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balor123
Joined: 08 Mar 2008
Posts: 1204
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 Posted: Sun Apr 17, 2011 7:09 pm GMT Post subject: Consumer Reports on Money |
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Consumer Reports on Money latest issue (May '11) had a short blurb on housing in their "Protect your assets" article. Text below:
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Borrow prudently. You can probably find a mortgage lender who will let you spend 28 percent or even more of your pretax pay on housing. Don't do it, warns Charles Farrell of Northstar Investment Advisors in Denver. Farrell, author of "Your Money Ratios: 8 simple tools for Financial Security" (Avery, 2010), argues that mortgage payments shouldn't consume more than 15 to 20 percent of your gross income. Moreover, he says you should plan to have your mortgage paid off by the time you retire.
For example, if you're 30 years old, Farrell recommends a 2.0 mortgage-to-income ratio, meaning that if you earn $80,000 a year, the maximum mortgage you should carry is $160,000. If you borrow more, he contends, you'll struggle to pay your other bills and probably won't be able to save much for your retirement and other goals.
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How many Boston buyers do you think follow this advice? |
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Boston ITer
Joined: 11 Jan 2010
Posts: 269
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| Posted: Mon Apr 18, 2011 2:38 am GMT Post subject: Re: Consumer Reports on Money |
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| balor123 wrote: | | How many Boston buyers do you think follow this advice? |
This article is almost telling everyone to move to western MA or Maine and telecommute to Boston. |
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admin
Site Admin
Joined: 14 Jul 2005
Posts: 1826
Location: Greater Boston
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| Posted: Mon Apr 18, 2011 1:33 pm GMT Post subject: Re: Consumer Reports on Money |
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| balor123 wrote: |
How many Boston buyers do you think follow this advice? |
My wild guess would be on the order of 10%, perhaps even 20%, but nowhere near the 100% that it should be. I think it's pretty common for people to ignore this very good advice and stretch their own finances by telling themselves that it's OK because all of their neighbors will support local prices because they must have bought prudently and they all have above average incomes.
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Mon Apr 18, 2011 3:22 pm GMT Post subject: |
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People don't realize that if you have a paid out house, you pretty much have a huge portfolio sitting in one risky asset, and this is the money you can't really take anywhere or invest it. There is a lot less 'waste' by paying rent. Buying generates a huge laundry list of wasteful spending that can not get avoided.
I see people with 100k incomes who have nothing left after buying a 220k house. It is plain silly. In house affordability analysis, nobody seems to include the other big costs - expenses for raising children and their college costs, especially. Those factored in, you pretty much can't afford to even have kids.
People mistake cash flow for being wealthy. Most cash-flow rich people are nowhere near being wealthy. The cash flow part is an illusion because their spending habits are usually in line with their cash flow.
If the cash flow is from an investment portfolio, that's what everybody needs to get to. Otherwise, just work on that portfolio and forget buying in places like MA. |
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Boston ITer
Joined: 11 Jan 2010
Posts: 269
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| Posted: Mon Apr 18, 2011 8:09 pm GMT Post subject: |
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| GenXer wrote: | | I see people with 100k incomes who have nothing left after buying a 220k house. It is plain silly. In house affordability analysis, nobody seems to include the other big costs - expenses for raising children and their college costs, especially. Those factored in, you pretty much can't afford to even have kids. |
If $220K was anywhere near the norm, this website/forum wouldn't be here. That puts the avg mortgage and rent within the same ballpark and then, one can host a tenant/housemate and even par down the monthly overhead. |
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BK
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| Posted: Tue Apr 19, 2011 1:58 pm GMT Post subject: Owning a home is A MUST - for the sake of the children |
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People can't grapple with the idea that Not owning a home can be an advantage.
