4 ms·

Your advice might be okay for good times (investing, buying land, houses). But in hard economic times, the global economy will be doing badly and therefore mos

by davedx 5y ago

Your advice might be okay for good times (investing, buying land, houses). But in hard economic times, the global economy will be doing badly and therefore most investments will too, even housing (see 2008). Going into debt that you then invest is doubly risky: you have debt, plus you have a risky investment. Saving cash is actually indeed the best way to prepare for hard times.

szundi 5y ago
Exactly. OP was asking about hard times.
dwg 5y ago
I apologize for being blunt, but you have it backwards. A the adage goes: buy low sell high. In what people equate with "good economic times," prices are high, but in hard economic times everything is on sale! That said, firstly and foremost we should all make sure to have enough savings to ride out hard economic times—including personal ones. That is, enough to pay our monthly expenses for a year or so, in case we become unable to work or we do not want to take income from investments (because say, the market is down). How long you should be able to last is a mater of individual comfort level, but IMHO, no less than 6 months. Too much savings in the bank however—and this I believe relates back to the point being made by the original commenter—is actually not good. That money is losing value, and therefore so are you. You should invest it somehow, but that's not the only way. Another way is taking on debt, if that debt is the sort that generates a profit. We're not talking about car loans here (unless of course your a car dealer). Please forgive me if I misinterpreted your point, but I felt it important to make this clarification.
- jwalton 5y ago
  > but in hard economic times everything is on sale! In sufficiently hard economic times, everything is on sale because no one has any idea what will still be around tomorrow and what is going to drop to zero.
  - dwg 5y ago
    Putting war and personal risk of injury or forced relocation aside, which go beyond hard economic times, anyone with a sufficiently long-term view will not fall trap to "not having any idea about what will still be around tomorrow and what is going to drop to zero."
- marcusverus 5y ago
  > A the adage goes: buy low sell high. Don't forget the other adage--Don't time the market. > That said, firstly and foremost we should all make sure to have enough savings to ride out hard economic times—including personal ones. That is, enough to pay our monthly expenses for a year Having a year of expenses is good practice in general. I'm not sure that qualifies one as ready for actual hard times at a societal level--not just a stint of unemployment, but global depression, accelerating price inflation, or even general European war and the rationing that could follow. > Too much savings in the bank however—and this I believe relates back to the point being made by the original commenter—is actually not good. That money is losing value, and therefore so are you. There are ways to save that protect you (somewhat) from inflation. Like short term bonds (ex: from treasurydirect.gov). > Another way is taking on debt, if that debt is the sort that generates a profit. We're not talking about car loans here (unless of course your a car dealer). Unless there is some full-proof investment scheme that you're aware of, this would essentially be gambling. If you take on debt and your profit-generating scheme fails (which is certainly possible in the "hard times" scenario that OP has envisioned), then you're worse off--you've got debt to service, on top of everything else.
  - bratwurst3000 5y ago
    There could be contracts that generate future value but oneself needs money atm to fullfill it. I know still gambling… but with little risk depending on the conditions
  - dwg 5y ago
    Thanks for the clarification marcusverus. > Don't forget the other adage--Don't time the market. I did mean to to imply trying to time the market. The commenter wrote "Your advice might be okay for good times (investing, buying land, houses)." To me this says that it's OK to invest in good times but not bad. This in fact boils down t a form of attempted market timing—and the worst kind at that! Of course you should buy when times are good, but should also not stop buying when times are bad. If anything, bad times should be viewed as an opportunity. Hopefully you've prepared well to be in a position to take advantage! > Having a year of expenses is good practice in general. I'm not sure that qualifies one as ready for actual hard times at a societal level--not just a stint of unemployment, but global depression, accelerating price inflation, or even general European war and the rationing that could