Interested in your thoughts about how to beat the system. I wouldn’t mind if you justified your choice either. I’ll start - the “system” is built on using debt to grow wealth so you have to play along or miss out.
I feel the answer is 'Maybe'. Inflation is coming for sure. Leverage is a big risk. It depends on how what is happening plays out. Theres also a Australian version of the sub prime morgage crisis sitting in the waiting too. Banks must be sitting on alotta bad morgage debts right now.
The answer is a caveated yes. Leverage is like playing with fire....know your limits, capabilities and what you are doing and you should survive and maybe make a quid on the way through and not get burnt a bit like our friend below. Many uninformed FOMO individuals saw their broker neighbours getting new Merc's and holiday houses due to margin loan and went out and got their own margin loans to keep up with the Jones's cos they never thought the party would end. The Dot-com Bubble and GFC burnt a lot of people who didn't understand the risk, had never planned for something going wrong, couldn't read the signs in the market that something was in the offing or just got damn greedy and got burnt like old mate below. edit:image failed. re-inserted.
I would call mortgages a form of leverage. in fact I lump all debt in the leveraging basket because we borrow to enhance wealth.
It's a hard one, I've always been debt averse and highly risk tolerant (not the usual combo) and it's done me well but beginning to think some debt/leveraging would be useful.
I don't think you can beat the system by playing in the system and using the system's rules. Let's hope for some disruptive technology to come along like Uber or Air BNB. I am leveraged but I am not financially free, maybe in 20 years time though.
I agree, my answer is" maybe" too. I know people that have financial freedom that have never used leverage. I know people that don't have financial freedom due to leverage. I know people that have financial freedom due to leverage.
It is a tool that can be used very effectively (or disastrously). As in all things strategy and timing are key elements to think about, along with appetite for risk.
Yes, if you hold the bonds. But probably no from the government’s perspective. They only issue debt to keep their mates happy.
They inherited the family house, so never borrowed a single dollar in their life. Granted it's not the norm, but just saying some people can get away without ever accessing debt and live a very prosperous life. Also technically there is no fundamental reason someone can't buy a house debt free. Maybe not in Sydney though.
It think leverage is more than fine. I just wish the regulators would find a mechanism to see a big chunk of all new money been made available to entrepreneurs, small business people. Everything in the Australian economy seems to revolve around housing and mortgages. If I could get my hands on $1m @ <5% over 10 years right now I would jump at the chance..... Actually 500k would be enough. Banks and these small business lenders only seem to want to know you if you have large amounts of equity in a house as collateral.
Oh how I would love that. As a compromise I would at least like the RBA to fully account for house prices/rent averages in inflation statistics. I find it completely mad that what is the largest expenditure of the vast majority of Australians (putting a roof over ones head) is pretty much not taken into account at all when considering interest rates unless those house prices/rent start dropping. How many years did we see huge house price growth rates yet CPI was considered below the target and interest rates dropped? It's insanity. Maybe I'm not getting the whole picture here but I think if house prices were the proportionate part of the CPI index then more credit would find it's way into other sectors of the economy at higher rates than they currently are. My thinking is that banks would know that excessive lending to the housing sector will see prices rise and accordingly the cash rate. If a larger portion of new credit went into productive sectors of the economy, we could find ourselves creating, producing and exporting more. Sure, in time profits from those sectors would flow into housing but at least then it's on the back of increased productivity instead of arbitrarily playing the Ponzi game in the housing market.
Rather than leveraging I would call that a no-risk, capital guaranteed scam for institutional investors.
