Insight that must not be ignored!

[Richhamleigh, DC]

I'm up to my neck in student loans; no way that's going to be eliminated any time soon, plus I'm still racking up as I am in grad school (and have more schooling to go). I guess I'm screwed.

I thought about "dumping" my student loans until my brother - a V. President at TD Waterhouse - told me to save $ but continue to pay the minimum on the student loans. His logic: it's government-backed debt and you can "defer" easily if run into rough waters (unemployment, illness, etc.). Otherwise, get out of debt and make yourself a nice little nest. We've just sold our Raleigh house, are renting now, and socking away the "profit" in a high-interest account. Our next house will be more modest and with some land to ensure we have a food source in the form of a big garden and maybe some livestock! There's a good book out there: "American Theocracy" that goes into a lot of detail what A2 has pointed out. It's an easy read and filled with really good information. A2 is right, if you can, commodities and foreign currency may be the way to go. I wish I knew how to buy Euros!

[Charlotte_native]

One thing that is of interest is the potnetial for Rentals. I could easily see developers seeking out apartment towers as an option since ownership might fade in the next few years.

A2

Interesting you mention this. I asked one of the sales folks at The Avenue how they were able to start prior to having any sales at all. They claim the reason is they don't do mostly higher priced and penthouse units in thier buildings. If the economy went to hell, their buildings once complete can be used as apartments or some units as rentals.

[dimebag1980]

That is a good point about the election. Maybe I will roll the dice with the stock market until about mid-October.

Just for the record I have $0 debt. No credit card balance, no revolving loans, no car payment, no mortgate. (place is paid for)

Just curious, but do you have any credit history at all? How does one have absolutely no debt? These days I didn't think that was possible.

[monsoon]

Just curious, but do you have any credit history at all? How does one have absolutely no debt? These days I didn't think that was possible.

Well, yes I do, but I just don't use it. Last time I checked through one of the freebies, the lady said I had one of the highest credit scores that she had ever seen. If you own your car and house outright and have a job, that goes a very long way to giving you a high score.

I use my credit cards as a convenience item, but I always pay off the balance when it comes in. I probably haven't paid any CC finance charges in 15 years or so.

[orulz]

Just curious, but do you have any credit history at all? How does one have absolutely no debt? These days I didn't think that was possible.

Why should that be impossible? That's a commonly held notion, but it's an absolute fallacy, and it's causing this nation to completely drown itself in debt. Just because almost everybody has debt, doesn't mean that's the way it has to be.

I have no debt either, although I don't own my place. I'm saving up money so that when I do buy, I can make a big down payment and have a 10-year mortgage. On a 30 or 40 year mortgage with no down payment, did you know that you can wind up paying twice the value of your home in interest alone?? People cry "Build equity! blah, blah, blah," even if it means you take up a half-century mortgage. But when you're making payments for such a long time, you're being drained for more money than you're ever going to build up equity wise. The same thing goes for credit cards, car payments, student loans, etc. You'd be amazed how much further your income can go when you're not wasting it all on interest.

For example, monsoon doesn't mean that he has no bills to pay or no credit card balance on his statement every month. But by paying off all of his bills every month he pays no interest, and it doesn't really count as debt.

Oh, and when you're not borrowing money all the time, having a huge and recent credit history is hardly important at all.

[monsoon]

Yes that is one of the tricks. When we bought this place we went under the stipulation that we would not get a place that we couldn't handle with a 15 year mortgage, and we managed to pay that off in less than 10. This is by far one of the smallest houses in my neighborhood and we look at some or our neighbors that are 80% financed with another 20% in home equity mortgages and simply can't imagine living like that.

[ElricSeven]

Yes that is one of the tricks. When we bought this place we went under the stipulation that we would not get a place that we couldn't handle with a 15 year mortgage, and we managed to pay that off in less than 10. This is by far one of the smallest houses in my neighborhood and we look at some or our neighbors that are 80% financed with another 20% in home equity mortgages and simply can't imagine living like that.

