4 ms·

I think I'd still recommend index funds and real estate for a young person today. Buy the biggest house you can reasonably afford, and invest every spare bit of

I think I'd still recommend index funds and real estate for a young person today. Buy the biggest house you can reasonably afford, and invest every spare bit of money you have in an index fund. Do everything you can to move from the worker class to the capital owning class, because that's where the returns go. And inflation isn't going away. In theory, capitalism could fail completely. In theory, governments could stop inflating their currencies. I sure wouldn't bet that way though.

whitepoplar 2y ago
why "the biggest house you can reasonably afford"?
- protonbob 2y ago
  In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP.
  - no_wizard 2y ago
    >In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP. I have some thoughts on this. Not because owning a home is a bad idea, but because you should really factor what you're buying and why. None of this is to say your premise is incorrect, but merely there should be more nuance when thinking about this. Buying a place you want to live in is fundamentally different than buying an investment vehicle. I currently rent an apartment, but also own multiple investment properties. Why? Because it makes more sense for my situation, where I myself may need to move more often and therefore some aspects of being in a home that isn't turning profit into my pocket are undesirable, where as buying a house where I am going to live has a very different set of checkboxes, namely between economic issues in the macro and personal health stuff where myself or my wife have to travel a bunch, we're regionally limited and have determined we may or may not want to live in our current metro long term. That said, I absolutely did buy one of the properties with the future intent of living there myself, I simply am delaying that to make money on the property rather than letting it sit empty. I'm easily a few years away from permanently moving into it myself, but in the advent I decide to live elsewhere long term than where I am right now, I at least have the income stream. and absolutely, the regulations (and there by, the law) favors home owners every time. Renters get screwed in this I even tell this to young renters who rent from me. You simply can't get a break on the ever growing rise of rent vs a fixed rate mortgage, but you gotta understand what you're buying and why, and don't conflate the difference between a home and an investment vehicle, as many people do.
    - bombcar 2y ago
      This is really good advice - the "your home is an investment" is realtor talk to get you to overspend. A house is a depreciating thing you can live in, and is expensive! Once you correctly account for ALL the expenses (not just mortgage, insurance, and property tax!) you discover that renting may be advantageous. But they do often go up in value over time (ignoring maintenance keeping them together) and sometimes beat inflation (especially when leveraged).
      - psunavy03 2y ago
        All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage. That way, when you retire, your nest egg can go further because you only have to pay the property taxes, and when you die, you can pass the value along to your heirs and build generational wealth. Houses are not index funds; ideally they should only appreciate at the rate of inflation. But they are absolutely long-term builders of generational wealth through the equity in the home. Heirs can sell them and then invest the proceeds, or live in them themselves without a mortgage.
        bombcar 2y ago
        They can be great, but you need to really run the numbers and check the assumptions. Housing where it is "affordable" (read: median salary can afford a house) is a great way to get a leg up on the pile - though remember that the average age of a person RECEIVING and inheritance is 60. But in places were buying a house is $2m but renting the same one is $3k a month, it's hard to ever make the numbers work.
        BobaFloutist 2y ago
        >All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage. Where I live, what renting currently gets you is an enormous discount compared to the cost of a mortgage and the opportunity cost of parking your cash into a downpayment. Renting and investing downpayment level money is literally a better deal than buying a house. Why do I care if I'm "paying someone else's mortgage"? The interest payments to the bank aren't building me equity either! It's all money, going one way or another, equity is just more money, and sometimes buying a house means more money goes out than in compared to renting, even if it's more intuitively satisfying.
- bombcar 2y ago
  Because in the USA the deck is stacked so hard toward home ownership that it's completely batshit. Nothing else will let you take a government-protected 30 year fixed rate loan at rates barely above what the US government itself pays, that you can pay off anytime and cannot be called, leveraged to 80% or more. And then the loans are often non-recourse, and the asset protected in bankruptcy. https://johntreed.com/collections/real-estate-investment/products/an-american-principal-residence-is-the-most-advantaged-investment-on-earth-maximize-yours https://johntreed.com/collections/real-estate-investment/pro... has even more ways that the government is fighting hard to force you to accept leveraged appreciation.
