then they would usually be better off keeping the mortgage while investing in stocks. The opportunity cost of paying down the mortgage is not being able to spread out stock risk into the early part of your career. In low cost areas of the country, that may not be as big an issue. But in a city with high home prices, where even a modest house can cost more than a decade to pay off on a normal salary, I doubt it's a good idea to delay stock investing for that long.

Moving from a 30 year mortgage to a 15 year mortgage can still make sense due to the lower interest rate. But it's important to consider the opportunity cost of concentrated stock risk.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by Toons »

EnjoyIt wrote: Sat Oct 17, 2020 2:11 am
Toons wrote: Fri Oct 16, 2020 10:30 am Debt Free=
"Options"

:mrgreen:
One has far more options with invested assets compared to being debt free compare:

$350k house with no mortgage and $100k invested
Vs
$350k house with $300k mortgage and $400k invested.

Much more options having invested assets.
Appreciate the insight.
I was speaking from personal experience.
Paid off the mortgage 15 years ago,
Immediately started investing the "hypothetical" payment in Vanguard funds monthly.
Eventually debt free.
We chose the "option"
To Retire Early.
Now we have "options" to do with our time, (which is limited for all)
To Do What We Choose.
:happy
"One does not accumulate but eliminate. It is not daily increase but daily decrease. The height of cultivation always runs to simplicity" –Bruce Lee
EnjoyIt
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by EnjoyIt »

Toons wrote: Sat Oct 17, 2020 2:37 pm
EnjoyIt wrote: Sat Oct 17, 2020 2:11 am
Toons wrote: Fri Oct 16, 2020 10:30 am Debt Free=
"Options"

:mrgreen:
One has far more options with invested assets compared to being debt free compare:

$350k house with no mortgage and $100k invested
Vs
$350k house with $300k mortgage and $400k invested.

Much more options having invested assets.
Appreciate the insight.
I was speaking from personal experience.
Paid off the mortgage 15 years ago,
Immediately started investing the "hypothetical" payment in Vanguard funds monthly.
Eventually debt free.
We chose the "option"
To Retire Early.
Now we have "options" to do with our time, (which is limited for all)
To Do What We Choose.
:happy
That’s funny, I was speaking from personal experience also. We kept the mortgage and the low interest rate school debt. Invested the rest and now in our mid 40s are financially independent. We decided to both go part time as we both still enjoy work. Once hitting financial independence we quickly killed the mortgage. We now have the option to do whatever we want with our time.

If we paid off the mortgage first and not invested we would have missed out on some of those amazing gains after the financial crisis. We would probably still be full time employees today getting close to being financially independent but not there yet.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
GreenLawn
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by GreenLawn »

EnjoyIt wrote: Sat Oct 17, 2020 3:22 pm
Toons wrote: Sat Oct 17, 2020 2:37 pm
EnjoyIt wrote: Sat Oct 17, 2020 2:11 am
Toons wrote: Fri Oct 16, 2020 10:30 am Debt Free=
"Options"

:mrgreen:
One has far more options with invested assets compared to being debt free compare:

$350k house with no mortgage and $100k invested
Vs
$350k house with $300k mortgage and $400k invested.

Much more options having invested assets.
Appreciate the insight.
I was speaking from personal experience.
Paid off the mortgage 15 years ago,
Immediately started investing the "hypothetical" payment in Vanguard funds monthly.
Eventually debt free.
We chose the "option"
To Retire Early.
Now we have "options" to do with our time, (which is limited for all)
To Do What We Choose.
:happy
That’s funny, I was speaking from personal experience also. We kept the mortgage and the low interest rate school debt. Invested the rest and now in our mid 40s are financially independent. We decided to both go part time as we both still enjoy work. Once hitting financial independence we quickly killed the mortgage. We now have the option to do whatever we want with our time.

