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> put all your money into leveraged! assets (stocks, housing), Spoken like someone who has only operated in the recent bull market. Using a mortgage to buy a

> put all your money into leveraged! assets (stocks, housing), Spoken like someone who has only operated in the recent bull market. Using a mortgage to buy a reasonable house that you can afford is a good idea. Using leverage to buy as much real estate and/or stocks as you can get away with is a terrible idea with some significant downside risk. Leveraged stock purchases are notorious for working great until the market turns and blows up your account. Even leveraged funds have significant slippage that isn’t obvious to the casual investor who thinks they’re just going to get a clean 2X return. One of my most poignant memories from the 2008 crash was watching a few people I knew go from feeling like they were financial geniuses to bankrupt and struggling. The common theme among all of them was that they were leveraged to the hilt in real estate. They thought it was easy money when it felt like the market could only go up. Then it stopped going up and we all know what happened next.

eloff 4y ago
If you remember just one thing, it's that no asset class goes up forever. Some assets tend to trend up overtime more than others, but they all have times where they go down too. Make sure you can survive that. People buying homes in places that have only gone up in the last 40 years need to consider that that might keep going up for another decade, or they might be cresting the hill before correcting.
- fdgsdfogijq 4y ago
  This is how you end up a wage slave
- lumost 4y ago
  Housing has risen some 40% over the last two years, while this is certainly insane. If the trend continues the downside risk either becomes massive - or a mere 30% correction becomes inconsequential to the principal balance.
  - baskethead 4y ago
    My house almost tripled in 8 years. I made $2 million profit from selling my house last year.
    - adamsmith143 4y ago
      And you did what, moved into a van down by the river or moved into another overpriced house immediately after?
      - fzzzy 4y ago
        Good to see Adam Smith commenting on hacker news
      - lumost 4y ago
        If they owned multiple properties, then they needn’t move down to the river to liquidate the 2 million.
- baskethead 4y ago
  Homes have been going up in price for far longer than 40 years. The only time they have dropped is the Great Depression and the Great Recession. Otherwise there isn't an asset class that is more reliable over the long haul than real estate.
  - ChuckNorris89 4y ago
    >Homes have been going up in price for far longer than 40 years. Homes going up is not the problem though. Yes, they've been going up for longer than 40 years, but back in the 1950's their growth was basically tracking inflation and wage growth, or even going down in value since they were seen an any other depreciable asset, just a place to live in till you die. It's in the last 40 years that housing massively outgrown wages, as it became a speculatory investment vehicle instead of just being a place to live, plus the introduction of NIMBYISM regulations to restrict supply, and that's where the issue is.
  - eloff 4y ago
    I strongly disagree with this. First off homes fell sharply in value just as recently as 2009. Secondly over time, globally, real estate barely keeps ahead of inflation. About 3% per year. For much of the last century you did about as well parking your money in a savings account. Finally, equities in globally have returned about 6.5% per year. That's much better. Better still in the US where they did more like 10.5%. Real estate as an appreciating asset is a lousy investment. If it's a place to live that's sometimes a different matter. If it's a rental property that's also different.
    - mariojv 4y ago
      I think 2009 counts as part of the Great Recession.
      - eloff 4y ago
        Not sure what your point is though.
clairity 4y ago
it's also short-sightedly self-centered. the better solution is moving the economy toward being wage-oriented, with asset income being periphery, rather than our current asset-focused system. make money by doing stuff rather than having stuff, the latter of which is the epitome of economic rents.
- rwmj 4y ago
  I guess you're advocating that people work until they drop dead?
  - clairity 4y ago
    no.
    - throwaway0a5e 4y ago
      Then what are you advocating for? If people can't parlay wages into assets that can at least perform in the same ballpark as wages then "work until you drop" or "crank out kids like a pre-industrial subsistence farmer" is what you'll get. It takes roughly a career to amass enough assets to retire on and that's with a slightly reduced standard of living in retirement. Unless you want to assume population growth forever (seems unwise IMO) you need one average career to generate enough surplus to pay for an average retirement. So far, buying assets (usually a mix of real estate and fractional ownership of financial instruments that are ultimately backed by companies and governments) is the most efficient way we know to accomplish this goal.
      - clairity 4y ago
