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Old 08-17-2016, 12:04 PM   #21 (permalink)
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You gotta remember that you index funds are gonna suffer as bad or worse than a house will if you have a real estate bubble collapse. That's why I brought up the risk proposition of owning a house versus stocks: stocks are always more dangerous. People who bought a house in 2007-2008 at the market peak only lost money if they wanted to sell fairly quickly. I know in my town (NJ is one of the hardest hit areas for mortgage defaults and has some of the highest home prices) the break even point with the 2007 peak was sometime early this year (although prices were at 90%+ as early as 2013). The difference is, people who lost money on stocks in 2008 lost that money permanently. Even at 14-15% a year (which is the top of what I saw from my index funds as the economy returned), getting back the 50% that people lost is an even deal with the housing market.

I can't speak to the Canadian market, and I don't know whether you guys have the tax incentives we do to buy rather than rent, but in the US I constantly see arguments for renting that ignore the financial calculus entirely. Most of that is related to higher education debt and fewer jobs for young people as their parents work longer and longer (my dad is still working at 65, and has no intention of retiring any time soon). Even buying into a bubble isn't necessarily a bad thing, assuming you aren't concerned about holding onto the property as you wait for the market to recover.
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Old 08-17-2016, 01:23 PM   #22 (permalink)
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As of this morning I am officially debt free. no mortgage, no car payments, no outstanding CC debt, no student loans. The only thing that could be considered a debt at this point is the cellphone contract for the next 2.5 years.

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Old 08-17-2016, 03:58 PM   #23 (permalink)
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The difference is, people who lost money on stocks in 2008 lost that money permanently. Even at 14-15% a year (which is the top of what I saw from my index funds as the economy returned), getting back the 50% that people lost is an even deal with the housing market.
How do you figure? Just like with housing, the only folks who lost out on diversified mutual funds are those who sold. The rest of us got a chance to buy at a significant discount.
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Old 08-17-2016, 04:35 PM   #24 (permalink)
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A diversified portfolio isn't enough to protect anyone in a serious bear market, you're still going to lose a massive amount of cash. In addition to being a residence, owning a house is one more form of risk diversification. You could make an argument that it's putting too much in one spot, but ultimately from a purely financial perspective it's simply a highly conservative investment.

There are very few places that owning a house carries with it the same degree of risk as even a diversified portfolio, and houses are significantly cheaper in those places. That's the reason mortgages are resold, and that the interest rates on them are so low. Institutional investors know that standard mortgages are much more reliable at holding their value than stocks.

Personally, I couldn't live in apartment (first of all, it's hard to fit a machine shop in an apartment), but there are certainly houses for rent. In my case, the break even point for renting versus buying (in terms of money I can't get back) is about 18 months. Yeah, I have a big chunk of change tied up in the house (fairly similar to my retirement savings at the moment), but I also don't have to worry about losing that investment since I plan on staying in this town permanently.

Everyone has risk aversion to particular issues, and they're obviously based on the specifics of their situation, but I've sat down and done the math on every place I would have rented or bought, and the math said 'buy'.

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How do you figure? Just like with housing, the only folks who lost out on diversified mutual funds are those who sold. The rest of us got a chance to buy at a significant discount.
The value of the money in your retirement or other investment account is primarily in compound interest. So, losing 50% of it is highly damaging to the long term outcome, and it's only worse the closer you are to the date you have to start pulling money out it.

The second sentence points out that while you get back to the same value, you'd be no better than even with putting your money into a house.

Last edited by Pariel; 08-17-2016 at 04:40 PM.
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