If we paid off the mortgage first and not invested we would have missed out on some of those amazing gains after the financial crisis. We would probably still be full time employees today getting close to being financially independent but not there yet.
Agree with this. Mortgages are really cheap now, great historical opportunity to expand one's options. Even more so with the internet providing exposure to a wide variety of lifestyles and pursuits on which to put cheap money to good use. Safe to say I don't agree with the OP on paying off a mortgage, though I understand why some folks prioritize living a debt free life.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by White Coat Investor »

emoore wrote: Thu Oct 15, 2020 11:27 am
White Coat Investor wrote: Thu Oct 15, 2020 12:37 am
JBTX wrote: Wed Oct 14, 2020 10:28 pm I'm in my late 50s and am guessing 1/2 to 2/3 of networth is investment earnings.
How would that be. Maybe someday. I remember that 80% of my first million was just carved out of earnings. Pure brute force savings. Now looking at my spreadsheet it appears that of the money I have designated for retirement is still about 75% just money saved. Investment return really hasn't contributed all that much for me yet as a percentage. But that's a good problem to have, can't complain. As you noted, it's more a reflection of income than anything. But when that income hits prepared hands...watch out! The wealth builds very quickly. Now the earning/saving/investing stuff is relatively trivial and we find ourselves focused heavily on giving, estate planning, asset protection, legacy building, not ruining our kids etc. Never expected giving well to be more complicated than investing well, but such is life.
That's interesting. I just looked at my 401k contributions (including employer match) and my contributions account for less that half of my balance. I'm 43 and have been contributing for 18 years. And I don't have close to a million yet. so I'm not sure how your first million was 80% contributions? Very conservative asset allocation?
I still haven't been investing for 18 years and my income has been rising the whole time. When income flattens or decreases, then the earnings start making up more of balance. Imagine becoming a millionaire over 5 years versus over 25. Which investor's million will be made up more of earnings? The second of course, more time for compound interest to work.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by White Coat Investor »

JBEB wrote: Thu Oct 15, 2020 4:28 pm I really enjoyed this thread and some of the articles posted. I found them very incitement and informative.

The two things I wonder about is how long term buy and hold real estate fits into these conversations (and not just a primary)

The other thing that I found intriguing was the 15-35% of debt is where you should be. If you are investing some of that in real estate, that number seems low. Even pretty conservative REI would be well over that number.
If all your net worth were in investment real estate that would be the case. But most people own a home, some 401(k)s, some cash, perhaps some taxable mutual funds etc. Thus even if your investment real estate has a LTV of 60% on average, you could still be down there in the recommended 25% range.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by White Coat Investor »

finite_difference wrote: Fri Oct 16, 2020 11:08 am
White Coat Investor wrote: Wed Oct 14, 2020 9:27 pm Making little tweaks to my asset allocation didn't make a difference.

What really mattered?

0a. Born in America
0b. No major health problems

1. Making more
2. Spending less
3. Owning my jobs Highly successful doctor and financial guru
4. Staying the course with a reasonable financial plan

The rest is noise. Yes, leveraging the mortgage can make a big difference, but not as big a difference as taking out half the mortgage in the first place.
Added a couple things you forgot, channeling Bogle.

An anecdote: one of my doctors liked to discuss investments and stock tips. I told him to Google “White Coat Investor”. He carefully wrote it down on his pad and showed it to me. Several months later I called to make another appointment, and was informed he had retired. :D
Sorry about both things!
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by White Coat Investor »

Kaktus wrote: Sat Oct 17, 2020 1:26 am It is a big issue for sure; Should I spend now or in 20 years. Personally I dont think that article hits home. I dont expect anyone who is not already super frugal to read it and shout to his family "right!, no skiing until the motgage is paid of in 30 years!" Besides not bery realistic it is not the best guide either. Your debt is not the only number that is important. Zero debt, zero savings and zero skiing experience, that would be a terrible place to be at your 60th birthday.
To be fair, that isn't what the article said.
1) Invest you must 2) Time is your friend 3) Impulse is your enemy | 4) Basic arithmetic works 5) Stick to simplicity 6) Stay the course
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by JBEB »

White Coat Investor wrote: Sat Oct 17, 2020 10:20 pm
JBEB wrote: Thu Oct 15, 2020 4:28 pm I really enjoyed this thread and some of the articles posted. I found them very incitement and informative.

