Interest rates. WTF? Why are we getting almost free money?

[BigRedChief]

I put a contract on a house yesterday. Locked in a rate and loan. Got 3.625 and they gave me $8,800 towards closing costs. Which is obviously more than it costs.

We were able to lower the purchase price because we didn't have any closing costs.

Last time we bought a house we got 5.25% which at the time our loan guy said was the lowest rate since WWII.

So my question for the board is why is the public getting home loans that are maybe 1%-2% above inflation? Where's the money being made or lost?

[petegz28]

Originally Posted by 2bikemike

Ok lets say you lose your job. You need cash and you have your house free and clear. Now you have no income who is going to lend you money without an income. Well you probably could have before the bubble burst but I doubt it now.

I'll bite...

worst case scenario, I sell the house at a loss but pocket 100% of the proceeds from said sale.


vs.

I have a mortgage I now cannot meet, I get foreclosed on, my credit goes to shit, the house gets sold short and I am still on the hook for the $.


In other words no one is going to loan me money just because I have a mortgage if I don't have a job, regardless.


So in the end, it's better to be free and clear on a home without a job than to have a mortgage and be without a job


I should also add if I don't have a mortgage and I lose my job I am in a much better situation of taking on a lesser paying job than if I had a mortgage.

[petegz28]

Originally Posted by La literatura

Actually, I bet most people would spend it on videogames rather than invest it. A lot of people just don't invest their extra income.

And it's not "to a certain extent." You are extremely risk averse. Like I said, more than 98% of investors your age. I made up that number, but you get the point.

Most people do spend it in video games. If they didn't we wouldn't have half the financial problems we have.

I am not extremely risk adverse. In fact I would venture to say that I invest in certain types of securities that most people don't.

Also I used to daytrade options and futures as well.

[La literatura]

Originally Posted by petegz28

Most people do spend it in video games. If they didn't we wouldn't have half the financial problems we have.

I am not extremely risk adverse. In fact I would venture to say that I invest in certain types of securities that most people don't.

Also I used to daytrade options and futures as well.

Professionally?

[petegz28]

Originally Posted by La literatura

Professionally?

No, not professionaly. I used to think I wanted to do that but just didn't work out that way.

[La literatura]

Originally Posted by petegz28

No, not professionaly. I used to think I wanted to do that but just didn't work out that way.

Well, I think you need to find a happier medium on the risk scale. Daytrading futures is for professionals who can ride out big losses. You seem like you went from extremely risky investing to extremely conservative non-investing.

[petegz28]

Originally Posted by La literatura

Professionally?

On a side note, if you seriously want to learn about the markets and investing I am happy to give you some very solid advice.

1. ignore 99% of what you hear from CNBC, Money Magazine and the like
2. learn everything you can about the financial markets, how they work, what the floor traders look at, how they use one market to leverage another
3. learn techincal analysis (chart reading). this I cannot stress enough. with all the info getting slung around these days and what not the one thing you cannot debate is the printed price. and the prints will reflect the true action long before some earnings report or analyst comment will
4. understand markets are 90% emotion and 10% logic
5. get a book called "intermarket techincal analysis". even if you don't jump in heavy with both feet into chart reading, this is a great book to explain how one market effects the other
6. finally, find the people who make it during the bear markets. every fund manager looks like a god during a bull market. it's the bear markets that show you who is on top of their game


list can go on but you seem to be wanting to go down that path and I am always willing to help someone learn about investing to the extent that i can

[petegz28]

Originally Posted by La literatura

Well, I think you need to find a happier medium on the risk scale. Daytrading futures is for professionals who can ride out big losses. You seem like you went from extremely risky investing to extremely conservative non-investing.

time and tide. first thing is to undrstand the differnce between "trading" and "investing". with modern day technology, daytradind is not just for the pro's anymore. in fact the currency markets, which I have never traded, draw large populations of non-pro traders due to the small margin req's and 24 hour trading

you have to understand I look at a mortgage through a different pair of glasses than I do a mutual fund

[La literatura]

Originally Posted by petegz28

list can go on but you seem to be wanting to go down that path and I am always willing to help someone learn about investing to the extent that i can

I am interested, but I don't want to do it myself. My plan is to just have a Roth IRA and another cheap Vanguard portfolio and a very passive philosophy.

I'm not going to daytrade. I like watching CNBC so I can watch CEOs get in fights and call each other liars.

I definitely don't want to read a chart. I just want to read my year's return numbers, talk to my manager about rebalancing, and annoy him about why I don't see anything above the number 7.

[Pawnmower]

Originally Posted by La literatura

This seems odd. I've never bought a house, but why would the typical seller care if you're paying in cash or having a bank finance it?

