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How I think about debt

collabfund.com

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Re: How I think about debt

#221

Post by sokoloff »

dheera wrote: post #211
sokoloff wrote: post #207

Earlier quoted context omitted.

It's fine to expect some people to buy a house with cash. I don't think that precludes saving for many years to do so (meaning the median income doesn't need to be $1M/yr).

Unfortunately housing prices are rising so fast that saving for years doesn't necessarily get you there, unless median income is close to ~1M by my back-of-envelope calculations, which include: - taxes (1M is close to 500K after taxes) - money that you need to cut out and put into retirement to sustain yourself from age 65-100 - living expenses and rent until you buy - real estate prices rising the whole time

> living expenses and rent until you buy

Which will of course be stratospheric in a world where median labor costs $500 per hour.

Re: How I think about debt

#222

Post by dheera »

rcxdude wrote: post #218
dheera wrote: post #216

Earlier quoted context omitted.

Why is avoiding debt a risk averse strategy? I actually do a lot of high risk investments with a small percentage of my net worth -- bitcoin, options, you name it. But I do it with hard cash to my name. If I lose a chunk of that I don't owe anyone anything. I just never thought spending someone else's money and then owing them was even anywhere close to my moral radar of things I would do. The only one time I took a…

because the risk with debt is not being able to pay it back - and you are paying the lender for their side of that risk (generally paying less the more of that risk falls on your side, like secured debt). It's a service they are freely offering (and in fact benefits them disproportionately on average), I don't see how it's a moral issue at all.

The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something. I need to earn the money for it, after which I deserve to have that something.

However, the most basic clean-and-functional versions of basic necessities (food, water, shelter, and transportation) should be accessible to everyone working a full-time job, in my opinion, without having to spend other peoples' money.

3 out of those 4 are attainable even with a low-paying job, it's really just shelter that is the problem.

Re: How I think about debt

#223

Post by LouisSayers »

dheera wrote: post #216
rcxdude wrote: post #214

Earlier quoted context omitted.

It's more typical to think of 'affording' in terms of your expected lifetime income, and this is generally a good predictor of people's spending habits. Lending generally enables this. Avoiding debt entirely is a very risk-averse strategy. As ridiculous as house prices are, they are still generally affordable for many (and whether renting or buying is a better overall financial decision is dependent on many factors w…

Why is avoiding debt a risk averse strategy? I actually do a lot of high risk investments with a small percentage of my net worth -- bitcoin, options, you name it. But I do it with hard cash to my name. If I lose a chunk of that I don't owe anyone anything. I just never thought spending someone else's money and then owing them was even anywhere close to my moral radar of things I would do. The only one time I took a…

> Why is avoiding debt a risk averse strategy?

Note that they said avoiding ALL debt.

For example, my student loan collects interest at a rate of 2.9%. Therefore, it makes sense to maintain that debt if I believe (and accept the risk) of making an investment that pays back a rate of 10%.

Financially it might make sense to keep that debt, pay the minimum and invest cash into let's say an index fund.

If you have a hardline stance that you NEVER want any debt, then you are basically saying you're highly risk averse (at least when it comes to ending up in the negative).

Re: How I think about debt

#224

Post by rcxdude »

dheera wrote: post #222
rcxdude wrote: post #218

Earlier quoted context omitted.

because the risk with debt is not being able to pay it back - and you are paying the lender for their side of that risk (generally paying less the more of that risk falls on your side, like secured debt). It's a service they are freely offering (and in fact benefits them disproportionately on average), I don't see how it's a moral issue at all.

The moral issue I have is that simply put, if I don't have the money for something, I wasn't meant to have that something. I need to earn the money for it, after which I deserve to have that something. However, the most basic clean-and-functional versions of basic necessities (food, water, shelter, and transportation) should be accessible to everyone working a full-time job, in my opinion, without having to spend oth…

Do you believe that taking investment is immoral as well, then? That access to resources should be entirely based on past work/achievements, with no judgement applied to anything to be done in the future? That does seem to be the standard you are applying to yourself, at least.

(And again, I do agree that housing is incredibly overpriced in much of the world, it's just that debt vs not doesn't have much to do with it. The high price of mortgages is the same reason the rent is high, and the rent being too high is a problem even if it doesn't involve debt)

Re: How I think about debt

#225

Post by TexanFeller »

gbalduzzi wrote: post #62
nineplay wrote: post #55

You can take money and pay off your mortgage or you can take that same money, throw it in a low cost index fund, and keep the mortgage. Most people are going to end up better off with the later. Cash has the illusion of being safer but start talking about inflation and it starts to lose its luster.

Sure, and what happens when, after you do that, some calamity happens and stocks go down by more than 50%, you lose your job and you can't pay the mortgage anymore? That is of course extreme, but proves the article point: by not having debt, you can sustain a much broaden series of events. As everything in life, it's a spectrum. I think it's pretty reasonable to accept the "sustainability narrowing" that comes from a…

> what happens when, after you do that, some calamity happens and stocks go down by more than 50%, you lose your job and you can't pay the mortgage anymore?

> That is of course extreme

I don’t think that’s even that extreme. In 2020 the market crashed something like 40% and at the same time vast swaths of the population became unemployed. All of my grandparents experienced the great depression. We will be very fortunate if we aren’t heavily hit by war or economic disasters for the rest of our life.

Re: How I think about debt

#228

Post by lurking15 »

mempko wrote: post #141
lurking15 wrote: post #57

Earlier quoted context omitted.

I feel like Graeber's book is another (left leaning) fad to glom on to, like Piketty's book some years back. I found this book, The Price of Time by Edward Chancellor [1], very useful for understanding the development of money and debt over history. It's so detailed and clearly extensively researched. [1]: https://www.harvard.com/book/the_price_of_time/

It's strange that you would trust a fund manager like Edward Chancellor over a trained anthropologist like Graeber on historical research. The price of time looks a at a small sliver of debt through the eye of interest rates and their impacts. Chancellor's axe to grind is clear, that manipulation of interest rates by central governments has led to economic instability. Yet historically emperors, kings, and other rule…

> Chancellor's axe to grind is clear, that manipulation of interest rates by central governments has led to economic instability

Have you read the book? Cause this is such a simplistic reduction of the book, I can't help to think that YOU have an axe to grind.

Re: How I think about debt

#229

Post by rcxdude »

mempko wrote: post #128

Here is a mind bending concept. Those that hold a lot of cash are resilient. But that cash came from someone else getting into debt. That's because money IS debt. Money gets created when people take out loans. That debt ends up as income to someone else. If you hold a lot of savings, others had to get into debt to create the money that ended up in your bank account. If EVERYONE decides to hoard cash, then the economy…

Pretty much all of the value of basically every savings account is primarily debt from organisations, not personal debt.

Re: How I think about debt

#230

Post by rKarpinski »

gr8r wrote: post #212
rKarpinski wrote: post #27

Interesting they chose to use this example of Japanese companies not having debt, when the country of Japan has the highest debt to GDP of any developed nation[1] which has contributed to its economic stagnation since the 1990s [1] https://en.wikipedia.org/wiki/National_debt_of_Japan

Interesting. Just another reason I'm convinced some of these recent non-fiction is just commentary (almost) making-up/inflating a problem and then providing a "magic" solution. The content isn't nearly as timeless nor broadly true.

yeah, it's content marketing which is all the rage these days. The purpose of pieces like this is to advertise (the VC fund) not to provide deep insight
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