RetireJapan wrote: ↑Fri Mar 16, 2018 10:34 am
As for borrowing and investing instead of using cash, I'm sure DragonAsh will jump in here soon
a ha ha - he knows me too well.
So I want to be cautious and see if this is the correct way to view it? I mean if I had the money, I might as well out it in ANY safe investment that gives more than 2% returns right?
Sure - please point out all these SAFE investments guaranteed to pay out more than 2% in real terms of which you speak. You can't, because there aren't any. Sure, long-term Treasuries are paying more than 2% now, and you could gain more on the exchange rate - or you could lose far, far more. You're just swapping out market risk for forex risk.
Don't be enticed by the 'low interest OMG FREE MONEY" bit. Everything is always relative.
In the US, you can get a 20-30yr fixed rate mortgage for 4-5%, while 20-30yr Treasuries are yielding around 3%.
In Japan, you can get a 20-year loan for 1-2%, while 20-year JGBs yield 0.5%, and 10-years are at 0.05% (!).
20 years ago in the US, a 15-year fixed mortgage was 7-8%, while 10yr Treasuries were yielding 6-7%.
People say 'oh, I'd love to take out as much debt as I can at 2%' wouldn't say that at 4-5% or 6-7%...but relatively speaking, there's no difference. Rates are relative.
"But I can make more than 1-2% in the stock market". Says who? Sure, Japan equities have had a great 4-5 years, and the US has had a really good 8-9 years...but remember, any rise in the market is simply realizing future returns early. In 1983, the Nikkei was around 7000. In 2003, the Nikkei was around 7000. In 2009, the Nikkei was around...7000. Don't think it can go back down to 7,000 again? The most dangerous words in finance: "This time is different".
Adjusted for inflation, the Dow Jones Industrial Average was at the same level in 2009 as it was in 1999.
Oh, and there have been multiple big market crashes that could have wiped out 30%+ or more of your investments, with no guarantee you'll get nine-year bull market next time (there's a reason it's never happened before).
And that's assuming you are the rare steely-nerved investor that doesn't freak out when the market falls 20%, sells everything and sits in cash.
We've now had multiple years of nothing but steady growth in equities - that, to me, is a big red flag.
And don't even get me started on the '1% back in taxes'. Firstly, I challenge you to find a millionaire that claims they got rich by claiming 1% back on their mortgage payment. Millionaires are millionaires because they don't do debt.
To get the max benefit on that 40mn loan for the full 10 years, you have to have a loan balance of over 40mn for the entire 10 years. Taking out 45mn for 30 years means you now pay 55mn! Sure, for the first 10 of that you can deduct around Y35,000 from your Y150,000 payment. Over 10 years, you 'save' 4mn. Congratulations, you still have **20 more years** at Y150,000.
Pay as big of a down payment as you can, get a 15-year fixed rate mortgage with the payment no more than 20-25% of your monthly salary, and make sure you can make additional repayments at no extra fee.
Ignore the 1% - obviously take advantage of it, but do NOT let that entice you into a 'no down payment/30+ year' mortgage.
That's a recipe for buying way too much home and being too far in debt.
Have you *ever* heard anyone say, "you know, the problem was we just didn't borrow enough"?