        no. must everything be taken to an extreme, made tribal and ideological? note the phrase "asset income being periphery", which implies an optimum. the ability to own one appreciating asset is great. owning two is probably ok in most cases. 90 is highly unlikely to provide a net social good.
        deleted 4y ago
lumost 4y ago
This is true if the market has it's normal up and down swings. However it's entirely plausible that we no longer live in such an environment. Saving money is a smart idea unless you live in a communist state or a dictatorship, then your best bet is to spend as fast as you can or secure assets resistant to confiscation. Maintaining liquidity is a smart idea unless you live in a world where the government decrees asset prices can never fall. In which case throwing everything you have into leverage is the best bet. It's not an irrational bet that the Fed's hands will be permanently tied to a low interest rate environment. The more people who make that bet the more true it will be.
- pfisherman 4y ago
  > This is true if the market has it's normal up and down swings. However it's entirely plausible that we no longer live in such an environment. How is it plausible? I would say given the historical data, it is extremely unlikely. Not impossible, but near negligible probability. People saying, “it’s different this time,” right before a economic crash is a cliche for a reason. I suspect that you could use the frequency of utterances to predict impending recessions / asset class corrections with extremely high accuracy.
  - lumost 4y ago
    If we’ve transitioned into a different socioeconomic system from capitalism, then it really could be different this time. It just means that certain assets are no longer traditional “assets” but should be viewed as an annuity etc. Housing can return 20% per year until the end of time if the Fed wishes it to.
- mmmm2 4y ago
  You're certainly not alone in thinking along these lines, but it is another case of "it's right until it isn't." The Fed has said they're going to tighten until inflation eases. Maybe they're wrong about that, but in the past they've been willing to crash the economy to hold down inflation. Will they this time? Who knows, but it generally pays to hedge a bit.
fdgsdfogijq 4y ago
Think this way at any time in the last 40 years and you ended up with nothing. No reason to think the current bump in the road is any different.
hermitdev 4y ago
As someone that worked at a hedge fund that was leveraged approximately 40:1 in 2008, I never wish to go through that again. 40B USD assets under management down to about 7B USD in a few weeks... Amazingly, we still had jobs at the end of that September.
- deleted 4y ago
  [deleted]
- plonk 4y ago
  Did you get that value back in the next years or was it a complete loss?
  - hermitdev 4y ago
    IIRC, it took between 18-24 months for the fund to earn it back, with a significantly reduced leveraged rate. AUM never reached 40B while I was still there due to redemptions, though. The following year was a wild ride, for sure.
mise_en_place 4y ago
Trading on margin is one thing, but leverage is the only way to make significant money. That’s why people who traded options or even crypto made massive amounts of money. 2% return on 10x leverage is 20% return at 1x risk.
- ChuckNorris89 4y ago
  >That’s why people who traded options or even crypto made massive amounts of money All the money "made" from crypto was at the expense of other players(I refuse to call them "investors") who were left holding the bags, or at the expense of the environment (most of the large scale mining operations was done in areas of the world with cheap and dirty energy like China, Russia, Iran, etc.)
  - mise_en_place 4y ago
    I used those examples because they’re easy to understand. But how do you think angel investors like YC make money? An angel investment is also using leverage, banking on either future earnings or fundraising rounds to magnify your initial investment with a convertible note.
    - nradov 4y ago
      That's not how it works. Angel investors and VC firms almost always purchase equity. It's not really possible to purchase pre-IPO stock on margin (although some wealthy investors can take out loans collateralized by their other assets, and then use that cash to invest in other opportunities).
      - mise_en_place 4y ago
        Really? I thought it’s better to defer valuation as late as possible, due to the regulatory burden and cost.
        nradov 4y ago
Gibbon1 4y ago
Spoken like someone that wasn't around for the 2008 crash, but not the 1980, 1982, 1990, or 2001 once. Iron Law: During recessions capital always takes care of it's own and foists the losses onto the working class.
foobarian 4y ago
> Using leverage to buy as much real estate How does one leverage to buy more real estate? Refinance one house to pay down the next one? I just went through a home loan process and this would never work because they look at total LTV and credit reports...
- toomuchtodo 4y ago
  https://www.biggerpockets.com/guides/brrrr-method https://www.biggerpockets.com/guides/brrrr-method GSEs (Fannie, Freddie) let you lever up with a lot of real estate borrowing (~10 mortgages per person, with some wiggle room with creativity) before you have to go to a commercial bank to wrap the portfolio with a commercial loan or similar product.

