In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

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In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by eldrinsson » Wed Jan 10, 2018 3:39 am

Hi all!

First off, thank you for a great forum. I've been lurking around here for a couple of weeks really diving into a lot of old (and new) threads. It's such a great place to learn more about the permanent portfolio. I've just read The Permanent Portfolio, Harry Browne's long-term investment strategy, by Craig Rowland and it made me really happy because the investment strategy really made sense to me and helped me feel safe with the idea of long-term investing.

I have a question about how to set up the portolio when there are some limited possibilites for some of the asset classes. I'm in Sweden and there are severe limitations as about how to set things up, and starting this year things got even worse... I know there have been a couple of threads about it here already but none could really answer my question...

So here's the problem:

Sweden is a small economy in international terms, and the stock exchange is also small, we have our own currency (SEK) but are at the same time semi-part of the European Union politically - but not part of the Euro-monetary zone. If I understand the underlying principles that make the Permanent Portfolio work it is that it needs to be applied Inside a local economy (except gold), or if not possible in your local economy then try to created it inside another economy (like the US) and then let the volatility of the assets play "against" each other in that economy...

When trying to apply the principles for each asset class and the in Sweden creates a large amount of problems.

Stocks - The swedish stock exchange in it self is very small, but I still guess it will follow largely the the "world market" and it is also possible to buy low cost index funds that covers US or World or the EU market. So I guess some kind of kombination would work...

Long Term Treasuries (Bonds) - This is the real Issue - there are no Swedish government bonds (Short OR longterm) easily available by themselves for a low level private investor like myself. The lover level limit to buy bonds in a single issue is 1 000 000 Sek (approx $100000) and it seems to be a pretty unaccesible market in all which makes me doubt it.... US Treasury bonds just got completely unavailable for the Swedish market (ALL iShares/Vanguard etc US Funds stopped being Sold in Sweden in January this year thanks to some new investment opportunity transparency rules...) There are however some EFT of the European long-term bondmarket available but there are larger buy/sell-fees connectet to these (for example - db x-trackers II iBoxx Sovereigns Eurozone 25+ UCITS ETF 1C - / iShares Germany Govt Bond UCITS ETF this last one has mixed duration unfortunately.... The only swedish bond funds that are available are actively managed 1-10 year mixed bonds (some government, corporate and municipal and mortgages).

So the only alternative to get any kind of long term bonds is to get it in a different currency (Euro), but the prospect of having it in a different currency and additional risk that entails makes me really hesitant about it... So I don't know what to do here.... What's the worse risk? Having Long Term government Bonds in a different currency to protect against deflation (but risk to lose on the exchange on currency)- or only having short/medium term mixed bonds in my own currency...?

Cash - For the short term bonds the same problem as above applies, but I guess the Swedish mixed bond funds could work here. There might also be other kinds of placement to at least get SOME kind of safe rate (Deposit with rate guaranteed by the state)

Gold - This is not a problem - I could go with physical gold / Bullion vault / some gold EFT (even though many good got stopped with the new rules that affected buying US EFTs in Sweden)

So, like you can see there are some big issues in setting up a portfolio that would work on the premises that the Permanent Portfolio is based upon. I've been trying to look into other similar "all weather" portfolios as alternative (like Golden butterfly / All Seasons - Ray Dalio&Tony Robbins) but all seems to rely heavily on long-term bonds so the main issue remains...

My question to you smart people would then be:

IF i would like to create a portfolio that gets me as close to the Permanent portfolios ability to handle "all weathers" with these circumstances, and still deliver a stable return - what would I do?

I would like to point out that I'm not an active investment type - my best scenario would be find a stable and safe around 5% (or more if possible) long term return portfolio that I can sleep well understanding the basics of - just like I feel for the PP. Simply - I want to Invest regularly - Forget about it, Rebalance when needed and eventually (20+ years) get to a place where I could regularly safely withdraw as much as possible to have bigger opportunities of choice in how to spend my time...

All the best and thanks again for being here!

/Eldrinsson
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by Libertarian666 » Wed Jan 10, 2018 2:23 pm

I would probably go with a euro bond fund for the bond component and a world stock market fund for the stock component, given the constraints you are under.