- toast0 2y ago
  I don't necessarily agree with the advice, but I think there's a few reasons to consider it. A lot of people find their first house too small and buy a larger house later. IMHO, most people have an idea of how many children they'd like to have and some idea of when. I think the idea of the advice is not to buy a small house that fits your needs as a single person and wait until you have a family to buy a larger house that fits your needs as a family, but to just buy the big house? a) If you buy your first one big, maybe it will be big enough and you won't need to switch. That saves transaction costs, and keeps you price anchored to your first purchase. If your house is in a state with something like Prop 13 that effectively anchors property tax to purchase price, buying the final house earlier can save you a significant amount of property tax over the years. b) I think house prices rise faster on larger homes than smaller homes (especially condos and things). If that's the case, buying a right size house first then a new right size house later if your needs grow means you'll have a larger gap to cross over time. c) probably something about house prices always going up, it's implied in a lot of arguments (and it works except when it doesn't ...)
hollerith 2y ago
"Inflation isn't going away" is an argument against holding cash, but since salary increases have kept up with inflation, how is it an argument for "move from the worker class to the capital owning class"?
- no_wizard 2y ago
  >since salary increases have kept up with inflation, On the actual whole, they haven't. In the last few years, salary increases did for the time period of 2020-2023 (as far as I am aware that is what we have data for around this assertion) but generally they have not. IMO, a better measure is how well have salary increases kept up with gains in productivity, and when you look at that its truly abysmal.
  - hollerith 2y ago
    When an individual faces the choice on how much to depend on salary and how much on investment income, I don't see how productivity of labor has any relevance. For example, I might be a member of a guild that keeps my salary nice and high while having the negative effect of keeping the productivity of the guild constant, which would be bad for society, but good for me. Also, we are mostly software developers here, and dev salaries certainly have kept up with inflation.
    - no_wizard 2y ago
      >When an individual faces the choice on how much to depend on salary and how much on investment income, I don't see how productivity of labor has any relevance. I was saying this in reference to how much we get paid. As a reflection of value / worth. Compared to the value generated, our salaries are relatively small, and its hard to argue otherwise when you look at productivity gains. If you want to capture more of those gains, being invested in index funds is a good step in that direction. >Also, we are mostly software developers here, and dev salaries certainly have kept up with inflation. Even if this is true - and I don't know that it is so broadly true that it can be accepted as the median circumstance of HN users - that situation won't last forever, and more importantly salary is not controlled by you its controlled by another entity. The entire premise of the conversation is convert your salary - something you may depend on but isn't something you have sole control over - into things that you do have more control over (index funds) or effectively sole control over (real estate investments most commonly). This allows you to decouple your wealth from any single entity, which is the central goal.
no_wizard 2y ago
>Buy the biggest house you can reasonably afford You should really look at real estate one of two ways when buying. Either you're buying a home and you live there. Its unwise to treat that in the same vein as index funds. While its definitely an asset, the mindset of living vs investing in something isn't the same, and I recommend not conflating the two. On the other hand, if you buy real estate as an investment you should remove any thoughts about it being a living space for you and/or your family. At that point, it should be seen as something you'll rent out to others (primarily the best way I currently have found to turn a profit on investing in real estate) or doing more speculative house flipping ventures, home builds etc. I don't really think this blanket advice is the best advice. I do think its important to own your home - simply because of how society is structured, it heavily favors home owners, plus rent is simply lining someone else's pocket, where as eventually owning a home free and clear removes a major liability from you life. To simply buy the 'biggest you can reasonably afford' could land one in a bad place
- dowager_dan99 2y ago
  My theory: your primary residence should not be viewed as an investment, because you've got to live somewhere; if you sell it and cash out you need to turn around and find housing in what is a hot market, or move into a van down by the river. However, Millions of older, reliable voters own their home and it's the primary store of much of their wealth. Any government that impacts this will be out on the street asap. So your house is likely a good investment, but you can't think of it like other shorter-term, liquid investments.