eloff 4y ago

If you remember just one thing, it's that no asset class goes up forever. Some assets tend to trend up overtime more than others, but they all have times where they go down too. Make sure you can survive that. People buying homes in places that have only gone up in the last 40 years need to consider that that might keep going up for another decade, or they might be cresting the hill before correcting.

fdgsdfogijq 4y ago
This is how you end up a wage slave
lumost 4y ago
Housing has risen some 40% over the last two years, while this is certainly insane. If the trend continues the downside risk either becomes massive - or a mere 30% correction becomes inconsequential to the principal balance.
- baskethead 4y ago
  My house almost tripled in 8 years. I made $2 million profit from selling my house last year.
  - adamsmith143 4y ago
    And you did what, moved into a van down by the river or moved into another overpriced house immediately after?
    - fzzzy 4y ago
      Good to see Adam Smith commenting on hacker news
    - lumost 4y ago
      If they owned multiple properties, then they needn’t move down to the river to liquidate the 2 million.
baskethead 4y ago
Homes have been going up in price for far longer than 40 years. The only time they have dropped is the Great Depression and the Great Recession. Otherwise there isn't an asset class that is more reliable over the long haul than real estate.
- ChuckNorris89 4y ago
  >Homes have been going up in price for far longer than 40 years. Homes going up is not the problem though. Yes, they've been going up for longer than 40 years, but back in the 1950's their growth was basically tracking inflation and wage growth, or even going down in value since they were seen an any other depreciable asset, just a place to live in till you die. It's in the last 40 years that housing massively outgrown wages, as it became a speculatory investment vehicle instead of just being a place to live, plus the introduction of NIMBYISM regulations to restrict supply, and that's where the issue is.
- eloff 4y ago
  I strongly disagree with this. First off homes fell sharply in value just as recently as 2009. Secondly over time, globally, real estate barely keeps ahead of inflation. About 3% per year. For much of the last century you did about as well parking your money in a savings account. Finally, equities in globally have returned about 6.5% per year. That's much better. Better still in the US where they did more like 10.5%. Real estate as an appreciating asset is a lousy investment. If it's a place to live that's sometimes a different matter. If it's a rental property that's also different.
  - mariojv 4y ago
    I think 2009 counts as part of the Great Recession.
    - eloff 4y ago
      Not sure what your point is though.

clairity 4y ago

it's also short-sightedly self-centered. the better solution is moving the economy toward being wage-oriented, with asset income being periphery, rather than our current asset-focused system. make money by doing stuff rather than having stuff, the latter of which is the epitome of economic rents.

rwmj 4y ago
I guess you're advocating that people work until they drop dead?
- clairity 4y ago
  no.
  - throwaway0a5e 4y ago
    Then what are you advocating for? If people can't parlay wages into assets that can at least perform in the same ballpark as wages then "work until you drop" or "crank out kids like a pre-industrial subsistence farmer" is what you'll get. It takes roughly a career to amass enough assets to retire on and that's with a slightly reduced standard of living in retirement. Unless you want to assume population growth forever (seems unwise IMO) you need one average career to generate enough surplus to pay for an average retirement. So far, buying assets (usually a mix of real estate and fractional ownership of financial instruments that are ultimately backed by companies and governments) is the most efficient way we know to accomplish this goal.
    - clairity 4y ago
      no. must everything be taken to an extreme, made tribal and ideological? note the phrase "asset income being periphery", which implies an optimum. the ability to own one appreciating asset is great. owning two is probably ok in most cases. 90 is highly unlikely to provide a net social good.
      - deleted 4y ago

lumost 4y ago

This is true if the market has it's normal up and down swings. However it's entirely plausible that we no longer live in such an environment. Saving money is a smart idea unless you live in a communist state or a dictatorship, then your best bet is to spend as fast as you can or secure assets resistant to confiscation. Maintaining liquidity is a smart idea unless you live in a world where the government decrees asset prices can never fall. In which case throwing everything you have into leverage is the best bet. It's not an irrational bet that the Fed's hands will be permanently tied to a low interest rate environment. The more people who make that bet the more true it will be.