(Note: I have neither stocks nor bonds because I don't trust either of them, but I'm answering the question about the closest approach to the PP for eldrinsson).
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by eldrinsson » Thu Jan 11, 2018 2:15 am

Libertarian666 wrote:I would probably go with a euro bond fund for the bond component and a world stock market fund for the stock component, given the constraints you are under.

(Note: I have neither stocks nor bonds because I don't trust either of them, but I'm answering the question about the closest approach to the PP for eldrinsson).
Thanks for the reply Libertarian666.

Do you think there is a currency risk having the bonds in a different currency (EUR/SEK)? Or is that negligible over the long run (+20 years)? Are there other pros/cons with having it outside my country economy that I don't see in my original post?

Thanks again!
/E
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by Kbg » Thu Jan 11, 2018 4:43 pm

/E,

You do have some challenges implementing. I tend to agree with general advice given to make your PP either Euro centric or global. Personally, I would opt for global vs. Euro. Of course that still leaves you with the currency risk problem. Part of being a HBPP investor is also being convinced/believing that we are basically unable to predict the future. So let’s use that as a base assumption when it comes to the currency problem.

Given our assumption we have a couple of options; hedge currency risk or do not hedge. If we do not then we are worse off if our home currency appreciates and better off if it depreciates...and E anyone who says they can give advice on this is not worth listening to.

So if we agree we can’t predict but still want to reduce the risk of bad real returns in our home currency then there is one simple solution...trend follow your home currency against a basket of currencies or the Euro. (I would think there is an index of the Krona vs. other currencies or you can use the Krona/Euro cross rate.) Use a system that gives very few signals in a year like 2 or less. When Krona is depreciating/going down vs. the currency basket or Euro hedge, when its appreciating/going up do not hedge.

Doing this will be more work and add some complexity but such a system could be set up for you to check just once a month. Over the very long term, it should greatly mitigate the currency problem and get you close to being currency neutral on the portfolio. There are other methods that are more complex...but for simple the above is the best I can think of.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by whatchamacallit » Fri Jan 12, 2018 7:50 am

I would first take advantage of the deposit guarantee, combine your cash and long bonds into one bucket and get the best rate you can find.



5 year term deposit with deposit guarantee pays .86% while Sweden 5 year bond pays -0.013%. Pretty good deal.

https://seb.se/privat/spara-och-placera ... ringskonto


If you could get a 10 year term deposit that would be better but I didn't see that offered anywhere.

Even after you ran out of space in your deposit guarantee I would probably stick with the longest duration bond fund in kronor.

With interest rates as low as they are, deflation risk of kronor feels very high.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by Kbg » Fri Jan 12, 2018 8:18 am

Lol...I was typing on my phone at lunch and too lazy to verify the Swedish currency name...Mexican beer anyone?
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by AnotherSwede » Fri Jan 12, 2018 8:28 am

I can't accept there exists a swede without a mortgage.

Paying ~1.2% interest and losing on the interest portion doesn't sound appealing.

I find the euro debt / global stocks acceptable despite mortgage, at least you get volatility that way. I have to consider that one despite mistrusting the euro.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by eldrinsson » Sat Jan 13, 2018 3:55 am

Kbg wrote: Part of being a HBPP investor is also being convinced/believing that we are basically unable to predict the future. So let’s use that as a base assumption when it comes to the currency problem.
Ahh, yes. I totally agree with that assumption (not being able to predict the future). I think that's the beauty of the PP, it's designed for not knowing but still being able to feel reasonably safe investing your money!
Kbg wrote: So if we agree we can’t predict but still want to reduce the risk of bad real returns in our home currency then there is one simple solution...trend follow your home currency against a basket of currencies or the Euro. (I would think there is an index of the Krona vs. other currencies or you can use the Krona/Euro cross rate.) Use a system that gives very few signals in a year like 2 or less. When Krona is depreciating/going down vs. the currency basket or Euro hedge, when its appreciating/going up do not hedge.