Depending upon your income level, though, the tax deduction is a very powerful incentive. Say you're in the top tax bracket and you pay 6% on a 30 year mortgage, you'll get 2% of that 6% back (approximately) on your taxes. Given that property prices have very reliably risen about 5% or more per year around here, that's a great investment. You're arbitrage on it is 1% or more on a very large amount. Also, take all that money you'd tie up in your house and put it in a very well-diversified index fund from Vanguard and you'll probably collect 8% to 9% a year with minimal tax liability. Running the numbers then, you'll outstrip just having the equity in the house by almost twice the percentage year-over-year gain. This can have an astounding effect on your personal wealth over the 30 year mortgage period.

One note, however, is don't use the mortgage as an excuse to buy too much house and not invest the money you'd otherwise use to pay down the mortgage. Then you just shot yourself in the foot. This latter thing takes an enormous amount of discipline and understanding of what is working in your favor. Most people that uber-disciplined can't sleep at night with any mortgage and it seems to risky too them. On the other hand, those whom debt does not weigh upon end up borrowing too much.

[dimebag1980]

Why should that be impossible? That's a commonly held notion, but it's an absolute fallacy, and it's causing this nation to completely drown itself in debt. Just because almost everybody has debt, doesn't mean that's the way it has to be.

I have no debt either, although I don't own my place. I'm saving up money so that when I do buy, I can make a big down payment and have a 10-year mortgage. On a 30 or 40 year mortgage with no down payment, did you know that you can wind up paying twice the value of your home in interest alone?? People cry "Build equity! blah, blah, blah," even if it means you take up a half-century mortgage. But when you're making payments for such a long time, you're being drained for more money than you're ever going to build up equity wise. The same thing goes for credit cards, car payments, student loans, etc. You'd be amazed how much further your income can go when you're not wasting it all on interest.

For example, monsoon doesn't mean that he has no bills to pay or no credit card balance on his statement every month. But by paying off all of his bills every month he pays no interest, and it doesn't really count as debt.

Oh, and when you're not borrowing money all the time, having a huge and recent credit history is hardly important at all.

Don't take it the wrong way... I never said there was anything wrong with it, but rather I didn't realize it was possible these days with credit being so important to almost everything. The funny thing is, you have to have credit to get credit. Of all the times I was declined for credit early on, it was because I had "insufficient credit history." I found myself thinking, "this is unbelievable... where do you start then!?"

I will admit to, over the last 3 years (since getting married,) becoming one of those typical Americans with a mounting debt-to-income ratio. It's gotten worse, but it's still not as bad as most Americans. Still, my credit score is in the upper 700s where I intend to keep it. It's just too easy, these days, to see an item you either want or need and say "let's just buy that with credit! $100/month isn't that bad!" But with the interest rates, that mere $100/month can put you behind quickly.

I purchased a home last year for $130,000 (5.25% interest, not too bad) with no money down, on a 30-year loan. However I'm able to doube-up on my payments most months, so I am in fact building equity. I'm fortunate enough to be able to do that, because not everyone can. If I were in any other financial situation, I would have saved money out the butt just to make a huge down payment. Still, things change and you never know where life will put you, and that's why I make $2,000 mortgage payments most months as a precautionary measure.

[orulz]

So wait. These tax incentives are a piece of the puzzle that I don't understand well.

Do tax incentives on mortgages reward you more for taking longer to pay off your loans? Or are they based on the amount you pay every month?

[monsoon]

Depending upon your income level, though, the tax deduction is a very powerful incentive. Say you're in the top tax bracket and you pay 6% on a 30 year mortgage, you'll get 2% of that 6% back (approximately) on your taxes. Given that property prices have very reliably risen about 5% or more per year around here, that's a great investment. You're arbitrage on it is 1% or more on a very large amount. Also, take all that money you'd tie up in your house and put it in a very well-diversified index fund from Vanguard and you'll probably collect 8% to 9% a year with minimal tax liability. Running the numbers then, you'll outstrip just having the equity in the house by almost twice the percentage year-over-year gain. This can have an astounding effect on your personal wealth over the 30 year mortgage period.

I have heard this advice from plenty of people. Basically you are saying it makes sense to carry a large debt on your house and instead invest the money in the stock market or something similar. Now that I have a paid for place, if I so choose, I can always go out and get an instant low cost tax deductable loan on the place to invest anyway that I would like including the stock market. Would I do that right now, hell no..... But the option is always there if I want it and I don't have to worry about not having a place to sleep anymore. The peace of mind that brings is worth a lot of money to me.

