- Banned
- #31
Everyone is a GENIUS in a rising market!
Offsetting a fixed liability (monthly payment) with a variable asset return (risky stock investment) doesn't make much sense. We have been in a bull market for a long time, so many people don't remember or have never experienced what a bear market feels like. Believe me, we will have another bear market, but when?
I am a former portfolio manager and started managing my first portfolio on December 31, 1999. Attitudes at that time were much like they are today. Everyone (the geniuses) was making money in the market and thought it would go up forever. Then came March 2000, the top of the market. Equity investors lost about 75% in the NASDAQ over the next 2.5 years. The SP500 was down about 35% during that time.
If you think you're going to make 20% a year on your Bronco money, you should consider the position you'll be in if the market goes down 20%. The probability of losing money during your loan period is real and higher than you think. The somewhat clueless guy in the video doesn't tell you what he'll do if the $40,000 he puts in stocks turns into $35,000. What will happen is he'll have to sell stock that has gone down to make his payments. This leaves less in stock if and when it goes back up. There is a very real possibility that he'll have to find more money to pay off his loan later down the line. This is why people reduce their exposure to stocks in their retirement accounts as they get older. They have less ability to absorb losses.
The video guy underestimates peace of mind by being debt free. I've been debt free for 20 years and it feels great. I don't worry about paying debt, ever. Financial problems are the leading cause of stress for most people. I agree that interest rates are low and I suggest people take advantage of this by purchasing a home, not a car. If you don't have enough money to buy a home, you maybe shouldn't afford a new Bronco?
I'm a cash buyer.
Offsetting a fixed liability (monthly payment) with a variable asset return (risky stock investment) doesn't make much sense. We have been in a bull market for a long time, so many people don't remember or have never experienced what a bear market feels like. Believe me, we will have another bear market, but when?
I am a former portfolio manager and started managing my first portfolio on December 31, 1999. Attitudes at that time were much like they are today. Everyone (the geniuses) was making money in the market and thought it would go up forever. Then came March 2000, the top of the market. Equity investors lost about 75% in the NASDAQ over the next 2.5 years. The SP500 was down about 35% during that time.
If you think you're going to make 20% a year on your Bronco money, you should consider the position you'll be in if the market goes down 20%. The probability of losing money during your loan period is real and higher than you think. The somewhat clueless guy in the video doesn't tell you what he'll do if the $40,000 he puts in stocks turns into $35,000. What will happen is he'll have to sell stock that has gone down to make his payments. This leaves less in stock if and when it goes back up. There is a very real possibility that he'll have to find more money to pay off his loan later down the line. This is why people reduce their exposure to stocks in their retirement accounts as they get older. They have less ability to absorb losses.
The video guy underestimates peace of mind by being debt free. I've been debt free for 20 years and it feels great. I don't worry about paying debt, ever. Financial problems are the leading cause of stress for most people. I agree that interest rates are low and I suggest people take advantage of this by purchasing a home, not a car. If you don't have enough money to buy a home, you maybe shouldn't afford a new Bronco?
I'm a cash buyer.
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