tomfoolery wrote: ↑Fri Jun 04, 2021 11:40 pm
I dont know if this applies, but I've learned that it's foolish to piss in the wind and it's foolish to go against the government of the world's dominant fiat currency.
The government wants the stock market to do well. If I was 100% in stocks since I turned 18 a little over 20 years ago, I'd have far more money than the mess of stuff I did, to include the PP for several years of that period.
The government wants the housing market to do well. If I took out a 30-year fixed rate mortgage in my 20s as soon as I was able to, I'd have far more money then renting an apartment all these years. Many people who bought homes in the last few years have gotten paid over $1k per month to live in their home, after mortgage/insurance/taxes/maintenance, due to the appreciation the government caused by their fiscal policies.
And now, when the government has pushed interest rates to 5000 year lows, it seems foolish not to be leveraged and heavily invested in risk assets. Because the alternative is death.
Maybe it's time to get a little crazy and both a lender and borrower be. Lend the government money, and borrow money. HEDGE THOSE MAFAKIN BETS
A 22 year old graduating college this year making a median salary will need to work until they are 100 years old if they invest in a conservative portfolio and if the government keeps rates this low indefinitely. Government policies of modern times are designed to force people up the risk curve.
Put 90% of your money into stocks and 10% into call options or you won't be able to afford a downpayment on a house that's going up 20% a year, year over year, indefinitely. Average monthly rents even in what's been considered low cost of living places like the midwest will see $2k per month average rents within a few years.
My point in all of this, is you have two choices in today's environment:
OPTION 1) Assume the markets will remain irrational for long periods of time due to government manipulations. Become heavily leveraged. This is your only way to survive and not be a peasant renter wage cuck for the rest of your life.
OPTION 2) Sit on a ton of cash, pray that the markets collapse, swoop in and buy risk assets like stocks and real estate at the bottom.
Unfortunately, if the markets dont collapse, and simply remain stagnant, option 1 is still your best bet. So from a probability standpoint, it seems Option 1 would win out, since there's more possible scenarios that may occur where it wins.
And if you go Option 1 and the markets collapse, the government will bail you out anyway. If you go option 2 and the markets don't collapse, no government bailout for you.
The important factor that you are leaving out is savings rate. With a very high savings rate, investment returns aren't as big of a factor in quickly achieving a high net worth. I'll grant you that a few places are hostile for median people to build wealth, but in all the other places a mediocre person earning a normal income can do it without being a genius investor.
In addition, your savings rate is a system, investment returns are (more) a goal. The things you do (or don't do) to increase your savings rate are robust enough to work under pretty much any situation, whereas markets go through cycles.
Why? Because institutional investors have flooded the residential real estate market, due to low interest rates, on enormous leverage, and are jacking up rents. They don't care if you're only making $40k a year, you will put 70% of your after-tax salary into renting that studio apartment in Omaha and you'll like it, or you'll get multiple roommates. And your quality of life will suffer since you'll have less disposable income and no savings.
You might say "but people making $40k a year in Omaha can't afford to pay $2k a year rents, those investors are being silly if they think they can jack the rents up" but there's no choice in the matter. They have an oligopoly of residential housing. And if they can't rent it out, they'll let it sit empty and do cash out refinances at the new 20% year-over-year higher property values, and those are tax-free, because they are a form of debt. Eventually if enough people become homeless the government will step up with housing credits to bail out the renters landlords.
In a decade institutional investors will have a majority ownership of all single family houses. And if interest rates rise, which they likely have to, it will only get worse, because institutional investors buy in cash and do cash out equity stripping later. So interest rates don't matter on the initial sale price to them, but it does matter to the citizen potential homebuyer who needs to show they can afford the monthly mortgage.
This is a valid point and needs its own thread.
You there, Ephialtes. May you live forever.