GDP and Debt

#51
#51
allvol123 said:
How much do you borrow from the bank every year to use for investing?
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Considering that banks usually don't offer large unsecured loans, not much. I was given the opportunity to borrow $25,000 at 3.25% (pre-commissioning Army loan) my senior year of college. I invested it and have averaged a return of 10% every year. So, yes, I practice what I preach.

Most people in America do not have a chance to borrow any more than 5,000 in unsecured loans, and most of the time the interest rate is going to be up around 8%. There is not much of an incentive for taking that loan and investing it. The risk:reward dynamic is too risky. When it comes to using secured loans to buy cars and houses, whether I have the liquid assets available or not, I take a lower than 5% APR.
 
#52
#52
therealUT said:
Considering that banks usually don't offer large unsecured loans, not much. I was given the opportunity to borrow $25,000 at 3.25% (pre-commissioning Army loan) my senior year of college. I invested it and have averaged a return of 10% every year. So, yes, I practice what I preach.

Most people in America do not have a chance to borrow any more than 5,000 in unsecured loans, and most of the time the interest rate is going to be up around 8%. There is not much of an incentive for taking that loan and investing it. The risk:reward dynamic is too risky. When it comes to using secured loans to buy cars and houses, whether I have the liquid assets available or not, I take a lower than 5% APR.
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OK
But I still do not agree with your assessment that it is brainless to pay a house off early. It all depends on what the person values and is willing to set their risk level at.
 
#53
#53
allvol123 said:
OK
But I still do not agree with your assessment that it is brainless to pay a house off early. It all depends on what the person values and is willing to set their risk level at.
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Yes, but until you actually shell out an extra $500-1,000 to sit down with a financial advisor who can run all kinds of numbers and simulate multiple scenarios, you cannot accurately define the risk. That $1,000 and two hours spent with that advisor could mean the difference of hundreds of thousands of dollars. However, because the word 'debt' has become so stigmatized in our society, people automatically believe that paying off everything they owe as soon as is possible is the financially savvy decision.
 
#54
#54
Here's an example of debt as leverage:

Since ``leverage'' is so often used as a synonym for debt, let's review how debt leverage works in a common financial transaction--buying a house. Suppose you want to buy a house as an investment, and that the house costs $100,000 (this is a hypothetical example, after all), and you can expect to get about $600 per month in rent from the house. Suppose you were fortunate enough to have the full $100,000 in savings and bought the house for cash. If you sold the house one year later for $110,000, you would have realised a total before-tax gain of $17,200 on your investment, the $10,000 appreciation in the value of the property, plus 12 months of rent at $600 per month. Dividing the proceeds by the investment, you would have realised a yield of 17.2% on your $100,000 capital.

Most people don't have $100,000 in the bank and even if they did, they wouldn't want to tie it up in one investment. Suppose, instead, you bought the house by making a $20,000 down payment and borrowed the balance of the purchase price, $80,000, by taking out a mortgage secured by the house. If mortgage rates were 12%, you'd be making payments of about $800 a month, but since those interest payments are tax-deductible you'd be able to cover them from the rental income. When you sold the house at the end of the year for $110,000, you'd end up with a gain of $10,000 (assuming the rent just covered the loan payments), or a gain of 50% on your investment of $20,000. If you'd had $100,000 with which to play the market, you could have bought five houses this way and wound up the year with a gain of $50,000 compared to the non-leveraged gain of $17,200.
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#55
#55
Considering most people are owing college loans and credit cards, I'd say that is why your negative definition of debt is so prevalent.
 
#56
#56
#57
#57
volinbham said:
Here's an example of debt as leverage:
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Good investment scenario. But what happpens when the guy that does this loses his job and his wife gets cancer and he has blown the only 20,000 he had on this idea. If he can't make the mortgage payment because the renters left and the market sucks and he can't find someone to rent the home. Then what, he blew the 20,000 he had in the bank on this? Not faulting your math but there is risk involved in these transactions, the greater the reward the greater the risk. It's a personal decision.
 
#58
#58
therealUT said:
Well, the interest rates on school loans is usaually quite low, so they usually fall into the category of good debt. However, on the issue of credit cards, I mentioned it here:
http://www.volnation.com/forum/politics/20520-gdp-debt-2.html?highlight=credit#post445860
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I still don't view it as good debt. College tuition at a public institution is relatively cheap. A person can work and go to school at the same time, it is not impossible. It depends on what they value more, is giving up personal time from partying or socializing so you can work and pay for school now worth more to you, or would you prefer to have more free time and pay for borrowing the money down the road.
 
#59
#59
allvol123 said:
Good investment scenario. But what happpens when the guy that does this loses his job and his wife gets cancer and he has blown the only 20,000 he had on this idea. If he can't make the mortgage payment because the renters left and the market sucks and he can't find someone to rent the home. Then what, he blew the 20,000 he had in the bank on this? Not faulting your math but there is risk involved in these transactions, the greater the reward the greater the risk. It's a personal decision.
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Absolutely it's a personal decision - just trying to clarify the concept of debt and it's use as leverage in reference to a country having a national debt.
 