Doing this will be more work and add some complexity but such a system could be set up for you to check just once a month. Over the very long term, it should greatly mitigate the currency problem and get you close to being currency neutral on the portfolio. There are other methods that are more complex...but for simple the above is the best I can think of.
As stated in my orginial post, i'm not really an investor and I havent studied the subject especially much but I think I understand what you mean by this. It seems to me that this is a great idea because it works with basic premises like you say. What I don't know is how this system would look like in reality (and I cant figure it out by myself) - would I take a part of the Cash part of the portfolio and put into this system and if so how much of the total portfolio would go into this?

Also, I feel I have no idea how to set it up practically, I've never been involved with any financial products that work by hedging. And I also feel unsure how I Trend-following work? I don't suggest that you write me a manual ;D But maybe you can give me a basic idea about how it works and maybe some links to places where I can read more about Trend following and hedging your home currency against others.

Depending on how much work this is it might be worth it for me, I value long-term put-and-forget highly so if it would be to much work I might not go for this solution but I would really like to understand how it works practically to make that decision.

A huge thanks for trying to figure out a solution for this predicament (that I probably share with quite a few people interested in the PP portfolio).

Ps. I'll take you up on that korona beer anyday ;) DS
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by eldrinsson » Sat Jan 13, 2018 4:10 am

whatchamacallit wrote:I would first take advantage of the deposit guarantee, combine your cash and long bonds into one bucket and get the best rate you can find.

Even after you ran out of space in your deposit guarantee I would probably stick with the longest duration bond fund in kronor.

With interest rates as low as they are, deflation risk of kronor feels very high.
Hi whatcha!

Hmm, okay, I guess that could be one way to go, it would sure feel simple, I even found a Deposit with guarantee, pays 0.95% on 2 year term.

But I don't really understand why? What would you say is the motive for doing it like that? Without long-term bonds, what would be my protection in case of deflation? Or do you think the risk in having Long-term-bonds/treasuries in non-local currency simply isn't worth the risk? Or is it something else entirely?

Just trying to understand the underlying assumptions and ideas so that I can make an informed decision. Thanks for sharing your ideas!

/E
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by eldrinsson » Sat Jan 13, 2018 4:19 am

AnotherSwede wrote:I can't accept there exists a swede without a mortgage.

Paying ~1.2% interest and losing on the interest portion doesn't sound appealing.

I find the euro debt / global stocks acceptable despite mortgage, at least you get volatility that way. I have to consider that one despite mistrusting the euro.
An absolutely crazy idea, why would I not have mortage >:D

(You are right, of course I have a mortgage ;) )

But I don't really see how it affects my question above - do you mean that (mortgage cost for interest - deposit return for interest) = losing money?

Good to see another swede here :D

/E
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by whatchamacallit » Sat Jan 13, 2018 5:39 am

Rate of return does matter. Institutions would love to be able to get .95 with deposit garauntee instead of negative interest rates.

Maybe I am more conservative than others but I would also be paying down mortgage before investing elsewhere.

Why borrow at a rate of return higher than you know you will receive on at least half your portfolio?

If your mortgage rate is 2%. You would be earning an effective 2% tax free on extra payments since your regular payments are with after tax kronor and you don't have to realize the 2% saved as a gain.. I imagine that is quite a deal in your interest rate environment.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by AnotherSwede » Sat Jan 13, 2018 9:51 am

Eldrinson,
I have not considered euro bonds before yesterday. And as you write you can't really get more than 2-3 year duration AND contaminated by corporate, municipal, probably real estate bonds also.

So, no duration, no volayility, lots of risk and similar interest compared to the mortgage.

Watcamigonnacallit,
You are correct of course. I can only defend it as return envy.

fwiw,
I have by swedish standards low mortgage a cash buffer and saves the rest by 75/25 global index/gold.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by eldrinsson » Sun Jan 14, 2018 1:53 pm

whatchamacallit wrote:Why borrow at a rate of return higher than you know you will receive on at least half your portfolio?

If your mortgage rate is 2%. You would be earning an effective 2% tax free on extra payments since your regular payments are with after tax kronor and you don't have to realize the 2% saved as a gain.. I imagine that is quite a deal in your interest rate environment.
I am actually paying of my mortgage faster (3extra months of payments per year) - this is outside the 15% of salary that i put straight into long term portfolio saving at the moment. But you have a point i guess... I've been thinking quite a lot about this and I see it like this: If I have a possibility of investing money in a reasonably safe (low overall volatility) portfolio that gives at least 4-5% in return over all, then as long as the rates are as low as they are right now (we have very low mortgage rates because of the overall rate level + my wife works at a bank so have employee benefit rates 8) I'm actually making money on the part that I'm not using to amortize - and if the mortgage rates go up - then I can use that money + my "profit" to pay of parts of the mortgage.

