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Aug 07

Fantastically bad strawman argument

Courtesy of 800-CEO Read  (who I normally find quite solid)

I don’t mind, so much, when people say “Don’t pay off your house, invest that money in the stock market”.  I don’t agree, but I don’t mind.

But when you combine that with this bizarre BS “double asset” accounting, I get seriously frustrated.

Let’s review:

  • The house is not your asset.   It is the bank’s asset until you buy it.   How do I know?  Try selling it.
  • Even if you do consider it your asset, if you don’t pay it off, you have a serious liability to go along with it.  You can’t just wave your hands and pretend that the liability doesn’t exist.
  • When you have a large mortgage, that puts iron clamps on a significant chunk of your income every month – money that you have to pay to the bank.  This has the following effects:
    • It is harder for you to move, because you have to sell your house first
    • It creates an income floor – you simply cannot afford to not earn less than X per year
    • A run of bad luck on your investments, and you have no fallback plan, because you have no equity to draw from.

Essentially, this is the doctrine of “profit over flexibility”.   But do you really want to tie yourself down like that, create incredibly stressful obligations that leave you with significantly fewer opportunities to experiment, to explore, to take time away from work?

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