Many reasons, the main one being that one of the main killers of any deal is financing. The last contingency to be removed in the vast majority of transactions is the loan/financing. If you were selling a house, and your choice was $5000 more, but you had to wait another 30 days to see if the buyer could close the loan/fund it, and possibly risk having to go back on the market, or take 5g less and have a done deal, many sellers prefer the latter.

Also, with a cash deal there is no need for an appraisal, and the bank (the lender) can't put any conditions on the transaction...which can also kill a deal. (since there is no bank)

A lot of things can go wrong when you are trying to buy a piece of real estate....doing the initial offering and purchase with cash, getting a lower price and then doing financing at a later time (after the property is in your name) is an option (for those who have cash) that can really help you in a seller's market.

Ask any professional agent what offer looks better.....Take the same offer, one has to go through financing hoops.....one is all cash...

The all cash offer wins EVERY time.

(in a seller's market you want your offer to stand out and be the best)

[La literatura]

Originally Posted by petegz28

time and tide. first thing is to undrstand the differnce between "trading" and "investing". with modern day technology, daytradind is not just for the pro's anymore. in fact the currency markets, which I have never traded, draw large populations of non-pro traders due to the small margin req's and 24 hour trading

you have to understand I look at a mortgage through a different pair of glasses than I do a mutual fund

This is completely against Random Walk and Bogleheads advice. They warn readers about daytrading and beating the market. You're not going to beat the market.

[petegz28]

Originally Posted by La literatura

I am interested, but I don't want to do it myself. My plan is to just have a Roth IRA and another cheap Vanguard portfolio and a very passive philosophy.

.05 worth of free advice....."no one is going to care about your money more than you do"

I watched a lot of people, including my mother in law, lose a shitload of money because they were too passive.

Why Vanguard? Why not T. Rowe or American Century or Fidelity? I am just curious. You mentioned earlier for someone to have a broadly diversified portfolio. Do you know how you are going to diversify and what is a good diversification for you? Do you know what % you will have in stocks, bonds and cash? Do you know what % of your stocks will be growth, income, growth and income, domestic or global, emering market? Do you know what % of your bond % will be high yield, government, corporate or emerging market?


Don't be too passive

[petegz28]

Originally Posted by La literatura

This is completely against Random Walk and Bogleheads advice. They warn readers about daytrading and beating the market. You're not going to beat the market.

Firstly I do not subscribe to the "random walk" theory at all. Secondly it's not about beating the market. What is the market? the Dow, the SP500, the Nasdaq? And how do you know when you beat it?

Having said that they warn them and rightly so, daytrading is not for the faint of heart nor the ignorant and it should be done only with spare cash you can afford to lose and not lose sleep over if you do.

[La literatura]

Originally Posted by petegz28

.05 worth of free advice....."no one is going to care about your money more than you do"

I watched a lot of people, including my mother in law, lose a shitload of money because they were too passive.

Why Vanguard? Why not T. Rowe or American Century or Fidelity? I am just curious. You mentioned earlier for someone to have a broadly diversified portfolio. Do you know how you are going to diversify and what is a good diversification for you? Do you know what % you will have in stocks, bonds and cash? Do you know what % of your stocks will be growth, income, growth and income, domestic or global, emering market? Do you know what % of your bond % will be high yield, government, corporate or emerging market?


Don't be too passive

I'm just going to follow the simply layouts of diversification laid out by Bogleheads. My first portfolio will be something like 55% large cap domestic, 20% small cap domestic, 20% bonds, 5% REIT, 10% foreign stocks.

I need to be passive because that keeps costs low. Also, I don't need the money for 40 years. It just needs to sit there as I put a portion of my monthly salary in it and collect a decent return for 40 years.

[La literatura]

Originally Posted by petegz28

Firstly I do not subscribe to the "random walk" theory at all. Secondly it's not about beating the market. What is the market? the Dow, the SP500, the Nasdaq? And how do you know when you beat it?

Well, I think it lays out a good model for me. I'm taking a Wealth Management class, and we just read Random Walk and Bogleheads. They lay out a convincing argument.

Most active managers don't beat the average large index fund. Imagine how I would do as a person with an entirely different job.

[petegz28]

Originally Posted by La literatura

I'm just going to follow the simply layouts of diversification laid out by Bogleheads. My first portfolio will be something like 55% large cap domestic, 20% small cap domestic, 20% bonds, 5% REIT, 10% foreign stocks.

I need to be passive because that keeps costs low. Also, I don't need the money for 40 years. It just needs to sit there as I put a portion of my monthly salary in it and collect a decent return for 40 years.

By passive I assume you are meaing not over-trading. That is good. However at your age and without knowing your risk apetite, I would take that 55% in large caps down to about 15%-20% and put the difference in mid-cap growth stocks. You have so much time ahead of you that you need to be more focused on growth as opposed to income, which is what the large caps primarily are. That would give your stock portion about 80%-85% growth stocks.

Also just some additional advice, you'll make more in foreign bonds right now so make sure your bond portfolio includes them.