Yes, it's a risk and thinks can turn around fast, but this is how doing right now...
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by AnotherSwede » Sat Feb 24, 2018 3:08 am

Eldrinsson,
What did you settle for?

Do you have suggestions for gold ETFs that are allowed? SPDR is no longer.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by ochotona » Sat Feb 24, 2018 8:29 am

Here is another thought for stocks.

In portfoliovisualizer.com, there is a tool for correlation.

Maybe you can put in symbols of different single-country or regional ETFs and see what correlates best to Sweden.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by AnotherSwede » Tue Feb 27, 2018 12:27 am

"what correlates best to Sweden."

Thank you, but I am not sure I trust correlations.

I have since years used global stocks over domestic, I think that is good diversification.

Bonds are harder, there is no domestic alternative and I don't trust EU or the euro. But maybe I should just accept our fate is connected to the euro, and in the end we will join the euro. And what happens after the euro?

Gold is also hard, since new year we can't use SPDR GLD.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by LazyInvestor » Wed Feb 28, 2018 9:52 am

For most of my European colleagues who live in high taxation big social welfare countries, I'd suggest to take into account what they have guaranteed from government as their fixed income. When they do this they realize that PP is way too conservative for them. Most of them have quite big chunk of value in terms of guaranteed retirement and welfare net compared to their savings. IMO, many average income Europeans from developed EU countries should be probably 100% stocks.

For example, if you're expecting pension of 2K EUR/month in todays money, that's 24K/year and at 3-4% safe withdrawal rate that represents 600-800K EUR in terms of fixed income. Compare this to the amount that you have to invest and you'll be able to better judge how aggressive you should really go.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by AnotherSwede » Thu Mar 01, 2018 1:04 pm

LazyInvestor wrote:IMO, many average income Europeans from developed EU countries should be probably 100% stocks.

For example, if you're expecting pension of 2K EUR/month in todays money, that's 24K/year and at 3-4% safe withdrawal rate that represents 600-800K EUR in terms of fixed income.
I am not to far off with my current 75/25 global/gold.

We actually get government pension savings reported as a krona-denominated figure every year. Nowhere near the amount you mention, but nowhere near halfway through working life either.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by eldrinsson » Fri Mar 02, 2018 4:10 am

AnotherSwede wrote:Eldrinsson,
What did you settle for?

Do you have suggestions for gold ETFs that are allowed? SPDR is no longer.
After thinking and reading and thinking and reading.... I decided not to go for the strict PP at the moment and maybe not even in the future , this because of several reasons:

- I've had a very hard time to to find long-term-bonds that is logically connected to the the Swedish economy/currency (No swedish long term bonds available) and the low-interest-rate environment itself make long-term-bonds questionable if one is starting a porfolio right now - not much leverage left... (Craig wrote: "No juice left VS the risk: viewtopic.php?f=1&t=8730&hilit=currency ... 36#p155362 )

- The currency issue adds another layer of risk and I've seen examples of the assets not playing their parts well together because of that, there is a Swedish blogger/investor (rikatillsammans.se) that follows the PP portfolio and it had a big "unexplained" drop last year because of currency fluctuations - it simlpy adds another layer of risk that feels unsafe to me....

- The swedish wellfare system + building a good base-level pension from work and state + 12+ months of union safety net in case of unemployment + a big enough personal cash-reserve + good personal and work insurance policys: With all this I feel reasonbly safe that I'm well insured for most personal circumstances or accidents and would not really need the stability "safety-net/ safe-pension" approach of PP to sleep well at night (also pointed out by LazyInvestor earlier in this thread) or to ride out a long bear market.

With all this said, I will however definitely apply some of the principles, i will have bonds in some form, and gold as safetynet for unforseen political disaster/war and hopefully as a asset that can play well in future economic turmoil.

