Our financial system is crumbling this week.

[pioneer98]

A good article from 2012:
http://www.npr.org/2012/06/26/155766786 ... sts-higher\

Where does that money go? To all sorts of things, including administrative and teaching costs, scholarships, sports teams and elaborate new construction projects.

"[Colleges and universities] compete with one another not to make money, but for status and prestige, so they buy things that increase their status and prestige in relation to their competitors," Carey tells Fresh Air's Dave Davies. "They're big on construction. ... They're always building things."

College campuses may be expanding but that doesn't necessarily mean their teaching staffs are growing. Carey points out that the number of full-time professors has shrunk across the country — and that less than 40 percent of students are now taught by tenure or tenure-track professors.

"Literally: The Washington Post has reported that $36 billion in loan debt is held by people over 60 years old."

[TheoSqua]

The difference between housing and stock is one is necessary and another isn't. If you don't buy a house then you rent a house. Owning cost more, but part of the cost of owning is a sunk cost of living. Logically it makes sense to put the housing cost into something that will give you equity, even if it isn't a profitable investment.

There is a reason a lot of Americans do poor long-term financial decisions like investing in a house instead of stock, or paying more taxes for a return instead of trying to break even and invest: The cost of living is at a point where the average family needs collateral and low-risk savings to make ends meet.

I'm a good example. I don't buy stocks, but I own a home. The price of owning was about $50 more than renting, plus the cost of maintenance. So instead of spending that money on rent and other expenses I'm owning a home and at least have a little bit of equity. And if the housing market crashes I still have a house to live in. If the stock market crashes I have nothing.

[pioneer98]

The difference between housing and stock is one is necessary and another isn't. If you don't buy a house then you rent a house. Owning cost more, but part of the cost of owning is a sunk cost of living. Logically it makes sense to put the housing cost into something that will give you equity, even if it isn't a profitable investment.

There is a reason a lot of Americans do poor long-term financial decisions like investing in a house instead of stock, or paying more taxes for a return instead of trying to break even and invest: The cost of living is at a point where the average family needs collateral and low-risk savings to make ends meet.

I'm a good example. I don't buy stocks, but I own a home. The price of owning was about $50 more than renting, plus the cost of maintenance. So instead of spending that money on rent and other expenses I'm owning a home and at least have a little bit of equity. And if the housing market crashes I still have a house to live in. If the stock market crashes I have nothing.

That article didn't say that owning a home was a bad thing. The guy who put that chart together owns a home. The point was that you shouldn't view your home as an investment. You should view it as food or clothing and other needs.

Also, I bet a lot of people would have never guessed that home prices have basically risen at the same rate as inflation for 125 years.

[AWvsCBsteeeerike3]

I'm a good example. I don't buy stocks, but I own a home. The price of owning was about $50 more than renting, plus the cost of maintenance. So instead of spending that money on rent and other expenses I'm owning a home and at least have a little bit of equity. And if the housing market crashes I still have a house to live in. If the stock market crashes I have nothing.

That's not really true, you still have stocks albeit at a discounted price in the event of a stock market crash.....unless your company went bankrupt....

Of course, the same thing can be said of a house....in the event of a housing crash, you still have a house albeit at a discounted price.

Stocks offer liquidity that is absurdly absent in a house as well. You may have equity, but good luck getting it within, what 3-4 months. I guess you can make an argument that the inaccessibility of it is a good thing as it prevents you from taking it out or spending it or whatever. But, really, that's silly. You want liquidity vs non-liquidity.

I agree with you re:having to live somewhere. But.....that's a lot of money you lose right of the top going to interest, insurance, and taxes.

[Socnorb11]

Stocks offer liquidity that is absurdly absent in a house as well. You may have equity, but good luck getting it within, what 3-4 months. I guess you can make an argument that the inaccessibility of it is a good thing as it prevents you from taking it out or spending it or whatever. But, really, that's silly. You want liquidity vs non-liquidity.

That's not always necessarily true though either, is it? 401K plans, for example? Not a lot of liquidity (not without penalty, anyway), but typically a wise investment.

I think Theo's statement about home ownership being largely a "sunk cost" can't be overstated. I would say that it's definitely a better investment if you can afford a short-term payoff (15-20 years), and if you plan to live in your home for a long time.


For me, there are other non-financial benefits of home ownership, such as committing to being part of a community, family stability, etc.

[AWvsCBsteeeerike3]

401Ks offer tax advantages and many employers match a % of employee contributions. So, correct, you can't touch it, but you get 'free' money a lot of times and can do it without paying taxes upfront.....a give and take if you will. Still, after the 'free' money employer match is maxed out, I'd argue you can find better investments than 401Ks.

My point about it being a 'sunk cost' is also yes, it is. But they are different for everyone. For instance, if you're living in a house for $700/month and it would cost $1200 for a mortgage (with interest, insurance, and taxes included) a case can be made that it's better to rent. Plus, you aren't locked into a lease for long compared to a 15-30 year mortgage. That flexibility is nice. And, to sell a house, like if you get transferred or something or need money, you'll have to hire a realtor or sell it for cheaper....and as 98 points out, it's not a good investment compared to inflation.