#60
#60
The point was added together you have a debt burden. When you have more bills than income, in the event of a layoff, etc., it doesn't matter if the interest rate is low or not.
 
#61
#61
Trying to justify a country spending more then it takes in is ridiculous. I'm sure any of these other countries are not content with the fact that they have a larger GDP/debt ratio then the U.S.

But what you fail to note is, the majority of these countries are several hundred years older then the U.S. The U.S. has accumulated this huge debt largely in 1 generation.
 
#62
#62
oklavol said:
Trying to justify a country spending more then it takes in is ridiculous. I'm sure any of these other countries are not content with the fact that they have a larger GDP/debt ratio then the U.S.

But what you fail to note is, the majority of these countries are several hundred years older then the U.S. The U.S. has accumulated this huge debt largely in 1 generation.
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Spending more than you take in is a deficit. Debt is the result of accumulated deficits.

As to age, we have also grown much more rapidly than any of these countries.
 
#63
#63
allvol123 said:
I still don't view it as good debt. College tuition at a public institution is relatively cheap. A person can work and go to school at the same time, it is not impossible. It depends on what they value more, is giving up personal time from partying or socializing so you can work and pay for school now worth more to you, or would you prefer to have more free time and pay for borrowing the money down the road.
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The average credit load for a college students is 15 hours. Each professor stresses the point that to get an A in their respective class, the student should spend 3 hours studying outside of class for each hour in class. That is 45 hours right there, to get a 4.0. The partying, socialization, and I will add working out, are very important to not just college students, but to humans. College tuition is not 'relatively cheap.' The UT Bursar's office estimates that a year at college costs over $17,000 (in state) just for necessities (tuition, books, room and board, and transportation.) There are some college students who can make it through school, earn a 4.0 and work 35 hours a week. Most, however, cannot. I would say that graduating with above a 3.5 and school loans is better, in the financial long run, than graduating with a 2.7 and debt free.
 
#64
#64
CSpindizzy said:
The point was added together you have a debt burden. When you have more bills than income, in the event of a layoff, etc., it doesn't matter if the interest rate is low or not.
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Invest in insurance along the way, including unemployment insurance. Also, try not to get laid off...
 
#65
#65
There are tens of thousands of Americans who try not to get laid off. Not much most of these people can do about that.
 
#66
#66
oklavol said:
Trying to justify a country spending more then it takes in is ridiculous. I'm sure any of these other countries are not content with the fact that they have a larger GDP/debt ratio then the U.S.

But what you fail to note is, the majority of these countries are several hundred years older then the U.S. The U.S. has accumulated this huge debt largely in 1 generation.
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It is not exactly a huge debt. It is 71% of our GDP. Also, the age of the countries does not matter.
 
#67
#67
CSpindizzy said:
There are tens of thousands of Americans who try not to get laid off. Not much most of these people can do about that.
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I will have to disagree with you here. If you make yourself an asset to your company, then you will not get laid off. Unfortunately, many people think that a 40 hour work week is the most that they have to work. The people that progress and are promoted within companies, put in much more than 40 hours a week.
 
#68
#68
therealUT said:
The average credit load for a college students is 15 hours. Each professor stresses the point that to get an A in their respective class, the student should spend 3 hours studying outside of class for each hour in class. That is 45 hours right there, to get a 4.0. The partying, socialization, and I will add working out, are very important to not just college students, but to humans. College tuition is not 'relatively cheap.' The UT Bursar's office estimates that a year at college costs over $17,000 (in state) just for necessities (tuition, books, room and board, and transportation.) There are some college students who can make it through school, earn a 4.0 and work 35 hours a week. Most, however, cannot. I would say that graduating with above a 3.5 and school loans is better, in the financial long run, than graduating with a 2.7 and debt free.
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You make some wild assertations to make your point here. I did not miss out on anything in college and my grades were fine. You are like a robot? Professor says I need to spend 3.0 hours per 1.0 class hour, doot doot dit doo. Get real, if a person can't earn enough to put themsleves through school, it is a personal choice, not because they couldn't as you suggest. A person can have a place to live, materials to learn by, and an opportunity for an education for $17,000 a year. I call that relatively cheap.
 
#69
#69
allvol123 said:
You make some wild assertations to make your point here. I did not miss out on anything in college and my grades were fine. You are like a robot? Professor says I need to spend 3.0 hours per 1.0 class hour, doot doot dit doo. Get real, if a person can't earn enough to put themsleves through school, it is a personal choice, not because they couldn't as you suggest. A person can have a place to live, materials to learn by, and an opportunity for an education for $17,000 a year. I call that relatively cheap.
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I made absolutely no wild assertions. I started out in engineering and changed my major to accounting. Believe me, to get a 3.5 or greater in accounting, you need to put in 45 hours or more. My education was paid for by the Army, however, most of my friends in the accounting program worked about 3 nights a week, enough for spending money, and used school loans to pay for college. After taking internships over the summer with places such as PwC, E&Y, KPMG, etc. they took jobs upon graduation with these places, as well as NY Life, Met Life, CTX Mortgage, and were making six figures by their second year on the job...my best man making over $500,000 his first year out working for a large hedgefund in Boston. They got these jobs because they were able to maintain 3.8s and 3.9s in a very tough curriculum. Most of them still have not completely paid off their school loans, even though they have enough cash to pay them off five times over. So, I am glad that you made it through and worked to pay for your school, however, I would advise those who want to live very comfortably after college to go ahead and take the school loans to free up time to focus on grades.
 