The two things I wonder about is how long term buy and hold real estate fits into these conversations (and not just a primary)

The other thing that I found intriguing was the 15-35% of debt is where you should be. If you are investing some of that in real estate, that number seems low. Even pretty conservative REI would be well over that number.
If all your net worth were in investment real estate that would be the case. But most people own a home, some 401(k)s, some cash, perhaps some taxable mutual funds etc. Thus even if your investment real estate has a LTV of 60% on average, you could still be down there in the recommended 25% range.
makes sense. thanks
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by Frugalbear »

EnjoyIt wrote: Sat Oct 17, 2020 3:22 pm
Toons wrote: Sat Oct 17, 2020 2:37 pm
EnjoyIt wrote: Sat Oct 17, 2020 2:11 am
Toons wrote: Fri Oct 16, 2020 10:30 am Debt Free=
"Options"

:mrgreen:
One has far more options with invested assets compared to being debt free compare:

$350k house with no mortgage and $100k invested
Vs
$350k house with $300k mortgage and $400k invested.

Much more options having invested assets.
Appreciate the insight.
I was speaking from personal experience.
Paid off the mortgage 15 years ago,
Immediately started investing the "hypothetical" payment in Vanguard funds monthly.
Eventually debt free.
We chose the "option"
To Retire Early.
Now we have "options" to do with our time, (which is limited for all)
To Do What We Choose.
:happy
That’s funny, I was speaking from personal experience also. We kept the mortgage and the low interest rate school debt. Invested the rest and now in our mid 40s are financially independent. We decided to both go part time as we both still enjoy work. Once hitting financial independence we quickly killed the mortgage. We now have the option to do whatever we want with our time.

If we paid off the mortgage first and not invested we would have missed out on some of those amazing gains after the financial crisis. We would probably still be full time employees today getting close to being financially independent but not there yet.
Looks like there is more than one way to get to FI.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by EnjoyIt »

Frugalbear wrote: Sat Oct 24, 2020 11:12 pm
EnjoyIt wrote: Sat Oct 17, 2020 3:22 pm
Toons wrote: Sat Oct 17, 2020 2:37 pm
EnjoyIt wrote: Sat Oct 17, 2020 2:11 am
Toons wrote: Fri Oct 16, 2020 10:30 am Debt Free=
"Options"

:mrgreen:
One has far more options with invested assets compared to being debt free compare:

$350k house with no mortgage and $100k invested
Vs
$350k house with $300k mortgage and $400k invested.

Much more options having invested assets.
Appreciate the insight.
I was speaking from personal experience.
Paid off the mortgage 15 years ago,
Immediately started investing the "hypothetical" payment in Vanguard funds monthly.
Eventually debt free.
We chose the "option"
To Retire Early.
Now we have "options" to do with our time, (which is limited for all)
To Do What We Choose.
:happy
That’s funny, I was speaking from personal experience also. We kept the mortgage and the low interest rate school debt. Invested the rest and now in our mid 40s are financially independent. We decided to both go part time as we both still enjoy work. Once hitting financial independence we quickly killed the mortgage. We now have the option to do whatever we want with our time.

If we paid off the mortgage first and not invested we would have missed out on some of those amazing gains after the financial crisis. We would probably still be full time employees today getting close to being financially independent but not there yet.
Looks like there is more than one way to get to FI.
Absolutely, depending on market results, some pathways are faster than others. A good example would have been if I stayed at 100% equities the entire time as well. Instead I had some bonds which delayed financial independence by a year or so. If only hindsight could be monetized.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
makingmistakes
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by makingmistakes »

Starfish wrote: Mon Oct 12, 2020 7:50 pm I personally cannot relate at all to the article. It addresses only a category of people, the ones with an uncontrollable spending issue. I personally don't know closely any of those people so I cannot relate.
Yes, buying a ski ticket while having a mortgage is like borrowing money for skiing. That is the point! Disregarding the value of time and youth it's a very big mistake. Even bigger than not saving enough for retirement! Of course I want to ski while I enjoy it, not in my 70s when I am financially secure. If it costs 3% a year, so be it.
I know people who have a lot of money but they did not do much except working until late in their 40s. They started to spend money recently. Regardless of how much they spend now they will never enjoy it as much as the would have in their 20s. In my opinion this is a fundamental mistake in how they lived their lives. It's the old stereotype about Americans and Japanese who travel the world in their 60s, 70s, 80s (or buying or Porsche or whatever) after wasting their entire lives working. It's too late. They should have done that in their 20s, 30s, 40s.
And people like me who don’t get any lasting pleasure from consumerism, or don’t view working as “wasting their entire lives”, can’t relate to your view😄
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by Dottie57 »

Freetime76 wrote: Wed Oct 14, 2020 3:28 pm I guess I am a simple soul. Maybe that is an outlier in this particular thread, though.