follow. I also did not intend to imply that having a years worth of expenses qualifies as preparation for "actual hard times." I was responding to the above comment, not the OP. That said, a year of expenses could be stretched for an awfully long time if needed. > There are ways to save that protect you (somewhat) from inflation. Like short term bonds (ex: from treasurydirect.gov). Naturally. This is an investment, which you should not avoid. We are saying the same thing. The only difference is that the commenter does not recognize debt as being good in some cases, but I would argue that not all debt is dangerous. If that were the case our economy would cease to function! > Unless there is some full-proof investment scheme that you're aware of, this would essentially be gambling. If you take on debt and your profit-generating scheme fails (which is certainly possible in the "hard times" scenario that OP has envisioned), then you're worse off--you've got debt to service, on top of everything else. No fool-proof scheme, and not gambling. If you have made solid investments, including those based on debt, and have given yourself enough runway to ride out hard-times (and of course this includes your debt repayments), then you should have no reason to panic or feel burdened.
hoseja 5y ago
Enter hyperinflation.
nivenkos 5y ago
Inflation will wipe out that cash though. Honestly, it's hard to give advice since it's so specific to the region and job market, etc. Like many US engineers can easily afford to buy a house outright with $200k+ salaries, that isn't possible as often in Europe or Asia for example. But basically do what you can to get fixed costs that you know you can afford and stability - i.e. a fixed rate mortgage, fixed rate utilities, and trade union membership and unemployment insurance, etc.
- nradov 5y ago
  There are very few US engineers who can afford to buy a house outright. The ones making $200K+ salaries are mostly in HCOL areas where houses are very expensive. And the ones who can afford to buy outright are usually doing so based on equity gains, not salaries.
- jjav 5y ago
  > Like many US engineers can easily afford to buy a house outright with $200k+ salaries That's about 100K after taxes + medical (not included in taxes in the US) and other deductions. With houses in good markets far above $1M, nobody making $100K net is buying a house outright. Or even being able to buy a house at all.
philipov 5y ago
"Going into debt you then invest" is probably the exact wording used by pathological gamblers to justify betting their house at cards. In older times, that's how people gambled their way into slavery. "I'll borrow some money to buy the seeds I need to plant my crops" and then the harvest goes bad and you have neither food nor money to repay the debt. Suddenly the wealthy neighbor you borrowed from is taking your land to pay for it.
- dionidium 5y ago
  Buying a house gives you extreme leverage, though, and with extremely favorable tax treatment. You can put as little as $25k down on a $500k house and when the land underneath it increases in value you get to keep all the upside and pay no capital gains on up to $250k in profit ($500k if you're married). And you'll pay, what, a fixed rate of 3.5% for 30 years? If you find a bookie giving you terms like that, then you should take them.
  - philipov 5y ago
    This is a conversation about hard economic times, when the house could very well depreciate in value, and you'll be stuck with a mortgage worth much more than the house. Remember 2008? It was caused by people assuming like this that the value of houses always goes up.
avgDev 5y ago
Investing, buying property is the best during "SALES" and those occur during hard economic times. 1. Build an emergency fund. I have enough to cover about 12 months of all my expenses. 2. Avoid life style creep when you start making more money. 3. Invest pre-tax, take full advantage of 401k and IRAs (make sure your expense ratio is low in your selected funds) 4. If you need a car be reasonable, take efficiency and repair costs into consideration 5. Learn how to do basic home/car maintenance 6. Learn how to cook The idea of emergency fund is that you are not forced to sell during hard times. It is extremely likely that total market will recover and go higher than before. Saving cash beyond emergency fund is like setting it on fire. Every year inflation is eating it away.
jjav 5y ago
> Saving cash is actually indeed the best way to prepare for hard times. Cash is the worst possible holding. Inflation will destroy it. If you feel higher inflation is coming, holding as much debt as possible is what you want. Of course, you do want to have enough cash on hand for short-term expenses, say like a year of living. Anything beyond that is very risky.

