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You don't typically consume an investment. If I buy a house and live in it, how quickly can I reasonable divest myself from the house? For the average American

You don't typically consume an investment. If I buy a house and live in it, how quickly can I reasonable divest myself from the house? For the average American, not quickly at all. Why is that? Because I need to a home to live in. If not this one, another. And generally the equity in my current home will be used to secure my future one. A house that you buy and don't live in (or is easily divested) could be seen as an investment because you don't live in (consume) it. If you need to sell it, that money could easily go to other things. And you can sell in a timely manner. Edit: I was trying to be layman about it, but chillingeffect did a good job on the technicals.

jholman 10y ago
If you agree with chillingeffect that one's home "is an illiquid investment that appreciates at a rate that varies in conjunction with inflation", then you think it's an investment, albeit one with some drawbacks. Yes, it's illiquid, absolutely. (Although not much more so than any other home one buys, say an apartment block; I can move on less notice than I can sell a property.) Yes, there are some concerns about the ROR, relative to inflation (although I note that world population, and population in most markets one cares about, is increasing, and they're not making more land, so one should expect real estate to appreciate somewhat, relative to inflation, although perhaps not enough to be interesting). But why on earth would you say that it's "not an investment"? Why does illiquidity and poor RoR disqualify something from being an investment? Do you also claim that buying negative-rate bonds is not an investment? What about buying gold against inflation (for those who see gold as an inflation hedge)? What is the definition of "investment" that you're using? It must be a pretty compelling one, for you to use the phrase "not an investment" so confidently in so many comments. Me, I thought that the nature of investing was allocating capital, the opposite of divesting (selling).
- John23832 10y ago
  Alright, we can get down to technical definitions and splitting hairs. In an economic sense, you don't consume an investment. In economics, an investment is the allocation of capital that will essentially be "put away" until some time in the future. You don't touch it. In finance, an investment is purely about the possibility of appreciation/depreciation (or making money on the buy sell spread). If I buy a candy bar wit hope that it appreciates in value, it's an investment. If I short that candy bar, and the value of the bar depreciates, that's an investment. I do understand that the two different usages of the term (combined with the fact that a house can be consumed and still be intact enough to sell). However, I stand by the statement that your home is not an investment. It's a bad financial one. It's not an economic one.
  - jholman 10y ago
    Both of those definitions are wrongly stated, and that's why you're producing this wrong belief about primary residences. An an economic sense, an investment is an allocation of capital. Certainly consumer purchases of durable goods are not investments. The most common type of capital to invest is money, but other types might apply. By investing, one becomes the beneficiary of some of the means of production. Real estate is a perfect example. Real estate is always an economic investment, whether one then consumes the output or not. Also, by the way, many investments in this sense are consumable, usually with long rates of depreciation. That applies to a CNC machine, it applies to a fleet of productive vehicles, and it applies to buildings, including primary residences. If the fact that a house degrades with use makes it not-an-investment, you argue yourself into an obviously-silly corner. Your line about "it's a bad financial one" is almost too foolish to touch. A bad financial investment is still an investment. Telling people that a bad investment is not an investment is not communicating, it's posturing. Financially, if you buy a candy bar, and its value drops, it was still an investment (a poor one). If you want to make the claim that housing is a poorly-chosen investment, that's a different claim. Although, without knowing more about the life circumstances of the would-be investor, a fairly preposterous one, since it's clearly a good investment for many people, in practice.
    - John23832 10y ago
      We can go back an forth about this (or not, doesn't matter), but my point still stands. > An an economic sense, an investment is an allocation of capital. As I said. > Certainly consumer purchases of durable goods are not investments. I relate this to the consuming of your primary residence ("home"). > By investing, one becomes the beneficiary of some of the means of production. Real estate is a perfect example. Real estate is always an economic investment, whether one then consumes the output or not. Also, by the way, many investments in this sense are consumable, usually with long rates of depreciation. That applies to a CNC machine, it applies to a fleet of productive vehicles, and it applies to buildings, including primary residences. If the fact that a house degrades with use makes it not-an-investment, you argue yourself into an obviously-silly corner. Your home is not a mechanism of production. Sure, if you buy your house, you may be able to sell it for a profit down the line. However, you home is a place a residence. A CNC machine, a fleet of vehicles, a building that you will then fill and rent out all are mechanisms of production. The idea of your home as a means of production is based upon the false idea (prevalent in the US, and apparently Canada) that home values will always increase. Non of those other "consumable" investments are based upon the value of the investment themselves... they produce value due to usage, not inflation. > Your line about "it's a bad financial one" is almost too foolish to touch. A bad financial investment is still an investment. Telling people that a bad investment is not an investment is not communicating, it's posturing.= I was probably being a little hyperbolic there, but my point was that you should not consider your home an investment. > Financially, if you buy a candy bar, and its value drops, it was still an investment (a poor one). Again, didn't I say that? > If you want to make the claim that housing is a poorly-chosen investment, that's a different claim. Although, without knowing more about the life circumstances of the would-be investor, a fairly preposterous one, since it's clearly a good investment for many people, in practice. In practice, for many people, it's not. See the 2008 housing crisis.

