Unfortunately when inflation rises. That’s the only move. You have to transition to a wicksellin type of strategy. It’ll kill companies, but it’s pretty much what you have to do if inflation occurs. If an economy heats up you gotta make sure that roi is higher and that the weak companies are destroyed. Bankruptcies will be deflationary. Usually if inflation does tick up, it goes crazy up so you gotta raise rates etc. but until then I see no issues with stimulating the economy. Hyperinflation is super bad but usually it never gets that bad. A depression is bad but preferable to high inflation.
Yeah that’s my point exactly. You’re saying that the CBs should just hike rates to reign in inflation. But how? How do you raise rates in this environment? This week there were 2 opinion pieces in the Financial Times arguing this point and in both the final analysis was that the CBs will just have to raise rates. How do you do that? Everyone is leveraged up to their eye balls! Companies like Carnival can issue 3,5 billion worth of debt for 5,75%. ■■■■’s completely crazy. A company that hasn’t had any real revenue in a year and probably won’t for another quarter or two. How does Powell have any control over inflation in this environment?
This thread is supposed to be about Ramsey so I’ll state his 7 steps and we can discuss
- Save $1,000 in cash
- Pay off all debt (except for mtg on primary residence)
- Save up 3-6 months of expenses in cash. This will be held in a savings account.
- Invest 15% of income to retirement
- Save for your kids (School, future etc…)
- Pay off your primary residence
- Freedom - Edit - You will now invest all disposable cash rather than pay down debt. You’re debt free so you’re income is also free to be fully allocated to growth.
Steps 4-6 happen concurrently.
My opinion:
Pros - Less debt, less risk
Cons - Less risk, less reward
Thoughts?
Would you pay off your mortgage as quickly as possible and then start investing more?
Or would you repay your mortgage slower but invest more?
That’s my dilemma right now. I’m thinking about buying a residence and I have about 20% of the purchase price on my savings account. In addition I have about 30% of the purchase price in stocks. I have a steady decent job where the job security is ok, I guess. Right now I’m able borrow at 0% (one of the work benefits) but if the rates go up, my interest payments are linked to libor-12 months.
I’m wondering if I should liquidate my stocks and put everything to paying down the residence ASAP or take out a longer mortgage with smaller monthly payments and keep investing in the stock market while I pay down the mortgage?
i imagine it’ll be some form of debt restructuring. where current debt takes equity share. anyways talks about raising rates is prolly far away given inflation is nowhere to be found and unemployment is still relative high.
he too conservative. ideally i wouldnt keep any cash at all. id go on margin or loc with my stocks usually at 2% interest, and have my comp pay off the cash. but personally i got like 80k right now, due to me being a chicken ■■■■, and refinancing my place and tahts way more than 6 months of expenses for me. i think you should save everythng you can. make sure that every expense item has a purpose. tax deference is the msot important. at my age with a 50 year time horizon, i dont think total returns go below 6% ever. so anything below 6% should be levered. basically anything below 4% should be borrowed.
i would never pay off my mortgage, and id make sure they are 30 years or more. ramsey wants you to do 15. it crazy to do given the small rate differential between the 15 and 30. those rates are so low plus tax deductible. lever those to the fullest andm ake them as long as possible.
in the us, usually i’d look at it, once you ltv goes to 60%, you should prolly check out refinancing to take out equity unless rate rose or something. thats usually around 5 to 10 yr mark.
id keep stock invested unless i need it for a downpayment on a real estate. it has to be produce similar returns. the nice thing about stocks is the liqudiity. doesnt cost much to cut in and out. real estate aint like that. tons of commissions. so when you buy, yo ugotta be sure. about the price, the rates, and its future potential.
To be fair, Dave Ramsey isn’t working with the most educated and logical people in the world, who have spent time, energy, and money evaluating alternatives and making the best choice given their personal situation. He’s working with a bunch of idiots who spend every dollar they make, and then go and spend more on credit cards.
So his advice isn’t necessarily wrong–it’s just geared toward his audience.
That said, I went through the Dave Ramsey program to be one of his recommended local advisors–and it was a nightmare. They want you to drink the Dave Kool-Aid, the quality of the leads sucked, and you got a bunch of people who wanted free advice.
Now . . . convince me that that surprised you.
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One thing to remember, Utility of dollar today >>> Utility of dollar when you are in retirement age
P.S. Also listened to that show, some examples are really sad, especially people being in large student debts, some examples are hilarious like a guy called to show off he makes 320k a month lol
Actually, the fact didn’t surprise me, but the volume did. I assumed (wrongly) that people knew they were hiring a professional who expected to get paid. DR needs to do a better job of advertising that fact.
Fair enough.
It’s tough to know which is the best option until you can just look back but the point of paying down debt vs investing in higher returning investments is minimizing risk. Your net cash flow improves as soon as you pay off a debt balance you then can use that increase in cash flow and invest (if your debt free) or pay off the next debt. If all goes to crap your fixed expenses are as low as can be
i like to look at it in percentiles of returns for alternative investmetns. for example. say you ahve a 30 year time horizon. what is the lowest 1 percentile return of the S&P 500? its about 5.4% CAGR. so this tells me anything below 5.4% i should borrow. anything between 5.4% to 9.8% depends on where we are in the market. and anything higher should be paid off. if mortgage rates have an after tax rate of 1.8% then you should lever the ■■■■■■■
I think Dave Ramsey advice is trash take that 6 months cash and buy levered etfs.
takes 90 day loans
loan blows up on him and he declares bankruptcy
Dave “all debts are bad” Ramsey
by the way, someone made a comedic skit about him. it’s pretty hilarious, yet true.
Haha so true.
I know people that got blown up bad in the IT-bubble and now they think that investing in stocks is inherently evil and pure speculation.
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0% adjustable based on Libor? Does Libor even still exist? I’m only halfway kidding - you need to know what it will transition to when Libor is no longer published.
And, uh, power of compounding? Time in investment is almost always superior to investing larger amounts later.
big fan of stephen graham. he makes a couple mil in youtube nowadays. you should see his smaller youtube counterpart meetkevin. that dude showed off his 25m net of debt portfolio. he’s 28. much richer than steph graham now. he did it through tsla. but he’s overall had more real estate investmetns.
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