  - no_wizard 2y ago
    This conundrum of generations having much of their wealth stored in their home is part of the real problem around housing in general. This is why we decided to rent out our properties after evaluating our situation and understanding that it made more sense to generate consistent profits off real estate in the form of rental income than incur all the liabilities of simply buying and living in one. I personally think it should be one or the other - you either are buying real estate as an investment vehicle (to flip, rent, speculatively build etc) or buying it to live in, but in which point you don't treat it as a primary store of wealth - but unfortunately home ownership in the US is structured that if you buy and live in a home, you inevitably end up with it being treated as both a store of wealth and a home in which you live, and you're constantly tugging between the two things which have very different considerations. I think a land value tax and liberal zoning laws would go a long way to fixing some of this, but is another discussion entirely
dowager_dan99 2y ago
Real Estate in Canada is interesting. We invest way more of our wealth in it than Americans, yet many can't afford to get started with their first purchase. Somehow the government needs to get more people into houses without destroying the nominal value (i.e. triggering big price decreases). I suspect they'll focus on supply and programs to help people pay the high list prices, but not try and control what a home costs directly. Inflation can then solve some of the real volume problem, but with a lot of knock-on impacts and also push it down the road. Tough scenario to try and address...
- no_wizard 2y ago
  >i.e. triggering big price decreases I think this would be fine if the government was willing to eat some cost of mortgage adjustments. The biggest problem with price decreases in what I believe to be in the way you mean - that existing home owners see their values drop - is one the mortgage is underwater you have an upside down situation for both the owner and the bank. One way to offset this is if the government eats the difference in some way. I don't exactly know how this would be structured, but if this were to be the case, I imagine it would go a long way to getting more people on board with housing reform. It shouldn't have ever been treated like a store of wealth to begin with. You're either the homeowner or the landlord, this middle path of being both your own homeowner and effectively treating it as a store of wealth - there by in a sense making you your own landlord if you will - is the problem.
wing-_-nuts 2y ago
>Buy the biggest house you can reasonably afford Strongly disagree with this. Buy the house you need, and only if you intend to stay there at least 5 years. On the one hand I acknowledge the US tax code and housing policy encourages home ownership, but on the other, you're completely discounting the utility costs, maintenance / reno drag, and transaction costs that come with owning more home than you need. While I was moving every year or so for new opportunities, I happily rented. When I moved to a local tech hub where I felt I could put down roots? I happily bought, but I only bought what I needed. I saw a lot of classmates buy a home prematurely, and effectively be 'stuck' looking for work in the same small job market their whole career, where moving really helped mine.
turtlemir 2y ago
I don't think you're wrong in your advice to build wealth, but the situation I see the working class in doesn't sit well with me. And building a society were the prime directive of life is buying property and stocks seems doomed. I see the situation as this: The middle and upper-middle class have become invested in a perpetuating a system that ultimately will strangle them or their descendants. Wealth begets wealth, power begets power. It might be a law of nature that things like to polarize. Likely we'll see a return of society consisting of two groups: rich and powerful, poor and powerless. Most older engineers I meet seem to associate with the mindset and politics of billionaires and multi-millionaires, and see themselves almost in the same club sometimes. I guess making a lot of money does that to people. Add to that the truth expressed by Steinbeck about the USA "The poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires." I think we have a problem where housing and stocks must continue to make return on investment. Housing prices must keep raising, hurting the next generation. Young people increasingly don't have the luxury of job stability to buy a home. Companies must keep increasing profit, leading to offshoring, outsourcing, stricter working conditions. And now middle class government jobs must be cut and privatized so that capitalists can make profit on providing a service. All the while the top percent owns and increasing share of the wealth pie. I felt I needed to reply because while what you are saying is the way things are, I wish it didn't have to be that way.
- amanaplanacanal 2y ago
  I totally agree with you! If we can work to change the game we should, I'm probably just being pessimistic as to our chances.

