Gyroscopic Investing

mathjak107 wrote: ↑Thu Mar 19, 2020 7:14 am I can't spend my living room at the super market either

You can if you get a HELOC.

not really when you think about it .. all you are doing is taking a loan the same as any other loan ... you are just using the house for collateral..

once in the house you can never really get to that money without selling . even reverse mortgage is a loan .

the problem is today , you need to meet the same requirements for a mortgage as a heloc ..no job can mean no heloc .. also dont forget 2008 saw many helocs closed

mathjak107 wrote: ↑Thu Mar 19, 2020 9:09 am not really when you think about it .. all you are doing is taking a loan the same as any other loan ... you are just using the house for collateral..

the problem is today , you need to meet the same requirements for a mortgage as a heloc ..no job can mean no heloc .. also dont forget 2008 saw many helocs closed

Sure. I have no debt and lots of cash, so I'm good.
Anyone who has a HELOC and thinks they might need cash might want to draw on it now while they still can.

the problem is then if you are borrowing money and have investments you are keeping instead of raising cash levels . in effect you are buying those investments leveraged with borrowed money ....

this is a very important point brought to light by michael kitces ......

in effect when we buy investments and take a mortgage we are leveraging . anytime you leverage you want a risk premium over just plain investing ...

like now , you are paying thousands of dollars in interest if at the early stages of a mortgage plus being down in investments .. so leverage while staying invested really demands higher reward potential then just investing ..

if you look at a mortgage of around 3-4% and risk free treasuries are paying 1.50-2% then for me a balanced portfolio does not adequately compensate me for doing so on borrowed money ... so at this point unless i was going pedal to the metal with 100% equities for the long term i would not borrow to invest in a portfolio for less risk premium. i would forgo the investment to raise that cash ....

most dont think in terms of the fact that when they have a choice of investing and borrowing or paying cash that they really are borrowing to invest but risk is increased greatly .... sequence risk if retired shoots up big time in down years when spending down paying potentially thousands for interest while those investments are falling .

here is the link to the kitces article


EXECUTIVE SUMMARY
Planners have long recommended that clients save and invest, even while they have a mortgage, since the long-term return on equities generally exceeds the interest rate on a mortgage. Yet in reality, investors don’t simply choose to invest in equities because the return is higher than a fixed alternative; instead, investors demand an equity risk premium over and above the risk-free rate to make equity investing worthwhile.

For the traditional investor, the equity risk premium has represented the excess return of stocks over long-term government bonds. Yet for the mortgage borrower, the available "risk-free return" isn’t just a government bond, but to prepay the mortgage and eliminate the interest cost!

As a result, while the investor looks for an equity risk premium over government bonds paying 2%, the mortgage borrower actually shouldn’t invest in stocks unless there’s an expectation to earn an equity risk premium over a mortgage interest rate that might be 4% to 5%! Consequently, clients should prepay their mortgages unless they expect a full 9%-10%+ return on equities in the current environment that sufficiently rewards them for the risk!



https://www.kitces.com/blog/why-keeping ... -the-risk/

mathjak107 wrote: ↑Thu Mar 19, 2020 9:17 am the problem is then if you are borrowing money and have investments you are keeping instead of raising cash levels in effect you buying those investments leveraged with borrowed money ....

this is a very important point brought to light by michael kitces ......

in effect when we buy investments and take a mortgage we are leveraging . anytime you leverage you want a risk premium over just plain investing ...

like now , you are paying thousands of dollars in interest if at the early stages of a mortgage plus being down in investments .. so leverage while staying invested really demands higher reward potential then just investing ..

if you look at a mortgage of around 3-4% and risk free treasuries are paying 1.50-2% then for me a balanced portfolio does not adequetly compensate me for doing so on borrowed money ... so at this point unless i was going pedal to the metal with 100% equities for the long term i would not borrow to invest in a portfolio for less risk premium. i would forgo the investment to raise that cash ....

most dont think in terms of the fact that when they have a choice of investing and borrowing or paying cash that they really are borrowing to invest but risk is increased greatly .... sequence risk if retired shoots up big time in down years when spending down paying for interest while those investments are falling .