I have no interest in debt. Neither does my spouse. Thank God. Neither of us is impressed with moving the pea around under the shell...so, no, I am not impressed with leveraged purchases At All. Including real estate, with the exception of your primary home if needed to get started.

I like buying something and never thinking about paying for it again.

I prefer to buy something and “feel” it, by paying actual dollars where our bank account balance goes down. It makes us get a better price, and often we decide we are a-okay just as we are. So that would be a zero dollar, zero interest purchase, eh?

We are free to focus on other goals with our full energy and attention. We don’t follow the market at all or care what it does. Like our horses, dogs, chickens, the beautiful fall weather, the giant cookie my DH just brought home as a surprise. It’s freeing. Can’t beat it. Would never go back.

Of the 50+ and older crowd we know of nobody who was unhappy they paid off their mortgage. I will never go crawling to a bank again.
+1
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by mmcmonster »

My person story is slightly different.

Got out of school and got married. DW and I were renting for several years and put extra money into investments.

We then got stable jobs and bought a house. At this point we stopped investing and rapidly paid down our mortgage. Five years later we bought a newer house. Within three years of our second house, we paid off the mortgage and became debt free. At that point we started investing again.

Now... In theory we should have kept those two mortgages going and invested the whole time.

In practice, THANK GOD WE STOPPED INVESTING! The first round of investing (before we bought our first house), I chose some individual stocks (which definitely were doing poorer than the market) and used a Wealth Management advisor (who was putting me in high ER investments that were doing poorer than the market). He actually took over my Roth IRA and lost money in it over the ~eight years he managed it for me.

By the time we finished paying off our mortgage and started investing again ... I was several years older, had time to read a little about investing, and discovered this website. I was more mature and bought investments with an underlying strategy that was reflected in my Investment Policy Statement.

So, at least for me, paying off my mortgages gave me time to mature and understand investing, so I wouldn't make as big mistakes in aggregate.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by Rowan Oak »

Freetime76 wrote: Wed Oct 14, 2020 3:28 pm I guess I am a simple soul. Maybe that is an outlier in this particular thread, though.

I have no interest in debt. Neither does my spouse. Thank God. Neither of us is impressed with moving the pea around under the shell...so, no, I am not impressed with leveraged purchases At All. Including real estate, with the exception of your primary home if needed to get started.

I like buying something and never thinking about paying for it again.

I prefer to buy something and “feel” it, by paying actual dollars where our bank account balance goes down. It makes us get a better price, and often we decide we are a-okay just as we are. So that would be a zero dollar, zero interest purchase, eh?

We are free to focus on other goals with our full energy and attention. We don’t follow the market at all or care what it does. Like our horses, dogs, chickens, the beautiful fall weather, the giant cookie my DH just brought home as a surprise. It’s freeing. Can’t beat it. Would never go back.

Of the 50+ and older crowd we know of nobody who was unhappy they paid off their mortgage. I will never go crawling to a bank again.
This.

I do use cash back credit cards to pay for things, but balance always paid in full each month.
No debt/loans.
No mortgage (paid off a few of them over the years).
Peace of mind.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by Starfish »

makingmistakes wrote: Sun Oct 25, 2020 7:01 am
Starfish wrote: Mon Oct 12, 2020 7:50 pm I personally cannot relate at all to the article. It addresses only a category of people, the ones with an uncontrollable spending issue. I personally don't know closely any of those people so I cannot relate.
Yes, buying a ski ticket while having a mortgage is like borrowing money for skiing. That is the point! Disregarding the value of time and youth it's a very big mistake. Even bigger than not saving enough for retirement! Of course I want to ski while I enjoy it, not in my 70s when I am financially secure. If it costs 3% a year, so be it.
I know people who have a lot of money but they did not do much except working until late in their 40s. They started to spend money recently. Regardless of how much they spend now they will never enjoy it as much as the would have in their 20s. In my opinion this is a fundamental mistake in how they lived their lives. It's the old stereotype about Americans and Japanese who travel the world in their 60s, 70s, 80s (or buying or Porsche or whatever) after wasting their entire lives working. It's too late. They should have done that in their 20s, 30s, 40s.
And people like me who don’t get any lasting pleasure from consumerism, or don’t view working as “wasting their entire lives”, can’t relate to your view😄