whitepoplar 2y ago

why "the biggest house you can reasonably afford"?

protonbob 2y ago
In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP.
- no_wizard 2y ago
  >In the US, the mortgage markets are propped up by the government and are basically subsidized as good investment vehicles. You can pretty much guarantee that governments aren't going to get their act together and make housing affordable (change zoning laws etc) so it makes sense to buy ASAP. I have some thoughts on this. Not because owning a home is a bad idea, but because you should really factor what you're buying and why. None of this is to say your premise is incorrect, but merely there should be more nuance when thinking about this. Buying a place you want to live in is fundamentally different than buying an investment vehicle. I currently rent an apartment, but also own multiple investment properties. Why? Because it makes more sense for my situation, where I myself may need to move more often and therefore some aspects of being in a home that isn't turning profit into my pocket are undesirable, where as buying a house where I am going to live has a very different set of checkboxes, namely between economic issues in the macro and personal health stuff where myself or my wife have to travel a bunch, we're regionally limited and have determined we may or may not want to live in our current metro long term. That said, I absolutely did buy one of the properties with the future intent of living there myself, I simply am delaying that to make money on the property rather than letting it sit empty. I'm easily a few years away from permanently moving into it myself, but in the advent I decide to live elsewhere long term than where I am right now, I at least have the income stream. and absolutely, the regulations (and there by, the law) favors home owners every time. Renters get screwed in this I even tell this to young renters who rent from me. You simply can't get a break on the ever growing rise of rent vs a fixed rate mortgage, but you gotta understand what you're buying and why, and don't conflate the difference between a home and an investment vehicle, as many people do.
  - bombcar 2y ago
    This is really good advice - the "your home is an investment" is realtor talk to get you to overspend. A house is a depreciating thing you can live in, and is expensive! Once you correctly account for ALL the expenses (not just mortgage, insurance, and property tax!) you discover that renting may be advantageous. But they do often go up in value over time (ignoring maintenance keeping them together) and sometimes beat inflation (especially when leveraged).
    - psunavy03 2y ago
      All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage. That way, when you retire, your nest egg can go further because you only have to pay the property taxes, and when you die, you can pass the value along to your heirs and build generational wealth. Houses are not index funds; ideally they should only appreciate at the rate of inflation. But they are absolutely long-term builders of generational wealth through the equity in the home. Heirs can sell them and then invest the proceeds, or live in them themselves without a mortgage.
      - bombcar 2y ago
        They can be great, but you need to really run the numbers and check the assumptions. Housing where it is "affordable" (read: median salary can afford a house) is a great way to get a leg up on the pile - though remember that the average age of a person RECEIVING and inheritance is 60. But in places were buying a house is $2m but renting the same one is $3k a month, it's hard to ever make the numbers work.
      - BobaFloutist 2y ago
        >All renting gets you is the "privilege" of paying someone else's mortgage. The entire point of homeownership is to build equity and pay off the mortgage. Where I live, what renting currently gets you is an enormous discount compared to the cost of a mortgage and the opportunity cost of parking your cash into a downpayment. Renting and investing downpayment level money is literally a better deal than buying a house. Why do I care if I'm "paying someone else's mortgage"? The interest payments to the bank aren't building me equity either! It's all money, going one way or another, equity is just more money, and sometimes buying a house means more money goes out than in compared to renting, even if it's more intuitively satisfying.
bombcar 2y ago
Because in the USA the deck is stacked so hard toward home ownership that it's completely batshit. Nothing else will let you take a government-protected 30 year fixed rate loan at rates barely above what the US government itself pays, that you can pay off anytime and cannot be called, leveraged to 80% or more. And then the loans are often non-recourse, and the asset protected in bankruptcy. https://johntreed.com/collections/real-estate-investment/products/an-american-principal-residence-is-the-most-advantaged-investment-on-earth-maximize-yours https://johntreed.com/collections/real-estate-investment/pro... has even more ways that the government is fighting hard to force you to accept leveraged appreciation.
toast0 2y ago
I don't necessarily agree with the advice, but I think there's a few reasons to consider it. A lot of people find their first house too small and buy a larger house later. IMHO, most people have an idea of how many children they'd like to have and some idea of when. I think the idea of the advice is not to buy a small house that fits your needs as a single person and wait until you have a family to buy a larger house that fits your needs as a family, but to just buy the big house? a) If you buy your first one big, maybe it will be big enough and you won't need to switch. That saves transaction costs, and keeps you price anchored to your first purchase. If your house is in a state with something like Prop 13 that effectively anchors property tax to purchase price, buying the final house earlier can save you a significant amount of property tax over the years. b) I think house prices rise faster on larger homes than smaller homes (especially condos and things). If that's the case, buying a right size house first then a new right size house later if your needs grow means you'll have a larger gap to cross over time. c) probably something about house prices always going up, it's implied in a lot of arguments (and it works except when it doesn't ...)