I've attempted to explain to people that two of the best things you can do for a family and the children:
1. Don't get a 529 Plan - unless you like to see Fidelity or whom ever your 529 Plan administrator make lots of Money.
2. Don't own a home if you are buying between 2003 and some point in the future -
People are so brain washed by television and not thinking for themselves - they think I'm crazy. If your kid is Going to College he/she has to have a 529 plan and every Kid needs to grow up in a Home (only possible through reniting Money from a Bank). |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Tue Apr 19, 2011 4:01 pm GMT Post subject: |
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Strictly speaking, Consumer Reports didn't make the recommendation but it is implied by their citation.
As to the 529 plan, what's the beef with them? The main problem that I have is the .3% administration fee on top of the fund fees. Some states have them, some don't but you can open them in any state. The tax gains more than offset this fee though and most plans are still at or under 1% in total fees. I just wish that we weren't diverting more tax money to the financial industry. |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Tue Apr 19, 2011 6:19 pm GMT Post subject: |
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What if your kids get a scholarship or don't go to college right away? The idea behind 529 plans is sound - but only for those who are rich, and can benefit from a tax deduction (those in the highest tax brackets), but only after they've funded their retirement hands down (almost nobody). There are good 529 plans offered by Vanguard (Nevada if I'm not mistaken), which you can get here in MA if you like. Their fee is tiny compared to most other funds/plans. I discourage my clients from contributing to a 529 plan. Instead, max out your accounts, open an after tax account and invest there in guaranteed fixed income. The money may never be used, or if it is, it will be a small amount compared to tuition. Get your kids conditioned that you can't afford their education, and until you fund your own retirement to the tune of several M, their college education will have to be funded through loans or their own jobs.
I won't even get into the investment options in 529 plans - many people simply don't know what they are doing, and end up losing money (and thereby completely negating the tax deduction). Nobody should be using stocks for a 15 year horizon, and you can invest in bonds yourself, where you have access to the money at all times. |
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Boston ITer
Joined: 11 Jan 2010
Posts: 269
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| Posted: Tue Apr 19, 2011 6:42 pm GMT Post subject: Re: Owning a home is A MUST - for the sake of the children |
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| BK wrote: | | 2. Don't own a home if you are buying between 2003 and some point in the future - |
Well, here's what I find interesting... ultra rich/hedge fund towns in southern CT, Greenwich & environs, have had ~30% haircut since the 2005 peak. And typically, if you live in one of those towns, you're usually in the NYC financial or media industries, thus, the higher than avg price makes sense, since your bonus could range from $100K to $1M+ per year. Homes in Greenwich start at just over $400-500K but can easily get into the $2M+ range, esp away from the highways.
In metro Boston, however, very few professionals are in the above strata but strangely enough, everyone blindly believes that this area is supported by startup companies, hospitals, and mutual fund firms. What's always overlooked is the 300+% increase in defense spending, since 2001. IMO, that's not a sustainable economic situation, esp given the fact that practically every quarter, another Fidelity or State St-like company announces either a layoff or more on-shoring to cheaper locales. Same goes for big defense projects which have cheaper facilities in VA, CO, NC, or TX.
| balor123 wrote: | | I just wish that we weren't diverting more tax money to the financial industry. |
Problem is that finance is a major leg of the economy, given our over dependence on defense spending and trade deficits. Our exports do not pay the bills, unlike Korea or Taiwan.
Here's the big picture, in place of worrying about the local economy, the establishment put its eggs into the financial sectors because that represents the total capital, traded a/o invested around the globe. The *rent* income, from that global spigot is then circulated into the US economy, with the top bankers getting richer, their employees staying middle class, and the rest of the minions in the upper poor.
This is a bimodal economy, govt/defense on one end, finance/trading on the other. With this in mind, economists need to re-visit all their assumptions on how the economy actually works. |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Wed Apr 20, 2011 3:13 am GMT Post subject: |
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| GenXer wrote: | | What if your kids get a scholarship or don't go to college right away? |
Then it sits in cash for a few years, it is passed on to the next kid, or it sits around until their kids are ready to use it.
| GenXer wrote: | | The idea behind 529 plans is sound - but only for those who are rich, and can benefit from a tax deduction (those in the highest tax brackets), but only after they've funded their retirement hands down (almost nobody). |
It does seem like many Americans save for their kids before themselves. The plan is useful for those in middle tax brackets too but I think only those already maxing out advantaged retirement savings and with substantial cash savings.