jholman 10y ago

If you agree with chillingeffect that one's home "is an illiquid investment that appreciates at a rate that varies in conjunction with inflation", then you think it's an investment, albeit one with some drawbacks. Yes, it's illiquid, absolutely. (Although not much more so than any other home one buys, say an apartment block; I can move on less notice than I can sell a property.) Yes, there are some concerns about the ROR, relative to inflation (although I note that world population, and population in most markets one cares about, is increasing, and they're not making more land, so one should expect real estate to appreciate somewhat, relative to inflation, although perhaps not enough to be interesting). But why on earth would you say that it's "not an investment"? Why does illiquidity and poor RoR disqualify something from being an investment? Do you also claim that buying negative-rate bonds is not an investment? What about buying gold against inflation (for those who see gold as an inflation hedge)? What is the definition of "investment" that you're using? It must be a pretty compelling one, for you to use the phrase "not an investment" so confidently in so many comments. Me, I thought that the nature of investing was allocating capital, the opposite of divesting (selling).

John23832 10y ago
Alright, we can get down to technical definitions and splitting hairs. In an economic sense, you don't consume an investment. In economics, an investment is the allocation of capital that will essentially be "put away" until some time in the future. You don't touch it. In finance, an investment is purely about the possibility of appreciation/depreciation (or making money on the buy sell spread). If I buy a candy bar wit hope that it appreciates in value, it's an investment. If I short that candy bar, and the value of the bar depreciates, that's an investment. I do understand that the two different usages of the term (combined with the fact that a house can be consumed and still be intact enough to sell). However, I stand by the statement that your home is not an investment. It's a bad financial one. It's not an economic one.
- jholman 10y ago
  Both of those definitions are wrongly stated, and that's why you're producing this wrong belief about primary residences. An an economic sense, an investment is an allocation of capital. Certainly consumer purchases of durable goods are not investments. The most common type of capital to invest is money, but other types might apply. By investing, one becomes the beneficiary of some of the means of production. Real estate is a perfect example. Real estate is always an economic investment, whether one then consumes the output or not. Also, by the way, many investments in this sense are consumable, usually with long rates of depreciation. That applies to a CNC machine, it applies to a fleet of productive vehicles, and it applies to buildings, including primary residences. If the fact that a house degrades with use makes it not-an-investment, you argue yourself into an obviously-silly corner. Your line about "it's a bad financial one" is almost too foolish to touch. A bad financial investment is still an investment. Telling people that a bad investment is not an investment is not communicating, it's posturing. Financially, if you buy a candy bar, and its value drops, it was still an investment (a poor one). If you want to make the claim that housing is a poorly-chosen investment, that's a different claim. Although, without knowing more about the life circumstances of the would-be investor, a fairly preposterous one, since it's clearly a good investment for many people, in practice.
  - John23832 10y ago
    We can go back an forth about this (or not, doesn't matter), but my point still stands. > An an economic sense, an investment is an allocation of capital. As I said. > Certainly consumer purchases of durable goods are not investments. I relate this to the consuming of your primary residence ("home"). > By investing, one becomes the beneficiary of some of the means of production. Real estate is a perfect example. Real estate is always an economic investment, whether one then consumes the output or not. Also, by the way, many investments in this sense are consumable, usually with long rates of depreciation. That applies to a CNC machine, it applies to a fleet of productive vehicles, and it applies to buildings, including primary residences. If the fact that a house degrades with use makes it not-an-investment, you argue yourself into an obviously-silly corner. Your home is not a mechanism of production. Sure, if you buy your house, you may be able to sell it for a profit down the line. However, you home is a place a residence. A CNC machine, a fleet of vehicles, a building that you will then fill and rent out all are mechanisms of production. The idea of your home as a means of production is based upon the false idea (prevalent in the US, and apparently Canada) that home values will always increase. Non of those other "consumable" investments are based upon the value of the investment themselves... they produce value due to usage, not inflation. > Your line about "it's a bad financial one" is almost too foolish to touch. A bad financial investment is still an investment. Telling people that a bad investment is not an investment is not communicating, it's posturing.= I was probably being a little hyperbolic there, but my point was that you should not consider your home an investment. > Financially, if you buy a candy bar, and its value drops, it was still an investment (a poor one). Again, didn't I say that? > If you want to make the claim that housing is a poorly-chosen investment, that's a different claim. Although, without knowing more about the life circumstances of the would-be investor, a fairly preposterous one, since it's clearly a good investment for many people, in practice. In practice, for many people, it's not. See the 2008 housing crisis.