Enjoying life has absolutely nothing to do with consumerism. You need money to enjoy life even at the minimum material satisfaction. At least because you need time off from work.
That being said, I find hard to understand the line some people draw between things that can bring experiences and the experiences themselves. It's the same thing.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by willthrill81 »

Starfish wrote: Mon Oct 26, 2020 11:41 am That being said, I find hard to understand the line some people draw between things that can bring experiences and the experiences themselves. It's the same thing.
It can be difficult to clearly delineate experiences from objects when can create experiences. But most objects aren't very good at creating varied experiences. They tend to produce the same experience over and over. Some are better at it though, like boats and ATVs.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by Starfish »

willthrill81 wrote: Mon Oct 26, 2020 11:59 am
Starfish wrote: Mon Oct 26, 2020 11:41 am That being said, I find hard to understand the line some people draw between things that can bring experiences and the experiences themselves. It's the same thing.
It can be difficult to clearly delineate experiences from objects when can create experiences. But most objects aren't very good at creating varied experiences. They tend to produce the same experience over and over. Some are better at it though, like boats and ATVs.
This is not a problem for somebody who enjoys those experiences. I rank priorities in terms of happiness obtained per $ spent.
For some people a sports car can be a better investment than other experiences, like traveling for example. Especially a cheap one like a used Miata.
A pair of good skis and ski pass are good investment (as in $ spend per pleasure obtained) for somebody who enjoys skiing.
An expensive bicycle is good investment for somebody who enjoys it and puts a lot of miles on it.
A boat, motorcycle, ATV, RV etc could be very good and worthwhile investments.

The perceived problem is when people do not extract enjoyment from their purchases. This is very relevant for the buyer but is irrelevant from a consumerist perspective. The nature or the society does not care if I enjoy my RV or boat once I bought it.
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willthrill81
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by willthrill81 »

Starfish wrote: Mon Oct 26, 2020 12:17 pm
willthrill81 wrote: Mon Oct 26, 2020 11:59 am
Starfish wrote: Mon Oct 26, 2020 11:41 am That being said, I find hard to understand the line some people draw between things that can bring experiences and the experiences themselves. It's the same thing.
It can be difficult to clearly delineate experiences from objects when can create experiences. But most objects aren't very good at creating varied experiences. They tend to produce the same experience over and over. Some are better at it though, like boats and ATVs.
This is not a problem for somebody who enjoys those experiences. I rank priorities in terms of happiness obtained per $ spent.
For some people a sports car can be a better investment than other experiences, like traveling for example. Especially a cheap one like a used Miata.
A pair of good skis and ski pass are good investment (as in $ spend per pleasure obtained) for somebody who enjoys skiing.
An expensive bicycle is good investment for somebody who enjoys it and puts a lot of miles on it.
A boat, motorcycle, ATV, RV etc could be very good and worthwhile investments.

The perceived problem is when people do not extract enjoyment from their purchases. This is very relevant for the buyer but is irrelevant from a consumerist perspective. The nature or the society does not care if I enjoy my RV or boat once I bought it.
Mmany academic studies have found that physical goods have a strong tendency to produce less happiness than intangible experiences. It's clearly not universal and potentially confounded by items such as those you mentioned, but the tendency is still significant. People appear to believe that physical goods will produce lasting happiness, but with relatively few exceptions, they appear to fail to do so. It isn't entirely clear yet why experiences lead to greater happiness, but variety and nostalgia seem likely to play contributing roles.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
EnjoyIt
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by EnjoyIt »