Beyond that, it never makes sense to pay $6 to get a $2 deduction on taxes. While you didn't do this, people often make that mistake about home debt as well.

BTW, if you know of an index fund at Vanguard (where I do some banking) that is paying 8-9%, why don't you let the rest of us know about it.

[ElricSeven]

So wait. These tax incentives are a piece of the puzzle that I don't understand well.

Do tax incentives on mortgages reward you more for taking longer to pay off your loans? Or are they based on the amount you pay every month?

You get to deduct your total interest paid. The caution here, however, is that truly big benefit only adheres to those with the highest incomes paying on the more expensive homes.

If you need a full rundown on the savings, just use the calculator on Scott Burns' website. www.scottburns.com

As a side note, any of you younger folk looking to make a lot smarter money decisions earlier than I did and not learn the hard way, read everything you can on that website. He understands numbers and accounting and therefore goes into much more real detail than your typical finance columnist who is just some journalist with an English major running around and reporting on the next hot mutual fund or trend. Scott shows you well detailed demonstrations that you can compare to your own circumstances. He shows you how the numbers are your friend in these things and conventional wisdom (such as always invest in your 401K) turns out to be wrong in some or many circumstances. It's boring, especially for those not interested in money or numbers, but getting control over this stuff like monsoon has will free you up to do the things in life you really want to do.

Okay, off my soapbox. Sorry.

[Neo]

Don't take it the wrong way... I never said there was anything wrong with it, but rather I didn't realize it was possible these days with credit being so important to almost everything. The funny thing is, you have to have credit to get credit. Of all the times I was declined for credit early on, it was because I had "insufficient credit history." I found myself thinking, "this is unbelievable... where do you start then!?"

I don't put a lot of wait in that you have to have debt to have credit. A mortgage is something that most people will have, regardless of how well off you are. Sure you may not have a 30 year mortgage but you will have some amount you owe each month. It is good to have a couple of credit cards IMO, but never let a balance carry over. I believe you can truly ruin your credit that way. I have never once in my life had a balance carried over on a credit card. I have never had a late payment. Through all of this I have one of the highest credit scores most have seen from my dealings with home purchases and car purchases. I have never had a problem purchasing anything or getting approved for anything. Pay off your debt each month without carrying a balance over (credit cards) and never allow for a late payment and you'll do better than average on your credit score.

Believe it or not, credit companies want you to pay off that bill, not just carry over the balance.

[A2]

I thought about "dumping" my student loans until my brother - a V. President at TD Waterhouse - told me to save $ but continue to pay the minimum on the student loans. His logic: it's government-backed debt and you can "defer" easily if run into rough waters (unemployment, illness, etc.). Otherwise, get out of debt and make yourself a nice little nest. We've just sold our Raleigh house, are renting now, and socking away the "profit" in a high-interest account. Our next house will be more modest and with some land to ensure we have a food source in the form of a big garden and maybe some livestock! There's a good book out there: "American Theocracy" that goes into a lot of detail what A2 has pointed out. It's an easy read and filled with really good information. A2 is right, if you can, commodities and foreign currency may be the way to go. I wish I knew how to buy Euros!

Buy FXE. It is the ETF (exchange traded fund) that allows you to "play" the euro just like buying or selling a stock.

http://www.etfzone.com/archives/articledet...?article_id=467

Hope that helps a bit. For what it is worth Austraila and New Zealand are some of my plays.

A2

[tradegirl]

If you want somewhere to park your money, check out VVR. It yields 7.96% as of today.

Tradegirl

[MZT]

Even when you pay your balance in full every month, the credit card companies still earn merchant fees from your purchases. That's why vendors prefer that you use a debit card -- the bank fee is cheaper to them than the CC fee.

[dimebag1980]

I don't put a lot of wait in that you have to have debt to have credit. A mortgage is something that most people will have, regardless of how well off you are. Sure you may not have a 30 year mortgage but you will have some amount you owe each month. It is good to have a couple of credit cards IMO, but never let a balance carry over. I believe you can truly ruin your credit that way. I have never once in my life had a balance carried over on a credit card. I have never had a late payment. Through all of this I have one of the highest credit scores most have seen from my dealings with home purchases and car purchases. I have never had a problem purchasing anything or getting approved for anything. Pay off your debt each month without carrying a balance over (credit cards) and never allow for a late payment and you'll do better than average on your credit score.

