[quote=earlyretirement]
Well, I don’t think it’s just a matter of “gambling on one stock”. It’s easy now to sound so optimistic with the stock market up tremendously the past few years. But some people forget what it was like at the depths of the Great Recession. People don’t realize just how close we came to a systemic crash in the financial markets.
I don’t care how diversified you were, there was a period where everyone in the market (except short sellers) were taking big hits to the portfolios. Very few people didn’t have any worries at all. So I guess I’d mention to remember that period of time.
And again, it wasn’t just a matter of gambling on one stock. There are entire companies that aren’t around anymore. So it’s not a matter of waiting for their stock price to come back. Some of them are gone. Or others like Citibank which have rebounded, are still next to nothing compared to where they were.
The stock market is very frothy right now. I guess I wouldn’t have much of a problem if I read the same advice several years ago but the market isn’t a place I’d continue to expect these huge returns. The Fed has basically forced people to push their money into the stock market but it by no means is a safe place.
You mention investment properties. I know that area well as I own several investment properties. But I can honestly tell you it’s NOT for most people out there. Being a landlord isn’t for everyone. Most people just don’t have what it takes to be a good landlord. (i’m not saying it’s not a good investment because I do believe the returns from investment rental properties depending on where you buy are great). But no way I’d pretend that just anyone can be a landlord. Plus it sucks a lot of time as well.[/quote]
But here’s the rub ER…. We are all assuming that it’s “safe” to dump money into a primary home because are all thinking now that home prices won’t crater anymore…The same argument you make about equity market can be said the same thing for a primary home if one made the mistake of buying in 2005/6/7 and then on top of that decided to plunk in another 100k,200k extra to try to to pay off early, only to see the equity of that house vaporize and end up being considerably less than what he/she paid for.
And maybe really if one has enough money or has a nice inheritance such that one no longer need to count on a paycheck to make the mortgage payments on primary, the value of the primary does matter because in an emergency, one result might require that person(s) to sell versus keeping forever.
Add a job loss to the equation and not much cash reserves, the person would be screwed, because the person wouldn’t be able to afford future mortgage payments and at the same time a forced sales at that point might end up producing no cash after sales if the home was worth considerably less.
On the other hand, if that person didn’t tie up his/her money into the primary home and did something else with it (not necessarily stock or 1 stock), and the house was significantly underwater, and he/she lost the job…strategic default would have been just fine and the rest of the person’s finances would be left intact.
My point is that things roll differently when someone is building wealth and still need to count on a paycheck as a primary source of income versus someone that’s got a nice pot that can already live in whole or part off of investment income and doesn’t need to worry about having a paycheck.
You are probably retired and probably live off your rental’s income so at that point, you don’t need to necessarily continue to build wealth. And some people who inherited money probably don’t need to do the same thing. Other’s who are starting out probably need to do things that have greater exposure to wealth accumulation, especially in this environment, and gradually transition to different strategy as the money pot builds up…
And I agree. I’m not suggesting everything be a landlord, but then again there is a prevailing wind that’s blowing. And I agree about the stock market being overheated…I think a lot of people who are still in the wealth building phase underestimate the risk of putting all eggs into a primary home and doing nothing else, in as much I think it would be extremely risky to over leverage and not try to pay anything down on the primary and gambling completely in stocks, bonds, metals, rental.
That said: unlike most others, I’m doing a 15 year on the primary instead of 30 year. So go figure 🙂
But my rationale is I’m 1/2 from where I want to be financially…But I’ll refinance to oblivion if it puts be in a lower monthly and total payments in the end up being less than before… And to some extent I want to free up decent capital right now to speculate, because personally I think it’s a good time to speculate (well, maybe not right now at this very moment..The ideal time was two years ago across the board…But we all have perfect vision in hindsight)…