#70
#70
therealUT said:
I made absolutely no wild assertions. I started out in engineering and changed my major to accounting. Believe me, to get a 3.5 or greater in accounting, you need to put in 45 hours or more. My education was paid for by the Army, however, most of my friends in the accounting program worked about 3 nights a week, enough for spending money, and used school loans to pay for college. After taking internships over the summer with places such as PwC, E&Y, KPMG, etc. they took jobs upon graduation with these places, as well as NY Life, Met Life, CTX Mortgage, and were making six figures by their second year on the job...my best man making over $500,000 his first year out working for a large hedgefund in Boston. They got these jobs because they were able to maintain 3.8s and 3.9s in a very tough curriculum. Most of them still have not completely paid off their school loans, even though they have enough cash to pay them off five times over. So, I am glad that you made it through and worked to pay for your school, however, I would advise those who want to live very comfortably after college to go ahead and take the school loans to free up time to focus on grades.
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So the two ideas are mutually exclusive to you. A person cannot pay school current and then get a good paying job after school and live comfortably? I know all about accounting majors, my roommate was one. I am living quite comfortably after graduation and I did not use your theory. Also, considering most 18 year olds don't roll out of bed the day after HS graduation and think they should go to college, it can be said they have 2 years before college to start saving for college. I can guarantee no one had more fun than I did in college.
 
#71
#71
allvol123 said:
So the two ideas are mutually exclusive to you. A person cannot pay school current and then get a good paying job after school and live comfortably? I know all about accounting majors, my roommate was one. I am living quite comfortably after graduation and I did not use your theory. Also, considering most 18 year olds don't roll out of bed the day after HS graduation and think they should go to college, it can be said they have 2 years before college to start saving for college. I can guarantee no one had more fun than I did in college.
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Most college freshman enrolled in the fall semester, graduated high school the previous spring...

Yes, for the average college student, the two ideas are mutually exclusive. You can provide me with ample anecdotal evidence stating that you are so industrious that you partied, worked enough to earn $17,000, took advantage of networking opportunities such as academic fraternities and corporate internships, and graduated with a 4.0 GPA. Congratulations! However, the average college student is going to have a difficult time making all of that work. Therefore, it is better for them to take the school loan. Also, if you were able to make $17,000/year while attending college, it still would have been more financially wise of you to take the loan and invest your $17,000! I hope I do not have to run the numbers, again, for you to see that. I also understand that risk is something that you apparently avoid at all costs. There are people out there who are willing to incur a certain amount of risk at the possibility of something better! You can probably thank one of these people for the life you have today. For, they are the ones who fathered America, built companies, provided the capital for people with ideas, settled the west, etc., etc.!
 
#72
#72
therealUT said:
Most college freshman enrolled in the fall semester, graduated high school the previous spring...

Yes, for the average college student, the two ideas are mutually exclusive. You can provide me with ample anecdotal evidence stating that you are so industrious that you partied, worked enough to earn $17,000, took advantage of networking opportunities such as academic fraternities and corporate internships, and graduated with a 4.0 GPA. Congratulations! However, the average college student is going to have a difficult time making all of that work. Therefore, it is better for them to take the school loan. Also, if you were able to make $17,000/year while attending college, it still would have been more financially wise of you to take the loan and invest your $17,000! I hope I do not have to run the numbers, again, for you to see that. I also understand that risk is something that you apparently avoid at all costs. There are people out there who are willing to incur a certain amount of risk at the possibility of something better! You can probably thank one of these people for the life you have today. For, they are the ones who fathered America, built companies, provided the capital for people with ideas, settled the west, etc., etc.!
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You seem to think that these so called average students are going to explode at some point with greatness. You keep using the term average and average. If they are so average I would not expect that much from them.
 
#73
#73
allvol123 said:
You seem to think that these so called average students are going to explode at some point with greatness. You keep using the term average and average. If they are so average I would not expect that much from them.
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Well, the average freshman at UT scored a 26.1 on the ACT and graduated high school with a 3.6 GPA. Give these kids the opportunity to focus on their studies and I would expect good results.
 
#74
#74
therealUT said:
Well, the average freshman at UT scored a 26.1 on the ACT and graduated high school with a 3.6 GPA. Give these kids the opportunity to focus on their studies and I would expect good results.
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These great students should be more than agile enough to accomplish more than one thing at a time. To say that a kid can't pay his way through school wthout borrowing, maintain good grades, enjoy college and be extremely successful after college is absolutely absurd.
 
#75
#75
therealUT said:
It is not exactly a huge debt. It is 71% of our GDP. Also, the age of the countries does not matter.
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The amount of money the U.S. has to borrow to pay the interest on the debt is staggering, and could be put to much better use. This is a growing problem.
 
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