Believe it or not, credit companies want you to pay off that bill, not just carry over the balance.

Good points, Neo. And you're right... they would rather you pay it off. There is much less risk for them that way.

[Richhamleigh, DC]

Good points, Neo. And you're right... they would rather you pay it off. There is much less risk for them that way.

I was surprised to learn that a while back when I started paying off the cards in full. The guy I talked to at XYZ Credit Card Co. told me that his company "likes it when people pay off their cards every month". He seemed genuinely sincere. The whole thing caught me by surprise. If everyone did it (which they won't in our lifetimes?) - the credit card issuers would only make money from retailers...

[A2]

If you want somewhere to park your money, check out VVR. It yields 7.96% as of today.

Tradegirl

Aren't you the smart one! Welcome aboard the UP train tradegirl. Great to have you hear. You are absolutely right about the VVR. The divedends are linked directly to the Prime rate. Great play for the next year.

A few others are T-Bills and I-bonds and of course cash.

For all those who want a market update here ya' go:

Expect a bounce from oversold levels on all indexes, but might I suggest getting the hell out when it does bounce. All indicators are still pointing to a much worse correction from the 15% beating on the NASDAQ and the recent 1000 point decline in the DOW, which I warned of in April.

This is going to be another official warning that we could expect a massive sell off in the second half of the year. Something on the magnitude of an 87 crash. I would not be surprised to see a drop of 1000-2000 points in one day between now and November. It is impossible to predict exact timing, but just know that it is in the cards for the second half of the year.

For those asking about Gold and other precious metals:

Gold and Silver are excellent long term plays

Intermidiate and short term look choppy and will react to the FED and how high he goes with Interest rates. He is quite concerned since Inflation is definately in the equation. He would rather wreck the Housing market, slow down the economy, then have our debt and dollar quetioned by foreign investors.

This could eventually be a drag on Gold. However I still would put a 3000 target on the yellow metal within 3-5 years. EASY!

Silver is a bit more eratic (kind of like me). t would not shock me at all to see prices soar to well over 50 bucks an oz, it is at 10 now.

Downside on Gold is right a 500

Silver is 7.50-8.25

For oil, expect a dip. For those of you with SUV's that should help a little , BUT still feel that energy prices will remain high and possibly go much higher in the longer term.

Conclusion:

Use any bounce in stocks to get out.

Continue to Pay off Debt. IT S BY FAR THE BEST INVESTMENT CHOICE YOU CAN MAKE!

Preciouse metals have now become attractive for those who missed the last run up, so take advantage of it.

I-bonds, T-Bills, I-bonds should be "aplenty"

Real Estate should be viewed as an investment for the LONG TERM. Flippers you have been warned.

Expectations on the latest charts show the long term targets on the DOW to retest 7100

NASDAQ could easily see a break of 2000 in the next three months. My targets are fuzzy, but we could easily see 1500.

My longer term view of the S&P takes it to 750.

We are heading straight into a recession, lets pray that our leaders can avert anything worse.

Sincerely,

A2

[ngp]

About 95% of the posts in this thread are in a foreign language to me. Can anybody recommend some good books that somebody like me might be able to understand? I'v got this fancy Queen Charlotte library card, so I might as well use it.

[A2]

About 95% of the posts in this thread are in a foreign language to me. Can anybody recommend some good books that somebody like me might be able to understand? I'v got this fancy Queen Charlotte library card, so I might as well use it.

One Book that I think is a must read for those not well versed in the financial markets is called "The Second Great Depression" by Warren Brussee. It is great for a common sense approach of the markets and uses history as a guide. It does have some technical jargon, but I find it is pretty easy to follow. The guy who wrote it was one of the Top guys at GE in its Hayday and worked side by side with Welsh (one of the greatest CEO's of our time). The book bleow I am listing is also written by one of the top VP's at GE.

The reason I find it important to read is becasue they are being written by people who ran one of the the largest company of all time, General Electric. Their approach marries business cycles and common sense into one.

Another one for those out there who are in the "cause and effect" camp:

It is called "The Great Bust Ahead" byDaniel Arnold. This book could be read in about 3-5 hours and is a quick synopsis of the what is going to cause financial unrest and what the final outcome of these particulars will be.

There are many more, but for the sake of approching this with common sense, those books shold suffice.

A2