willthrill81 wrote: Mon Oct 26, 2020 12:21 pm
Starfish wrote: Mon Oct 26, 2020 12:17 pm
willthrill81 wrote: Mon Oct 26, 2020 11:59 am
Starfish wrote: Mon Oct 26, 2020 11:41 am That being said, I find hard to understand the line some people draw between things that can bring experiences and the experiences themselves. It's the same thing.
It can be difficult to clearly delineate experiences from objects when can create experiences. But most objects aren't very good at creating varied experiences. They tend to produce the same experience over and over. Some are better at it though, like boats and ATVs.
This is not a problem for somebody who enjoys those experiences. I rank priorities in terms of happiness obtained per $ spent.
For some people a sports car can be a better investment than other experiences, like traveling for example. Especially a cheap one like a used Miata.
A pair of good skis and ski pass are good investment (as in $ spend per pleasure obtained) for somebody who enjoys skiing.
An expensive bicycle is good investment for somebody who enjoys it and puts a lot of miles on it.
A boat, motorcycle, ATV, RV etc could be very good and worthwhile investments.

The perceived problem is when people do not extract enjoyment from their purchases. This is very relevant for the buyer but is irrelevant from a consumerist perspective. The nature or the society does not care if I enjoy my RV or boat once I bought it.
Mmany academic studies have found that physical goods have a strong tendency to produce less happiness than intangible experiences. It's clearly not universal and potentially confounded by items such as those you mentioned, but the tendency is still significant. People appear to believe that physical goods will produce lasting happiness, but with relatively few exceptions, they appear to fail to do so. It isn't entirely clear yet why experiences lead to greater happiness, but variety and nostalgia seem likely to play contributing roles.
Some goods are bought to have experiences. Ski gear is a great example. We love to ski. We spend lots of money on the skiing experience. We do it with friends and family which adds to the experience.

I have a friend whose parents fly the whole family for two weeks to Alaska every summer. That is money spent that the whole family enjoys and cherishes. Sure they can all hang out at someone’s home, but I bet the experience is far better in Alaska.

Like everything, it all depends.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
garlandwhizzer
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by garlandwhizzer »

Mortgage in general can be thought of as leverage, paying a fixed rate to hold an asset that (hopefully) will appreciate in the future faster than the interest rate you have paid to hold it. In the US in recent decades this approach has generally worked quite well when used in moderation. In the housing collapse of 2007 - 9, many euphoric, highly leveraged, deeply indebted real estate investors went bankrupt. I personally know some of them. At such times, it's very comforting not to have to make a monthly mortgage or other debt payment as the value of your asset plummets. It is a matter or expected risk versus expected return. The problem is there are only probabilities, no certainty, about whether the risk or the reward will dominate over a particular investor's time frame. No debt/no mortgage improves your financial status in bad times just like quality bonds do. High debt/high leverage on the other hand maximizes expected return but exposes the holder to greater risk and emotional distress in market down cycles. Like everything else in investing there is a tradeoff.

When you're in or approaching retirement my personal belief is that reducing debt including mortgage debt to zero or as close to it as possible is emotionally worth what it costs to pay off that debt up front. Like quality bonds it offers greater peace of mind and financial flexibility right when you need it most. I think reasonable arguments can be made for older investors in or near retirement to take this approach or alternately to downsize the house/condo they live in to lower costs to live in and maintain. Conversely for younger investors with substantial work capital remaining in their futures it may be entirely reasonable to take on more risk with mortgage and shoot for the higher expected long term return.

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JackoC
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by JackoC »

EnjoyIt wrote: Mon Oct 26, 2020 12:33 pm
willthrill81 wrote: Mon Oct 26, 2020 12:21 pm
Starfish wrote: Mon Oct 26, 2020 12:17 pm
willthrill81 wrote: Mon Oct 26, 2020 11:59 am
Starfish wrote: Mon Oct 26, 2020 11:41 am That being said, I find hard to understand the line some people draw between things that can bring experiences and the experiences themselves. It's the same thing.
It can be difficult to clearly delineate experiences from objects when can create experiences. But most objects aren't very good at creating varied experiences. They tend to produce the same experience over and over. Some are better at it though, like boats and ATVs.
This is not a problem for somebody who enjoys those experiences. I rank priorities in terms of happiness obtained per $ spent.
For some people a sports car can be a better investment than other experiences, like traveling for example. Especially a cheap one like a used Miata.
A pair of good skis and ski pass are good investment (as in $ spend per pleasure obtained) for somebody who enjoys skiing.
An expensive bicycle is good investment for somebody who enjoys it and puts a lot of miles on it.
A boat, motorcycle, ATV, RV etc could be very good and worthwhile investments.