I'd be curious to know how anyone gains stability from owning a house other than being anchored to it. Not to say it's not true, but I don't necessarily agree that a mortgage is going to stabilize anything other than knowing you'll 100% be in a house in 2-3 years albeit at a possible financial disadvantage.

None of that is to say owning a house is bad or wrong, it's just adding to what 98 pointed out that it is not really a great investment. People do things all the time that aren't great investments and aren't mistakes or wrong. and, if you can get a good deal on a house and are planning on being somewhere for a long time, it's not necessarily the wrong way to go. Because, yes, you have to pay something every month to live somewhere.

[IMADreamer]

I have really mixed feelings on owning a home. If someone is paying a mortgage I'd say forget it. Screw all that interest. Yes I know some is tax deductible and all that but screw it. Secondly as I've said before, own a house where I live is a losing proposition. Yesterday on my way to the cabin I thought to myself man there are a lot of houses for sale here. So on the way home I counted. On the three streets it takes to get through the town to my house there were 14 houses for sale. That was a bit mind boggling to me. I knew the market was bad here from real estate broker friends but I guess it just didn't sink in how bad.

I wish I'd have invested in stock instead of a house. I've owned my house since 2006 I think. We paid 60k for it. Put another 30k in it to make it whatever it is. I need to do another 10k in retaining walls and misc crap outside. So let's call it 100k when it's all said and done. We had it appraised last year because the county did a county wide appraisal and it was appraised at 105k. On paper I've made 5k in 8 years. In reality there is no chance it sells for that. None. Now if I put all that in stocks, I'm pretty sure I'd have had a really nice return since the money I do have in stocks has gotten me a really nice return.

Really though I wish I'd have bought farm ground with it in 06 since the price hadn't gotten stupid yet. I think our neighbors sold for 5k an acre back around then. Now ground on the other side of us sold for 15k an acre.

I don't want to get far ahead of myself here but my current gf has always dreamed of having a house on the hill in what I call the ten cent millionaire section of town. If this all works out it looks like I'd be heading to another stupid house purchase. That is years off though.

[Socnorb11]

401Ks offer tax advantages and many employers match a % of employee contributions. So, correct, you can't touch it, but you get 'free' money a lot of times and can do it without paying taxes upfront.....a give and take if you will. Still, after the 'free' money employer match is maxed out, I'd argue you can find better investments than 401Ks.

Yeah, I'm aware of all of that. My point is that money that's easy to move isn't necessarily better than money that's not easy to move. As you said, it's a give and take in most cases.

My point about it being a 'sunk cost' is also yes, it is. But they are different for everyone. For instance, if you're living in a house for $700/month and it would cost $1200 for a mortgage (with interest, insurance, and taxes included) a case can be made that it's better to rent. Plus, you aren't locked into a lease for long compared to a 15-30 year mortgage. That flexibility is nice. And, to sell a house, like if you get transferred or something or need money, you'll have to hire a realtor or sell it for cheaper....and as 98 points out, it's not a good investment compared to inflation.

In my case, my property taxes & insurance amount to about $200 per month. Renting a house like mine would be somewhere in the neighborhood of $800 per month. I've got a 15 year mortgage. So yeah, for 15 years I'm going to pay a little more than most renters in my area. However, for the 30 years (or whatever) after that, I'm going to be on the hook only for the $200 per month (taxes & insurance), while renters are paying $800 per month. I definitely agree that home ownership isn't for those who aren't prepared to settle down for a spell. Different circumstances dictate different decisions.

I'd be curious to know how anyone gains stability from owning a house other than being anchored to it. Not to say it's not true, but I don't necessarily agree that a mortgage is going to stabilize anything other than knowing you'll 100% be in a house in 2-3 years albeit at a possible financial disadvantage.

Simply put, as a home owner, I get to decide when I no longer want to live in my home, as opposed to being at the mercy of a landlord on a yearly basis (or whenever a lease expires).

Beyond that, I get to decide if I want pets in my house. I get to decide if I want to hammer 100 nails into my walls to hang pictures. If I want to pour a concrete slab for a basketball hoop, or build a bigger garage, I can do it. If I want to paint a giant Broncos mural on my basement wall, I can do it.

(also, maybe already pointed out, but property taxes and interest are tax deductible)


Again, each person has to make the decision individually. There isn't a universal right or wrong answer.

[ntexascardfan]

I'm currently saving to build a home. I'll be doing a lot of the work myself or using family and contracting work out to them.

The goal is to come out with a good chunk of equity already built into the home. We'll see how it goes.

[pioneer98]

The top 25 hedge fund managers last year were compensated $21.1 Billion in 2013, an average of $844 million each. Their hedge funds averaged a rate of return of 9.1%.

The S&P 500 returned 32.4% last year.

Hedge Fund Moguls' Pay Has the 1% Looking Up