Right, I wasn't suggesting borrowing for investment, just to have an emergency fund in parlous times.
As I said, I have no debt at all and am not going to incur any.

if someone borrows though , on a heloc up front to raise cash , you are borrowing to invest if you have investments you are holding instead .

it is not a case of just having a heloc in place if you are using it up front to raise cash in case you loose your job or don't want to risk if you do that the heloc will be cancelled like 2008 saw


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Anyone who has a HELOC and thinks they might need cash might want to draw on it now while they still can.
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mathjak107 wrote: ↑Thu Mar 19, 2020 9:44 am if someone borrows though , on a heloc up front to raise cash , you are borrowing to invest if you have investments you are holding instead .

it is not a case of just having a heloc in place if you are using it up front to raise cash in case you loose your job or don't want to risk if you do that the heloc will be cancelled like 2008 saw

Anyone who has a HELOC and thinks they might need cash might want to draw on it now while they still can.
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Right, if you have one and need cash you should get it now.

providing you are not borrowing money when you have assets in a portfolio available to you unless those assets really have enough of a risk premium over time to warrant borrowing money to keep in place . that means 3-5% over the risk free bond and the mortgage rate .

in my opinion i would not consider the risk premium to be worth it at this point. investing normally sure , but not borrowing money to stay in those assets without a risk premium over a bond and the mortgage to make the additional thousands in interest worth it .

we have two different cases ... someone with no money being invested or invested who needs cash vs someone who is basically borrowing money in the form of a heloc or mortgage to invest or stay invested .

very different situation .

mathjak107 wrote: ↑Thu Mar 19, 2020 10:09 am providing you are not borrowing money when you have assets in a portfolio available to you unless those assets really have enough of a risk premium over time to warrant borrowing money to keep in place . that means 3-5% over the risk free bond and the mortgage rate .

in my opinion i would not consider the risk premium to be worth it at this point. investing normally sure , but not borrowing money to stay in those assets without a risk premium over a bond and the mortgage to make the additional thousands in interest worth it .

we have two different cases ... someone with no money being invested or invested who needs cash vs someone who is basically borrowing money in the form of a heloc or mortgage to invest or stay invested .

very different situation .

In general I agree. Perhaps if you have an enormous capital gain you don't want to realize, it might be better to borrow for an emergency.

There may be exceptions tax wise but the important thing few realize is that when comparing mortgage and invest or no mortgage you are buying investments on what amounts to margin ...you have different terms than margin but in theory you are buying margin....

Many would tell you they would never buy on margin yet they don’t realize that once mortgages and investments are involved you are buying with borrowed money in effect and you should get a bigger risk premium over just investing normally

Speaking of HELOCs...I just applied for one. I had been thinking of doing that for a while, but didn't need the money. I still don't need the money right now, and I'm not worried about my (or my wife's) job security, but ever since I sold all of the stock in my 401k I'm finding myself in a cash-hoarding mode.

I have often thought about buying some gold (digital or physical). That's not an option in my largest 401k account, but I have another 401k account related to a side-business I used to operate (no new funds coming in, but I still have the 401k sitting there) and it allows me to invest in just about anything I want (TD Ameritrade).

CT-Scott wrote: ↑Mon Mar 23, 2020 3:02 pm Speaking of HELOCs...I just applied for one. I had been thinking of doing that for a while, but didn't need the money. I still don't need the money right now, and I'm not worried about my (or my wife's) job security, but ever since I sold all of the stock in my 401k I'm finding myself in a cash-hoarding mode.

I have often thought about buying some gold (digital or physical). That's not an option in my largest 401k account, but I have another 401k account related to a side-business I used to operate (no new funds coming in, but I still have the 401k sitting there) and it allows me to invest in just about anything I want (TD Ameritrade).

I don't know about physical gold in a 401k, but in an IRA you could go with Gold Star Trust. They have pretty low costs.