Not very. 8% since the 1980s has been a more reasonable number - more conservative for planning purposes. And people like Buffett think we are in for a couple years of low growth and small returns. But its pretty darn likely he’ll get better than 2%.
I’ve posted this before but to the OP, I think there is a ladder:
Destitute - you don’t have assets to speak or, nor any short term hope of assets.
Not making ends meet - Doesn’t make any difference if you make $25k or $250k, if at the end of every month you owe a little more and your net worth has gone down a little, you aren’t making ends meet.
Making ends meet - you are even - or a little better - each month, but you haven’t hit financial stability yet because in order to get even, you don’t have money for savings or insurance or retirement planning. Hand to mouth, day to day.
Getting ahead - you save and plan for the future. Your debt decreases, your assets increase.
Financially stable. You have enough saved that you could be out of work for a period of time (but not forever), weather an illness that isn’t catastrophic. Your assets exceed your debts. You are properly insured. Your income is relatively secure.
Financially independent. Whatever lifestyle you choose (shack in Montana, Park Avenue Condo), you never have to work again to support yourself.
People who are financially responsible are trying to be in the Getting Ahead or Financially Stable categories (or they are already there or already independent). People who aren’t see a ‘making ends meet’ strategy as sufficient. To be, its as much about TRYING as BEING. There are times in almost everyone’s life where you’ll struggle - college, right out of college, lose a job, have an illness…being responsible means you’ve planned for that to the best of your ability and you don’t intend to stay there.
Financially Responsible to me means:
Got credit card debt? Working on paying it off instead of investing in a toy, financially responsible.
Have a mortgage and working to get it paid off rather than spend any money you could get by adding a second mortgage or home equity loan.
Using the money you have to become financially independent. Financially independent to me would mean not having to work
I never understood where women got the idea that working some job as a mid-level functionary in Corporate America is the be-all end-all of existence.
Fact of the matter is that in a lot of families, both parents need to work to make ends meet.
I’m curious why you consider paying your credit card interest as “making the rich richer”. Don’t the executives who run The Gap or Ikea or wherever you buy your products from get richer when you buy from them? Or in your mind is it morally more acceptable because those companies sell tangible products?
The answer to your question is “yes”. It does benefit the economy for you to buy products on credit. Not only do more people get to buy products now instead of later (or never), it also creates jobs for the lending industry.
The bank IS investing your savings however they like. They like investing in debt. They give you a loan at x% interest, they are making an x% return on that investment. That is literally the purpose of a bank.
Uh, yeah. Either I was paying the money to the bank in CC interest in which case they use it to invest it in whatever they want, or I was “paying” the bank by giving it savings in which case they use it to invest it in whatever they want. Furthermore, I am able to purchase more things than I did before, because, well, I have actual cash flow that isn’t already pre-allocated to banks. I’m still not seeing why I am worse for the economy now, than before. Yes, temporarily, in loaning me the money, the money supply was temporarily expanded, but the piper always calls.
Everyone has different values. Agreed, in the scheme of things, a 2% loan should be the last one paid off. But if you owe on a mortgage, car, credit card and student loan (even at 2%) without 6-12 months liquidity (or a fall back like your parents), then I wouldn’t call you financially responsible.
No, you don’t really need to pick your own stocks. You could just buy an ETF that duplicates specific market indexes like the TSX 60, S&P 500 or maybe even one that duplicates the entire US stock market, like the Vanguard Total Stock Market ETF.
Not that I think that’s a great idea, at least for the short to mid-term.
I’m firmly of the belief that the market is in for a long period of whiplash ups and downs leading nowhere in a roundabout way. Hopefully, I’m wrong, but I’m covering my bets by focussing on specific sectors and making sure I’m well diversified in equities, commodities, fixed income, real estate and cash.
I would say no. You paying large sums of interest to the banks because you lack the wherewithal to control your spending does not serve the economy. As you said, you are just paying money to companies (banks) that serve no other purpose than to manage and redistribute capital instead of companies that actually make products and services people use.
I really, really, really hate defending Rand Rover, but this strategy is eminently rational. Hell, I hate debut, but when Sears offers to lend me the cost of a new TV at 0% interest over 2 years I’d be a fool not to take it.
If it makes you feel better, it is probably a private entity making the loan, not the actual government, which just guarantees it, so if anyone is being ripped off (and they are not) it is someone who should know better, and who is no doubt ripping off plenty of other people.
Not in the long run you won’t. If you carry a balance, you are probably paying something like $22 - $24 for a $20 meal, with anything you buy being scaled up accordingly. You will eventually either default, bad, or cut your purchases in order to be able to catch up, bad for consumption. The money has to come from somewhere.
Borrowing is fine for something which will pay off later - an education, a house, home improvements, perhaps even a car since you can leverage a car to make more money by having a wider range of employment opportunities and shopping. But borrowing for meals and lattes and movies is really not that clever.
Hodge, with all due respect, and with full admission that I’m no investment guru, I think that some of the thinking in your post above is why many people have below-market returns. That is, they think that now is different, so they’re going to move in and out of different sectors instead of just investing in the broader market. I really think the best move is to take the market return for the next 20 years, which will in all likelihood be 10 percent.
In 20 years, let’s both report back, and you can rub your riches in my face.
Right now I like investing in stable dividend bearing stocks set up with a DRIP to reinvest the dividends. Over the next 3-5 years I expect these depressed stocks to regain some or all of their lost value, on top of the dividend gains. If they go down in value, the re-investment will just yield a greater number of shares for later.
Anybody hate this idea? I’m a little risk averse and not a huge player.
That’s what I do, but cash my dividends and use them to diversify into other dividend paying stocks. Plus an index fund. Plus bonds. Rebalance in the Fall and Spring.