The perceived problem is when people do not extract enjoyment from their purchases. This is very relevant for the buyer but is irrelevant from a consumerist perspective. The nature or the society does not care if I enjoy my RV or boat once I bought it.
Mmany academic studies have found that physical goods have a strong tendency to produce less happiness than intangible experiences. It's clearly not universal and potentially confounded by items such as those you mentioned, but the tendency is still significant. People appear to believe that physical goods will produce lasting happiness, but with relatively few exceptions, they appear to fail to do so. It isn't entirely clear yet why experiences lead to greater happiness, but variety and nostalgia seem likely to play contributing roles.
Some goods are bought to have experiences. Ski gear is a great example. We love to ski. We spend lots of money on the skiing experience. We do it with friends and family which adds to the experience.
I have a friend whose parents fly the whole family for two weeks to Alaska every summer. That is money spent that the whole family enjoys and cherishes. Sure they can all hang out at someone’s home, but I bet the experience is far better in Alaska.
Like everything, it all depends.
Yes I would reiterate my usual response to this line of argument that 'studies' saying 'experiences' give more happiness are basically useless from an individual POV. They might have some relevance in a discussion of 'other people' but sometimes threads are shut down here specifically because they focus on 'other people' and not individual consumption/investment decisions which is supposed to be the focus here.

Even besides specialized items like sporting gear, or semi-specialized ones like an expensive bicycle for example, even wholly generic major consumption items like cars are, to many people who spend 'too much' on them (ie more than the poster criticizing them chooses or is able to spend :happy ), also all about the experiences related to owning them. The more expensive of our two cars is basically for road trips featuring remote winding and/or completely deserted roads where the car is very fun to drive: driving the car is the 'experience'. We could take our old SUV instead and the 'experience' would be the same in non driving parts of the trip, and Interstate segments (where the sporty car is driven conservatively), but on Pacific Coast Highway*, US50 in absolute middle of nowhere in UT/NV, remote WV mountain roads etc. it would not be nearly the same, for me. And I could also see that for the biggest (quasi-)consumption item of all for most people, houses, the experience of living in a nicer house. I would not personally see this as much for say expensive jewelry, but there I might fall into the same trap people who don't value fun driving fall into in when they assess sporty car purchases: the experience related to the car doesn't appeal to *them*, so they slip into declaring that it just isn't objectively worth much, employing 'studies' as justification for their personal preference. Most often it seems to be airplane/foreign travel: people who like airplane trips (and driving usually crap rental cars once there) telling me 'studies' say I should share their preference. :happy

*I've done this one, PCH between Morro Bay and Monterrey in a big rented SUV: after awhile, 'please let this be over soon', and my M2, 'crap, this is over already?' Both were 'experiences' but totally different ones. OK, I could rent a less totally unsuitable vehicle for that segment if only two people (more people were along on the SUV trip) but it's not easy to long distance one-way rent actually fun cars.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by EnjoyIt »

[quote]
Yes I would reiterate my usual response to this line of argument that 'studies' saying 'experiences' give more happiness are basically useless from an individual POV. They might have some relevance in a discussion of 'other people' but sometimes threads are shut down here specifically because they focus on 'other people' and not individual consumption/investment decisions which is supposed to be the focus here.

Even besides specialized items like sporting gear, or semi-specialized ones like an expensive bicycle for example, even wholly generic major consumption items like cars are, to many people who spend 'too much' on them (ie more than the poster criticizing them chooses or is able to spend :happy ), also all about the experiences related to owning them. The more expensive of our two cars is basically for road trips featuring remote winding and/or completely deserted roads where the car is very fun to drive: driving the car is the 'experience'. We could take our old SUV instead and the 'experience' would be the same in non driving parts of the trip, and Interstate segments (where the sporty car is driven conservatively), but on Pacific Coast Highway*, US50 in absolute middle of nowhere in UT/NV, remote WV mountain roads etc. it would not be nearly the same, for me. And I could also see that for the biggest (quasi-)consumption item of all for most people, houses, the experience of living in a nicer house. I would not personally see this as much for say expensive jewelry, but there I might fall into the same trap people who don't value fun driving fall into in when they assess sporty car purchases: the experience related to the car doesn't appeal to *them*, so they slip into declaring that it just isn't objectively worth much, employing 'studies' as justification for their personal preference. Most often it seems to be airplane/foreign travel: people who like airplane trips (and driving usually crap rental cars once there) telling me 'studies' say I should share their preference. :happy