So at the moment my portfolio looks like this: 70/30 Global Stock/Swedish Short-medium-term-bonds, My total amount invested are still quite low (below 100 000Sek/$12000) but when it grows in the coming years I'm thinking about going for something like 70/15/15 - Global Stock / Global bond market (if possible to buy in Sweden) / Gold (mostly physical and a EFT for balancing reasons)

You might wonder why I have bonds at all in the ongoing market - but it is simply my sleep-well-factor - I think I would be to nervous having a 75/25 stock/gold portfolio - So to be able to let go of worrying I have that part. ;)

About your question @AnotherSwede: I haven't found a good way to buy gold right now except physical bullions in other countries or physical and store safely myself. I will simply wait and watch an hope that a good alternative shows up in the coming future. I think in the long run I will go with what I said above - a majority physical storage in a differnt country, and a some in a EFT for portfolio balancing reasons... I'm waiting for the update over at rikatillsammans.se to see what they will suggest for the gold part of their PP portfolio.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by AnotherSwede » Fri Mar 02, 2018 8:03 am

eldrinsson wrote: - I've had a very hard time to to find long-term-bonds that is logically connected to the the Swedish economy/currency


I think I would be to nervous having a 75/25 stock/gold portfolio - So to be able to let go of worrying I have that part. ;)


I haven't found a good way to buy gold right now except physical bullions in other countries or physical and store safely myself. I will simply wait and watch an hope that a good alternative shows up in the coming future.

I'm waiting for the update over at rikatillsammans.se to see what they will suggest for the gold part of their PP portfolio.
I am not worried about (market value of) gold, more worried about the markets and insane governments :)

But I am worried about everything else regarding gold: off shore vaults, obscure ETFs, fake physical, theft.

Thinking long term, around retirement 5M savings (real), probably more, would be 100+ ounces at home. Possibly uninsured.

If no alternative shows up I might even let ratio slide to 90/10 (decent cash buffer). In backtesting even 10% does a lot to soften crashes. If I can sell off gold to buy stocks that just have crashed 60% is another matter.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by boglerdude » Sat Mar 03, 2018 1:24 am

Mortgages are 100 years in Sweden?

Is that good or bad...
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by AnotherSwede » Sat Mar 03, 2018 6:53 am

boglerdude wrote:Mortgages are 100 years in Sweden?..
Mortgages are until hell freezes over.

Until last year or so it was the norm to not pay off the loan, then rules changed to pay 2% a year down to 70%, then 1% down to 50, then optional.

Infinite mortgage, interest rates close to zero and 15+ years of increasing RE prices has made people just divide what they can afford to pay monthly with interest and arrive at what they can borrow. Which is an amount you can never pay back.

Couple this with low income spread and above 70% income taxes on the margin and it becomes hard to really get ahead economically.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by AnotherSwede » Sat Mar 03, 2018 11:19 pm

I don't think it is a coincident that all options except consuming, and saving in risky assets with no real return except price increase is removed.
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by boglerdude » Sun Mar 04, 2018 12:33 am

Sweden is presented as a utopia in American media...so whats the other side of your argument

You can sell a house in Sweden for a fortune and retire to a less expensive country (ie any other country)?
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Re: In a small country (Sweden) that has severe limitations, what is the "next best" to Permanent Portfolio?

Post by AnotherSwede » Sun Mar 04, 2018 1:28 am

Current crop of 65-70-year olds has been able to retire on 70-80% of salary and have enjoyed at least 5x real house price increase. House bought with no money down so that is infinite return on investment.

There is limitations on taking out pension outside of europe I think. And Spain/Portugal that used to be a popular place to retire at (until old age forced them home to enjoy free health care) is not that much cheaper anymore.


But this is not the future for the younger swedes. Being born in the 70s I can see my pension prognosis getting way worse every year.

I expect pension being needs tested when I am 65-ish. That is: if you are needed in the job market you don't get to retire.


I have enjoyed a good part of the real estate bubble (unfortunately I didn't buy the most expensive I could afford to borrow when I was 22-24), but for those around 20 now real estate doesn't look very funny.

You don't expect swedish/any real estate doing another 3x increase compared to wages?


No, I wouldnt prefer living in the US.
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