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I thought the "The more debt you have, the less financially resilient you are" was the more important message.

mym1990 2y ago
But this isn’t true, one has to consider the debt ratio, not just the debt. Someone with a million dollars of debt is financially resilient if they have a debt ratio of .1
- vlunkr 2y ago
  True, but that is not the situation most of humanity is facing.
  - necovek 2y ago
    I read that as an example to illustrate a point: it could also have said debt of $1000 with a debt ratio of 0.1 which is still pretty resilient.
    - falcolas 2y ago
      Resilient? Sure. Realistic for anyone with only $10k in assets? Not even remotely. Not in the market we have today. There are too many people who are using debt just to get their basic needs met, let alone something with enough permanence to be considered an asset.
      - mym1990 2y ago
        We're just using arbitrary numbers to demonstrate a point, we aren't trying to assess anyone's actual financial health.
  - mym1990 2y ago
    That was exactly my point...a million dollars of debt is astronomical for the majority of people, but adding another data point such as DTA or DTI would make for a clearer picture of what the debt load actually is. Its like putting down a 100kg kettle bell and asking a group of people "is it hard to lift"? For the average person sure...but you're going to get a variety of answers if you put that kettle bell in front of kids vs a group of gym rats. Edit: I guess a smaller amount like 10k USD might be better to illustrate the point.
- leononame 2y ago
  That's only true if the rest of their bet worth isn't tied up in some high risk investment where they could lose everything. Just because it's financially more optimal to have some debt in some situations doesn't mean that it's also more resilient. Yes, debt ratio plays a role (although a debt ratio of 0.1 is almost like having no debt at all), but no debt is for sure more resilient than debt.
  - mym1990 2y ago
    I think my point was more that 1 million dollars of debt is a pretty large sum to most people, but not much to someone who has substantial assets. You can draw up "that's only true" scenarios on basically any situation, so its not very helpful to go back and forth. I will say the point about having debt limits your future possibilities is very true, and if someone would like to maintain an open future, stay away from large amounts of debt(homes, expensive cars, boats, etc...)
- triceratops 2y ago
  Debt to income or debt to asset is the only way of evaluating if someone's debt is high or low. I thought it was obvious that's what GP meant.
  - mym1990 2y ago
    I did not get that assumption from "The more debt you have, the less financially resilient you are". Debt is an absolute value, and debt-to-asset ratio is...not. You can also evaluate debt loads by debt-to-income ratio, which is not to be overlooked as most homeowners buy homes based on their income, rather than their savings. As others have said, debt-to-asset is also not a golden ratio, because if your assets are not liquid and you get called for your debt, you still have a bad situation.
    - triceratops 2y ago
      > You can also evaluate debt loads by debt-to-income ratio, which is not to be overlooked Debt to income is literally the first thing I wrote in my comment. I didn't overlook it. The absolute value of a debt is a meaningless number so "more debt" should always be evaluated in that context. And that's how I took the comment I originally responded to. Some extremely obvious things are being rehashed for no apparent reason in this thread. When evaluating relative debt load, asset values should have a multiplier to reflect both liquidity and volatility.
- phkahler 2y ago
  If your other millions are not liquid then the one million of debt is still a potentially significant liability when adverse events happen. If it is liquid then why bother borrowing for something so small? The spent cash can be replenished quickly when there are no debt payments.
  - mym1990 2y ago
    Very true, I think the article is pretty high level, and so are my comments. Actual financial health can be difficult to evaluate given that world events are pretty open ended and anything can happen.
- its_ethan 2y ago
  It's still true though. If push comes to shove, having no debt will increase your odds of surviving volatility - it the debt ratio just expands or tightens what range of volatility you can survive (which he did write about). Even if you have $5 of debt and $5m in the bank, you would still be measurably better off to have had $0 of debt in financial "survival".

mym1990 2y ago

But this isn’t true, one has to consider the debt ratio, not just the debt. Someone with a million dollars of debt is financially resilient if they have a debt ratio of .1

vlunkr 2y ago
True, but that is not the situation most of humanity is facing.
- necovek 2y ago
  I read that as an example to illustrate a point: it could also have said debt of $1000 with a debt ratio of 0.1 which is still pretty resilient.
  - falcolas 2y ago
    Resilient? Sure. Realistic for anyone with only $10k in assets? Not even remotely. Not in the market we have today. There are too many people who are using debt just to get their basic needs met, let alone something with enough permanence to be considered an asset.
    - mym1990 2y ago
      We're just using arbitrary numbers to demonstrate a point, we aren't trying to assess anyone's actual financial health.
- mym1990 2y ago
  That was exactly my point...a million dollars of debt is astronomical for the majority of people, but adding another data point such as DTA or DTI would make for a clearer picture of what the debt load actually is. Its like putting down a 100kg kettle bell and asking a group of people "is it hard to lift"? For the average person sure...but you're going to get a variety of answers if you put that kettle bell in front of kids vs a group of gym rats. Edit: I guess a smaller amount like 10k USD might be better to illustrate the point.
leononame 2y ago
That's only true if the rest of their bet worth isn't tied up in some high risk investment where they could lose everything. Just because it's financially more optimal to have some debt in some situations doesn't mean that it's also more resilient. Yes, debt ratio plays a role (although a debt ratio of 0.1 is almost like having no debt at all), but no debt is for sure more resilient than debt.
- mym1990 2y ago
  I think my point was more that 1 million dollars of debt is a pretty large sum to most people, but not much to someone who has substantial assets. You can draw up "that's only true" scenarios on basically any situation, so its not very helpful to go back and forth. I will say the point about having debt limits your future possibilities is very true, and if someone would like to maintain an open future, stay away from large amounts of debt(homes, expensive cars, boats, etc...)
triceratops 2y ago
Debt to income or debt to asset is the only way of evaluating if someone's debt is high or low. I thought it was obvious that's what GP meant.
- mym1990 2y ago
  I did not get that assumption from "The more debt you have, the less financially resilient you are". Debt is an absolute value, and debt-to-asset ratio is...not. You can also evaluate debt loads by debt-to-income ratio, which is not to be overlooked as most homeowners buy homes based on their income, rather than their savings. As others have said, debt-to-asset is also not a golden ratio, because if your assets are not liquid and you get called for your debt, you still have a bad situation.
  - triceratops 2y ago
    > You can also evaluate debt loads by debt-to-income ratio, which is not to be overlooked Debt to income is literally the first thing I wrote in my comment. I didn't overlook it. The absolute value of a debt is a meaningless number so "more debt" should always be evaluated in that context. And that's how I took the comment I originally responded to. Some extremely obvious things are being rehashed for no apparent reason in this thread. When evaluating relative debt load, asset values should have a multiplier to reflect both liquidity and volatility.
phkahler 2y ago
If your other millions are not liquid then the one million of debt is still a potentially significant liability when adverse events happen. If it is liquid then why bother borrowing for something so small? The spent cash can be replenished quickly when there are no debt payments.
- mym1990 2y ago
  Very true, I think the article is pretty high level, and so are my comments. Actual financial health can be difficult to evaluate given that world events are pretty open ended and anything can happen.
its_ethan 2y ago
It's still true though. If push comes to shove, having no debt will increase your odds of surviving volatility - it the debt ratio just expands or tightens what range of volatility you can survive (which he did write about). Even if you have $5 of debt and $5m in the bank, you would still be measurably better off to have had $0 of debt in financial "survival".