*I've done this one, PCH between Morro Bay and Monterrey in a big rented SUV: after awhile, 'please let this be over soon', and my M2, 'crap, this is over already?' Both were 'experiences' but totally different ones. OK, I could rent a less totally unsuitable vehicle for that segment if only two people (more people were along on the SUV trip) but it's not easy to long distance one-way rent actually fun cars.
[/quote]

And then it gets a bit more complex when we pay extra money for small improvements. In your example paying an extra $15k for an M3 as opposed to your M2. Having an extra 500 sqft of a house. Having an extra 25k sqft of land. Each of these incremental increases may provide increased value but at a diminishing return.

I can have just as much fun driving a 3 year old M2 as I would a brand new one. I don’t think the extra $15k-$20k for new would make any difference for me. Someone else might say they would have just as much fun in a used Miata or the additional expense of an M2 is of little value.

This is where it starts to get complicated and if the expense is even worth the extra time needed to earn money to afford that expense. The Starbucks addicts is my favorite example. I work with people who make Starbucks runs at 1-2 times a day. To me paying so much money for bad coffee is a complete waste and costs a few years of extra employment to cover that addiction. Despite that, these people gladly buy that coffee every day thinking it has value.
A time to EVALUATE your jitters: | https://www.bogleheads.org/forum/viewtopic.php?f=10&t=79939&start=400#p5275418
JackoC
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by JackoC »

EnjoyIt wrote: Mon Oct 26, 2020 2:47 pm And then it gets a bit more complex when we pay extra money for small improvements. In your example paying an extra $15k for an M3 as opposed to your M2. Having an extra 500 sqft of a house. Having an extra 25k sqft of land. Each of these incremental increases may provide increased value but at a diminishing return.

I can have just as much fun driving a 3 year old M2 as I would a brand new one. I don’t think the extra $15k-$20k for new would make any difference for me. Someone else might say they would have just as much fun in a used Miata or the additional expense of an M2 is of little value.

This is where it starts to get complicated and if the expense is even worth the extra time needed to earn money to afford that expense. The Starbucks addicts is my favorite example. I work with people who make Starbucks runs at 1-2 times a day. To me paying so much money for bad coffee is a complete waste and costs a few years of extra employment to cover that addiction. Despite that, these people gladly buy that coffee every day thinking it has value.
Sure, but I think everyone would agree that incremental differences have a subjective variable impact, as well as that for some people getting Starbucks every day (or driving an M car) could seriously affect their financial future in $ and cents, but for other people one or both just would never be enough to matter. Plus I know some people like Miata's but you can't fit two people's luggage, hiking gear and well liked food items from home for a several thousand mile road trip into a Miata, or a Huracan for that matter, but you can (just) stuff them into an M2. So there are objective elements too, in particular uses of the vehicle for 'experiences'.

Anyway the point where I see some disagreement is the (IMO) generally bogus distinction, not just 'problematic in some cases' etc, between 'things' and 'experiences'. They overlap way too much even in general to be spoken of as different things. Again seems to me the theme of this is often to push airplane/international travel (which is fine for people who especially like it) as a superior use of money. And 'studies' finding averages are basically irrelevant in general to specific individual consumption decisions.
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by av111 »

How does Porsche 911 fit into the dynamic?
AV111
jello_nailer
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Re: The Wrong Way to Think About Debt - The White Coat Investor

Post by jello_nailer »

Rowan Oak wrote: Sun Oct 25, 2020 1:29 pm
This.

I do use cash back credit cards to pay for things, but balance always paid in full each month.
No debt/loans.
No mortgage (paid off a few of them over the years).
Peace of mind.
[/quote]

Rowan Oak - You must have a less than perfect credit score then as you have not demonstrated your ability to manage "different types" of credit. :sharebeer
Same here, I keep getting "suggestions" on how to improve my exceptional credit score. Get a new mortgage so I have new experience with mortgages. I have old experience, I know how to pay them so they go away. The credit world is nuts.
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