I think it’s reasonable to take out a long term loan given current rates.
Surely, there is some percentage where it makes sense. If the loan percentage were -1%, it would obviously be a good idea, right?
Assuming 2% inflation, sitting in cash is like taking out a loan you don’t need out at ~2%, and stuffing the money in a mattress. That’s clearly a bad idea, right?
Current rates are 3%, and the market returns about 7% in the long term. (4-5% inflation-adjusted).
Historically, the only way to get burned reinvesting a loan at these rates was buying at the peak prior to the Great Depression. The market will go up or down over the next year, so averaging the purchase over that time eliminates the timing risk.
I can’t come up with a more risk averse strategy than this that also has positive real returns in expectation. Any suggestions?
Surely, there is some percentage where it makes sense. If the loan percentage were -1%, it would obviously be a good idea, right?
Assuming 2% inflation, sitting in cash is like taking out a loan you don’t need out at ~2%, and stuffing the money in a mattress. That’s clearly a bad idea, right?
Current rates are 3%, and the market returns about 7% in the long term. (4-5% inflation-adjusted).
Historically, the only way to get burned reinvesting a loan at these rates was buying at the peak prior to the Great Depression. The market will go up or down over the next year, so averaging the purchase over that time eliminates the timing risk.
I can’t come up with a more risk averse strategy than this that also has positive real returns in expectation. Any suggestions?
(Edit: minor clarification)