hollerith 2y ago

"Inflation isn't going away" is an argument against holding cash, but since salary increases have kept up with inflation, how is it an argument for "move from the worker class to the capital owning class"?

no_wizard 2y ago
>since salary increases have kept up with inflation, On the actual whole, they haven't. In the last few years, salary increases did for the time period of 2020-2023 (as far as I am aware that is what we have data for around this assertion) but generally they have not. IMO, a better measure is how well have salary increases kept up with gains in productivity, and when you look at that its truly abysmal.
- hollerith 2y ago
  When an individual faces the choice on how much to depend on salary and how much on investment income, I don't see how productivity of labor has any relevance. For example, I might be a member of a guild that keeps my salary nice and high while having the negative effect of keeping the productivity of the guild constant, which would be bad for society, but good for me. Also, we are mostly software developers here, and dev salaries certainly have kept up with inflation.
  - no_wizard 2y ago
    >When an individual faces the choice on how much to depend on salary and how much on investment income, I don't see how productivity of labor has any relevance. I was saying this in reference to how much we get paid. As a reflection of value / worth. Compared to the value generated, our salaries are relatively small, and its hard to argue otherwise when you look at productivity gains. If you want to capture more of those gains, being invested in index funds is a good step in that direction. >Also, we are mostly software developers here, and dev salaries certainly have kept up with inflation. Even if this is true - and I don't know that it is so broadly true that it can be accepted as the median circumstance of HN users - that situation won't last forever, and more importantly salary is not controlled by you its controlled by another entity. The entire premise of the conversation is convert your salary - something you may depend on but isn't something you have sole control over - into things that you do have more control over (index funds) or effectively sole control over (real estate investments most commonly). This allows you to decouple your wealth from any single entity, which is the central goal.

no_wizard 2y ago

>Buy the biggest house you can reasonably afford You should really look at real estate one of two ways when buying. Either you're buying a home and you live there. Its unwise to treat that in the same vein as index funds. While its definitely an asset, the mindset of living vs investing in something isn't the same, and I recommend not conflating the two. On the other hand, if you buy real estate as an investment you should remove any thoughts about it being a living space for you and/or your family. At that point, it should be seen as something you'll rent out to others (primarily the best way I currently have found to turn a profit on investing in real estate) or doing more speculative house flipping ventures, home builds etc. I don't really think this blanket advice is the best advice. I do think its important to own your home - simply because of how society is structured, it heavily favors home owners, plus rent is simply lining someone else's pocket, where as eventually owning a home free and clear removes a major liability from you life. To simply buy the 'biggest you can reasonably afford' could land one in a bad place

