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The entire point of debt is to bring future revenue to the present so that you don't have to wait for savings to trickle in every year.
by intotheabyss 3y ago
The entire point of debt is to bring future revenue to the present so that you don't have to wait for savings to trickle in every year.
- HideousKojima 3y agoAt the cost of some portion of your future revenue
- airstrike 3y agoand if that future revenue is N times greater than you would otherwise get without debt, then it's still better to take on debt. Would you rather have 90% of $1M or 100% of $800k?
- HideousKojima 3y ago>if That single word is doing all of the heavy lifting for you. "If" the housing market will never crash, then it's a surefire safe investment! Better buy tons of houses to flip on credit. There's no guarantee that your debt/investment will succeed, which is why banks try (and often enough, fail) to price in risk with things like varying interest rates, collateral, etc.
- airstrike 3y agothe 90% accounts for the "if". my point is there an expected value for the future revenue amount, subject to your own assumptions about the probability of each outcome and your discount rate for the value of that money over time in scenarios where your expected value discounted to present value is greater than the alternative, you make the investment. it's really finance 101... it's just NPV