by davedx 5y ago

szundi 5y ago

Exactly. OP was asking about hard times.

dwg 5y ago

I apologize for being blunt, but you have it backwards. A the adage goes: buy low sell high. In what people equate with "good economic times," prices are high, but in hard economic times everything is on sale! That said, firstly and foremost we should all make sure to have enough savings to ride out hard economic times—including personal ones. That is, enough to pay our monthly expenses for a year or so, in case we become unable to work or we do not want to take income from investments (because say, the market is down). How long you should be able to last is a mater of individual comfort level, but IMHO, no less than 6 months. Too much savings in the bank however—and this I believe relates back to the point being made by the original commenter—is actually not good. That money is losing value, and therefore so are you. You should invest it somehow, but that's not the only way. Another way is taking on debt, if that debt is the sort that generates a profit. We're not talking about car loans here (unless of course your a car dealer). Please forgive me if I misinterpreted your point, but I felt it important to make this clarification.

jwalton 5y ago
> but in hard economic times everything is on sale! In sufficiently hard economic times, everything is on sale because no one has any idea what will still be around tomorrow and what is going to drop to zero.
- dwg 5y ago
  Putting war and personal risk of injury or forced relocation aside, which go beyond hard economic times, anyone with a sufficiently long-term view will not fall trap to "not having any idea about what will still be around tomorrow and what is going to drop to zero."
marcusverus 5y ago
> A the adage goes: buy low sell high. Don't forget the other adage--Don't time the market. > That said, firstly and foremost we should all make sure to have enough savings to ride out hard economic times—including personal ones. That is, enough to pay our monthly expenses for a year Having a year of expenses is good practice in general. I'm not sure that qualifies one as ready for actual hard times at a societal level--not just a stint of unemployment, but global depression, accelerating price inflation, or even general European war and the rationing that could follow. > Too much savings in the bank however—and this I believe relates back to the point being made by the original commenter—is actually not good. That money is losing value, and therefore so are you. There are ways to save that protect you (somewhat) from inflation. Like short term bonds (ex: from treasurydirect.gov). > Another way is taking on debt, if that debt is the sort that generates a profit. We're not talking about car loans here (unless of course your a car dealer). Unless there is some full-proof investment scheme that you're aware of, this would essentially be gambling. If you take on debt and your profit-generating scheme fails (which is certainly possible in the "hard times" scenario that OP has envisioned), then you're worse off--you've got debt to service, on top of everything else.
- bratwurst3000 5y ago
  There could be contracts that generate future value but oneself needs money atm to fullfill it. I know still gambling… but with little risk depending on the conditions
- dwg 5y ago
  Thanks for the clarification marcusverus. > Don't forget the other adage--Don't time the market. I did mean to to imply trying to time the market. The commenter wrote "Your advice might be okay for good times (investing, buying land, houses)." To me this says that it's OK to invest in good times but not bad. This in fact boils down t a form of attempted market timing—and the worst kind at that! Of course you should buy when times are good, but should also not stop buying when times are bad. If anything, bad times should be viewed as an opportunity. Hopefully you've prepared well to be in a position to take advantage! > Having a year of expenses is good practice in general. I'm not sure that qualifies one as ready for actual hard times at a societal level--not just a stint of unemployment, but global depression, accelerating price inflation, or even general European war and the rationing that could follow. I also did not intend to imply that having a years worth of expenses qualifies as preparation for "actual hard times." I was responding to the above comment, not the OP. That said, a year of expenses could be stretched for an awfully long time if needed. > There are ways to save that protect you (somewhat) from inflation. Like short term bonds (ex: from treasurydirect.gov). Naturally. This is an investment, which you should not avoid. We are saying the same thing. The only difference is that the commenter does not recognize debt as being good in some cases, but I would argue that not all debt is dangerous. If that were the case our economy would cease to function! > Unless there is some full-proof investment scheme that you're aware of, this would essentially be gambling. If you take on debt and your profit-generating scheme fails (which is certainly possible in the "hard times" scenario that OP has envisioned), then you're worse off--you've got debt to service, on top of everything else. No fool-proof scheme, and not gambling. If you have made solid investments, including those based on debt, and have given yourself enough runway to ride out hard-times (and of course this includes your debt repayments), then you should have no reason to panic or feel burdened.

hoseja 5y ago

Enter hyperinflation.

nivenkos 5y ago

Inflation will wipe out that cash though. Honestly, it's hard to give advice since it's so specific to the region and job market, etc. Like many US engineers can easily afford to buy a house outright with $200k+ salaries, that isn't possible as often in Europe or Asia for example. But basically do what you can to get fixed costs that you know you can afford and stability - i.e. a fixed rate mortgage, fixed rate utilities, and trade union membership and unemployment insurance, etc.

nradov 5y ago
There are very few US engineers who can afford to buy a house outright. The ones making $200K+ salaries are mostly in HCOL areas where houses are very expensive. And the ones who can afford to buy outright are usually doing so based on equity gains, not salaries.
jjav 5y ago
> Like many US engineers can easily afford to buy a house outright with $200k+ salaries That's about 100K after taxes + medical (not included in taxes in the US) and other deductions. With houses in good markets far above $1M, nobody making $100K net is buying a house outright. Or even being able to buy a house at all.

philipov 5y ago

"Going into debt you then invest" is probably the exact wording used by pathological gamblers to justify betting their house at cards. In older times, that's how people gambled their way into slavery. "I'll borrow some money to buy the seeds I need to plant my crops" and then the harvest goes bad and you have neither food nor money to repay the debt. Suddenly the wealthy neighbor you borrowed from is taking your land to pay for it.

dionidium 5y ago
Buying a house gives you extreme leverage, though, and with extremely favorable tax treatment. You can put as little as $25k down on a $500k house and when the land underneath it increases in value you get to keep all the upside and pay no capital gains on up to $250k in profit ($500k if you're married). And you'll pay, what, a fixed rate of 3.5% for 30 years? If you find a bookie giving you terms like that, then you should take them.
- philipov 5y ago
  This is a conversation about hard economic times, when the house could very well depreciate in value, and you'll be stuck with a mortgage worth much more than the house. Remember 2008? It was caused by people assuming like this that the value of houses always goes up.

avgDev 5y ago

Investing, buying property is the best during "SALES" and those occur during hard economic times. 1. Build an emergency fund. I have enough to cover about 12 months of all my expenses. 2. Avoid life style creep when you start making more money. 3. Invest pre-tax, take full advantage of 401k and IRAs (make sure your expense ratio is low in your selected funds) 4. If you need a car be reasonable, take efficiency and repair costs into consideration 5. Learn how to do basic home/car maintenance 6. Learn how to cook The idea of emergency fund is that you are not forced to sell during hard times. It is extremely likely that total market will recover and go higher than before. Saving cash beyond emergency fund is like setting it on fire. Every year inflation is eating it away.

jjav 5y ago

> Saving cash is actually indeed the best way to prepare for hard times. Cash is the worst possible holding. Inflation will destroy it. If you feel higher inflation is coming, holding as much debt as possible is what you want. Of course, you do want to have enough cash on hand for short-term expenses, say like a year of living. Anything beyond that is very risky.