Why would anyone get a 30 year loan on a house?

[amarone]

@put_down_the_sabre

I don’t know about the US/UK issue.

Did you look at the telegraph table I linked to? It’s not just virgin that underperformed quite badly.

pdts

Yes I did - what that table shows is that it is mostly an old issue related to poor stock market performance. If you look at the one year returns, the underperformance is mostly small. Virgin is the worst, being 3% under the market gain. That will be about 1% fees, some loss for trading costs when they buy and sell shares within the fund, some because the table uses offer-to-bid numbers, and probably some through not sampling the index properly - what they have been criticized for. This 3% means that they achieved 89% of the market growth. That’s pretty poor for an index fund, but a lot better than 75%, and this is the worst of them. The funds in the lower half of the table are all within 1% of the index. That’s not great (by US fund standards), but is not bad.

When you look at the 7 year numbers, the losses are greater. Virgin achieves only 69% and Norwich 77% Some of the others are a lot better, and the underperformance looks to be mostly an accumulation of 7 years of fees. The market gain over those 7 years is pretty low and fees will have a noticeable effect (for any type of fund).

Mostly what we are seeing is that when equity returns are low, fees take a bigger proportional bite. It is not a criticism of index funds per se. Index funds should have very low expense ratios as there is no highly-paid manager and staff needed. What we see is actually an argument for index funds (as long as you pick a low fee one) as the expenses bite should be much lower than for most other funds.

[put_down_the_sabre]

@amarone

What we see is actually an argument for index funds (as long as you pick a low fee one) as the expenses bite should be much lower than for most other funds.

Right – but the argument here isn’t about index funds vs other funds.

The argument is about whether (i) the stock market is such that it will always go up over 20 year periods by about 10%pa, and (ii) if that is so, index funds are a way to get at that juicy return.

My point is that the stock market fails to meet that standard in some cases, and in any case thanks to fees and other issues, index funds are not guaranteed to get all the juice they can.

pdts

[pulykamell]

@put_down_the_sabre

Right – but the argument here isn’t about index funds vs other funds.

The argument is about whether (i) the stock market is such that it will always go up over 20 year periods by about 10%pa, and (ii) if that is so, index funds are a way to get at that juicy return.

As for ii), the fees associated with an S&P 500 ETF are pretty minimal–we’re looking at under 0.10%, with VOO, for example, charging 0.06%.

[Dangerosa]

@Rand_Rover

Look, all I’m advocating here is deeper and broader thinking on the subject of debt–there’s a lot of “debt is bad” out there, with people reflexively (and unreflectively) advocating things like paying cash for cars and paying houses off early. Dave Ramsey (a “financial guru”) would most certainly not take me up on the offer of a $1 million 100-year loan at 2 percent even though there is essentially no downside to it.

As for the last two posts–can you eat a house? Can you move it to another part of the country where there may be jobs? Howd you like to be unemployed in Detroit right now having taken your own advice? You’d be in a dying city with a house you sunk a bunch of money into with no way of getting it out. You’d be much better off with the cash so you could abandon the house and start over somewhere else.

Also, life isn’t all about downside scenarios–of course you should plan for them, but you shouldn’t build your life around them. For instance, if the US is hit with nukes and then the classic post-apocalypse scenario unfolds, all the money you spent on books and movies instead of emergency supplies, and all the time you spent on the SDMB instead of learning survival skills, would seem rather foolish. But the likelihood of such a scenario is so small that it can be safely ignored. For a lot of people, long-term unemployment is like that–there are some sensible precautions they should take, but the likelihood is small enough that no great pains need to be taken.

No, but if the market crashes, you can’t eat your losses either. Food is actually relatively easy when you are poor - not necessarily high quality food, but adequate calories - shelter is a lot tougher.

And the risk of being laid off for an extended period of time for most people is not a low risk scenario. MOST people will go through at least a short period of unemployment, for many that period will be longer than a year. My post nuke survival plan is to kill my kids and then commit suicide (not exactly a survival plan)

• but I think we can ride out unemployment.

If more people did downside analysis - the housing market will not always have double digit gains and I shouldn’t use my house as an ATM, just as an example - we’d spend less time and money bailing out individuals and corporations for taking unnecessary risk. And if we aren’t going to bail them out, then the least we can do is educate them on risk.