pfisherman 4y ago
> This is true if the market has it's normal up and down swings. However it's entirely plausible that we no longer live in such an environment. How is it plausible? I would say given the historical data, it is extremely unlikely. Not impossible, but near negligible probability. People saying, “it’s different this time,” right before a economic crash is a cliche for a reason. I suspect that you could use the frequency of utterances to predict impending recessions / asset class corrections with extremely high accuracy.
- lumost 4y ago
  If we’ve transitioned into a different socioeconomic system from capitalism, then it really could be different this time. It just means that certain assets are no longer traditional “assets” but should be viewed as an annuity etc. Housing can return 20% per year until the end of time if the Fed wishes it to.
mmmm2 4y ago
You're certainly not alone in thinking along these lines, but it is another case of "it's right until it isn't." The Fed has said they're going to tighten until inflation eases. Maybe they're wrong about that, but in the past they've been willing to crash the economy to hold down inflation. Will they this time? Who knows, but it generally pays to hedge a bit.

fdgsdfogijq 4y ago

Think this way at any time in the last 40 years and you ended up with nothing. No reason to think the current bump in the road is any different.

hermitdev 4y ago

As someone that worked at a hedge fund that was leveraged approximately 40:1 in 2008, I never wish to go through that again. 40B USD assets under management down to about 7B USD in a few weeks... Amazingly, we still had jobs at the end of that September.

deleted 4y ago
[deleted]
plonk 4y ago
Did you get that value back in the next years or was it a complete loss?
- hermitdev 4y ago
  IIRC, it took between 18-24 months for the fund to earn it back, with a significantly reduced leveraged rate. AUM never reached 40B while I was still there due to redemptions, though. The following year was a wild ride, for sure.

mise_en_place 4y ago

Trading on margin is one thing, but leverage is the only way to make significant money. That’s why people who traded options or even crypto made massive amounts of money. 2% return on 10x leverage is 20% return at 1x risk.

ChuckNorris89 4y ago
>That’s why people who traded options or even crypto made massive amounts of money All the money "made" from crypto was at the expense of other players(I refuse to call them "investors") who were left holding the bags, or at the expense of the environment (most of the large scale mining operations was done in areas of the world with cheap and dirty energy like China, Russia, Iran, etc.)
- mise_en_place 4y ago
  I used those examples because they’re easy to understand. But how do you think angel investors like YC make money? An angel investment is also using leverage, banking on either future earnings or fundraising rounds to magnify your initial investment with a convertible note.
  - nradov 4y ago
    That's not how it works. Angel investors and VC firms almost always purchase equity. It's not really possible to purchase pre-IPO stock on margin (although some wealthy investors can take out loans collateralized by their other assets, and then use that cash to invest in other opportunities).
    - mise_en_place 4y ago
      Really? I thought it’s better to defer valuation as late as possible, due to the regulatory burden and cost.
      - nradov 4y ago

Gibbon1 4y ago

Spoken like someone that wasn't around for the 2008 crash, but not the 1980, 1982, 1990, or 2001 once. Iron Law: During recessions capital always takes care of it's own and foists the losses onto the working class.

foobarian 4y ago

> Using leverage to buy as much real estate How does one leverage to buy more real estate? Refinance one house to pay down the next one? I just went through a home loan process and this would never work because they look at total LTV and credit reports...

toomuchtodo 4y ago
https://www.biggerpockets.com/guides/brrrr-method https://www.biggerpockets.com/guides/brrrr-method GSEs (Fannie, Freddie) let you lever up with a lot of real estate borrowing (~10 mortgages per person, with some wiggle room with creativity) before you have to go to a commercial bank to wrap the portfolio with a commercial loan or similar product.