dowager_dan99 2y ago
My theory: your primary residence should not be viewed as an investment, because you've got to live somewhere; if you sell it and cash out you need to turn around and find housing in what is a hot market, or move into a van down by the river. However, Millions of older, reliable voters own their home and it's the primary store of much of their wealth. Any government that impacts this will be out on the street asap. So your house is likely a good investment, but you can't think of it like other shorter-term, liquid investments.
- no_wizard 2y ago
  This conundrum of generations having much of their wealth stored in their home is part of the real problem around housing in general. This is why we decided to rent out our properties after evaluating our situation and understanding that it made more sense to generate consistent profits off real estate in the form of rental income than incur all the liabilities of simply buying and living in one. I personally think it should be one or the other - you either are buying real estate as an investment vehicle (to flip, rent, speculatively build etc) or buying it to live in, but in which point you don't treat it as a primary store of wealth - but unfortunately home ownership in the US is structured that if you buy and live in a home, you inevitably end up with it being treated as both a store of wealth and a home in which you live, and you're constantly tugging between the two things which have very different considerations. I think a land value tax and liberal zoning laws would go a long way to fixing some of this, but is another discussion entirely

dowager_dan99 2y ago

Real Estate in Canada is interesting. We invest way more of our wealth in it than Americans, yet many can't afford to get started with their first purchase. Somehow the government needs to get more people into houses without destroying the nominal value (i.e. triggering big price decreases). I suspect they'll focus on supply and programs to help people pay the high list prices, but not try and control what a home costs directly. Inflation can then solve some of the real volume problem, but with a lot of knock-on impacts and also push it down the road. Tough scenario to try and address...

no_wizard 2y ago
>i.e. triggering big price decreases I think this would be fine if the government was willing to eat some cost of mortgage adjustments. The biggest problem with price decreases in what I believe to be in the way you mean - that existing home owners see their values drop - is one the mortgage is underwater you have an upside down situation for both the owner and the bank. One way to offset this is if the government eats the difference in some way. I don't exactly know how this would be structured, but if this were to be the case, I imagine it would go a long way to getting more people on board with housing reform. It shouldn't have ever been treated like a store of wealth to begin with. You're either the homeowner or the landlord, this middle path of being both your own homeowner and effectively treating it as a store of wealth - there by in a sense making you your own landlord if you will - is the problem.

wing-_-nuts 2y ago

>Buy the biggest house you can reasonably afford Strongly disagree with this. Buy the house you need, and only if you intend to stay there at least 5 years. On the one hand I acknowledge the US tax code and housing policy encourages home ownership, but on the other, you're completely discounting the utility costs, maintenance / reno drag, and transaction costs that come with owning more home than you need. While I was moving every year or so for new opportunities, I happily rented. When I moved to a local tech hub where I felt I could put down roots? I happily bought, but I only bought what I needed. I saw a lot of classmates buy a home prematurely, and effectively be 'stuck' looking for work in the same small job market their whole career, where moving really helped mine.

turtlemir 2y ago

I don't think you're wrong in your advice to build wealth, but the situation I see the working class in doesn't sit well with me. And building a society were the prime directive of life is buying property and stocks seems doomed. I see the situation as this: The middle and upper-middle class have become invested in a perpetuating a system that ultimately will strangle them or their descendants. Wealth begets wealth, power begets power. It might be a law of nature that things like to polarize. Likely we'll see a return of society consisting of two groups: rich and powerful, poor and powerless. Most older engineers I meet seem to associate with the mindset and politics of billionaires and multi-millionaires, and see themselves almost in the same club sometimes. I guess making a lot of money does that to people. Add to that the truth expressed by Steinbeck about the USA "The poor see themselves not as an exploited proletariat but as temporarily embarrassed millionaires." I think we have a problem where housing and stocks must continue to make return on investment. Housing prices must keep raising, hurting the next generation. Young people increasingly don't have the luxury of job stability to buy a home. Companies must keep increasing profit, leading to offshoring, outsourcing, stricter working conditions. And now middle class government jobs must be cut and privatized so that capitalists can make profit on providing a service. All the while the top percent owns and increasing share of the wealth pie. I felt I needed to reply because while what you are saying is the way things are, I wish it didn't have to be that way.

amanaplanacanal 2y ago
I totally agree with you! If we can work to change the game we should, I'm probably just being pessimistic as to our chances.