The Great Pensions Crisis - Channel 5

GunJack

Deleted_User wrote: »

Does not matter. You have X pounds. Or borrow X pounds. The question is: buy a house with X or rent and invest X in a diversified portfolio of stocks and bonds. The latter has better long term return and less risk than a highly concentrated bet on a single property, which by the way requires upkeep.

When comparing the cost of buying vs renting the latter is cheaper when the cost of lost opportunity is accounted for. May still make sense to buy a house, but it’s spending on convenience and freedom to make changes as opposed to “wise investment”.

Let's face it, the only way most of Joe Public could borrow a sgnificant sum of money is via a mortgage, which pretty much means buying a house!! Think you're being somewhat unrealistic....

[Deleted User]

GunJack wrote: »

Let's face it, the only way most of Joe Public could borrow a sgnificant sum of money is via a mortgage, which pretty much means buying a house!! Think you're being somewhat unrealistic....

My broker allows me to borrow on margin at an interest rate which is lower than for mortgages. If I can do it, why can’t Joe?

Besides, many people put a lot of non-borrowed cash into the house.

nigelbb

Deleted_User wrote: »

My broker allows me to borrow on margin at an interest rate which is lower than for mortgages. If I can do it, why can’t Joe?

Can you provide details of your lender who offers large unsecured loans at minimal interest rates so you can gamble on the stock market?

nigelbb

Deleted_User wrote: »

Does not matter. You have X pounds. Or borrow X pounds. The question is: buy a house with X or rent and invest X in a diversified portfolio of stocks and bonds. The latter has better long term return and less risk than a highly concentrated bet on a single property, which by the way requires upkeep.

When comparing the cost of buying vs renting the latter is cheaper when the cost of lost opportunity is accounted for. May still make sense to buy a house, but it’s spending on convenience and freedom to make changes as opposed to “wise investment”.

This is financial illiteracy. You are forgetting that you need somewhere to live & the cost of renting is similar to the the cost of a mortgage for that same property. Most people don’t have X pounds as a lump sum to invest. They have an income & the largest call on that income is housing costs which are similar for renting or buying but if you rent the money is lost whereas buying gives you an asset plus after 25 years you have free accommodation.

[Deleted User]

nigelbb wrote: »

Can you provide details of your lender who offers large unsecured loans at minimal interest rates so you can gamble on the stock market?

1. https://www.interactivebrokers.co.uk/en/index.php?f=44427&wid=309231081

2. When you say “unsecured loans”... that IS financial illiteracy. That’s not how margin accounts work. Read up how this works then argue, ok?

3. Actually, investing long term in a diversified portfolio of stocks and bonds isn’t how I define “gambling”.

4. Now... Leveraging yourself to the tilt via a mortgage and putting all of your net worth into a single asset which could go down as well as up really is a gamble.

[Deleted User]

nigelbb wrote: »

This is financial illiteracy. You are forgetting that you need somewhere to live & the cost of renting is similar to the the cost of a mortgage for that same property. Most people don’t have X pounds as a lump sum to invest. They have an income & the largest call on that income is housing costs which are similar for renting or buying but if you rent the money is lost whereas buying gives you an asset plus after 25 years you have free accommodation.

The claim that “most people have nothing” has no basis. When people start they have nothing but only those who don’t save and invest end up with nothing. Most adults have positive net worth. And if you really have nothing then buying a house isn’t an option.

Here. Another financially ignorant source did a quick calculation for you. https://www.ft.com/content/fb439d36-28cd-11e6-8b18-91555f2f4fde

Triumph13

I do find it surprising how many people still take 'buying is better than renting' as an article of faith. Everything depends upon the local housing market. There are definitely still some types of houses in some places where buying is a clear win - particularly if you are prepared to put some work in to renovate a property yourself. These are the places where BTL landlords can still do well. There are other houses / areas where the sums do not work and you would be lucky as a landlord if the rent would cover the interest payments on a mortgage let alone the capital repayments too - particularly if interest rates go up in the future. In these cases renting instead of paying mortgage interest, whilst investing in S&S rather than paying off capital, could easily be a more attractive option. The important thing is to make sure you do actually make those investments. If you do then, hopefully, after 25 years, when your neighbour finishes paying their mortgage and brags about living 'rent free' you have a portfolio throwing off more than enough income to cover your rent.
Both approaches carry elements of risk, but neither is obviously more risky than the other. The important thing is to do your research and look at the numbers carefully rather than relying on 'My Grandad always said X so it must be true'.

Brilley

Deleted_User wrote: »

1. https://www.interactivebrokers.co.uk/en/index.php?f=44427&wid=309231081

"Margin borrowing is only for sophisticated investors with high risk tolerance.
You may lose more than your initial investment."


...I would not consider this a realistic alternative over getting a mortgage for the vast majority in the UK, and you will never in the world of pigs pud convince me that "renting" in the UK is a lower cost option to buying over a lifetime....fantasy..

[Deleted User]

Brilley wrote: »

"Margin borrowing is only for sophisticated investors with high risk tolerance.
You may lose more than your initial investment."


...I would not consider this a realistic alternative over getting a mortgage for the vast majority in the UK, and you will never in the world of pigs pud convince me that "renting" in the UK is a lower cost option to buying over a lifetime....fantasy..

You also may lose more than your initial investment if you take out a mortgage and the price of house goes down. Some will remember that it can and does happen in the UK.

Generally, it makes a lot of sense to borrow and invest early on in your career. As we get older we can no longer sustain short term volatility to the same extent so should repay the debt and introduce fixed income.

The philosophy is explained here but note that the book is for adults https://www.amazon.com/Rational-Expectations-Allocation-Investing-Adults/dp/0988780321

Look, I have a house. Own outright. I can afford it; less than 1/3 of my net worth. And I have done very well over the years with both house prices and investments, as many did in my generation. I just believe that there was a much stronger elfement of luck with my houses increasing in value. It’s a single undiversified asset, which can be devastated not just by the housing market in general but also by a particular location becoming less popular or your neighbour being an a-hole.

Go to Newcastle, take a look at all the houses worth zero pounds. People who bought at the time paid good money for them. That’s a permanent loss of capital. Losses can and do happen in the stock market, but someone holding a diversified portfolio always recovers and it does not take all that long.

Linton

I find some contributions to this discussion rather bizarre:



1) Is the theory being proposed that someone in their 70s or 80s should voluntarily choose to rent with pretty limited security of tenure at a time when their ability to cope with the hassle and stress of finding and moving into new accommodation is much reduced?


2) People seem to have forgotten that they wont be able to take their extra wealth with them. Surely the objective of personal financial management is to optimise the benefit (in its broadest sense) one gets from the money at one's disposal. This as an objective requires coordinated acquisition and disposition plans. One is pointless without the other.


With these considerations in mind it makes sense to me to own a house of the highest quality and best location according to one's personal criteria that one can afford without unduly sacrificing other demands on one's assets. It also makes sense to minimise one's equity in that house. Dying leaving £n00K inaccessible seems an awful waste, unless bequests are seen as more important than directly using the money oneself. So some form of lifetime mortgage with roll-up in ones later years looks very attractive to me.