I actually just had an argument with the secretary at work today. She thinks the government should provide larger low interest rate down payment loans to students so that they can afford to go to school. I tried explaining to her the difference between Macro and Micro economics and how low interest rate loans are futile at solving the cost problem. I suggested that maybe instead of giving money to students they should be giving money to schools on condition that they expand supply and reduce costs, not the other way around. She didn't understand though. Sigh. I guess that's why politicians keep coming up with these stupid solutions.
Anyway, many more Americans are rich than realize it. See Rich People Still Don't Realize They're Rich.
| Quote: | | There are good 529 plans offered by Vanguard (Nevada if I'm not mistaken), which you can get here in MA if you like. Their fee is tiny compared to most other funds/plans. |
The MA choice actually isn't bad since the fees are really low (free in some cases). There's still that stupid .3% that they bury in the fine print though! I prefer T Rowe Price to Vanguard or Fidelity and have gone with MD (Alaska would have been a bit cheaper though).
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Nobody should be using stocks for a 15 year horizon, and you can invest in bonds yourself, where you have access to the money at all times. |
Can't argue with you there. Even many of my coworkers, some who have Phds from schools like MIT, just don't get risk. Though, which plans let you invest in stocks? The options are pretty limited in practice for this reason I think. |
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balor123
Joined: 08 Mar 2008
Posts: 1204
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| Posted: Wed Apr 20, 2011 3:23 am GMT Post subject: Re: Owning a home is A MUST - for the sake of the children |
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| Boston ITer wrote: |
In metro Boston, however, very few professionals are in the above strata but strangely enough, everyone blindly believes that this area is supported by startup companies, hospitals, and mutual fund firms. |
Yeah I don't get it either. If only we could get access to real high quality data we could put the skeptics down and maybe even bring down this house of cards! I'm not sure it even exists though.
| Boston ITer wrote: |
What's always overlooked is the 300+% increase in defense spending, since 2001.
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Did you read that article I posted from MassBenchmarks? I didn't read it but I'm sure it had plenty more juicy details in it.
| Boston ITer wrote: |
IMO, that's not a sustainable economic situation |
DC how has the highest income in the country, at just under $100k! OTOH, both parties agree on cuts needed for defense spending. Even Obama's proposal includes huge deep cuts. Guess where it's going to come from? You think the Pentagon is going to lay off their own employees before contractors?
| Boston ITer wrote: |
esp given the fact that practically every quarter, another Fidelity or State St-like company announces either a layoff or more on-shoring to cheaper locales.
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To be fair, some businesses do grow and move in. Adobe and Google for example.
| Boston ITer wrote: |
Same goes for big defense projects which have cheaper facilities in VA, CO, NC, or TX. |
Those facilities are seeing cuts as well, though as a whole at least TX and NC are still growing very rapidly. A recruiter on NPR recently said that the two hotspots for hiring right now are Research Triangle and Austin.
| Boston ITer wrote: |
Problem is that finance is a major leg of the economy, given our over dependence on defense spending and trade deficits. Our exports do not pay the bills, unlike Korea or Taiwan.
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Financed by leverage on taxes paid by those working in those industries.
| Boston ITer wrote: |
Here's the big picture, in place of worrying about the local economy, the establishment put its eggs into the financial sectors because that represents the total capital, traded a/o invested around the globe. |
London brings in more than NYC and trade has been moving East for decades now. That certainly won't last. We're just out of the way.
| Boston ITer wrote: |
The *rent* income, from that global spigot is then circulated into the US economy, with the top bankers getting richer, their employees staying middle class, and the rest of the minions in the upper poor. |
I wouldn't go that far. The average analyst makes $200k - $300k. These are the same people who ask CEOs how their supposed to come up with guidance if they don't get any guidance from the company. |
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BK
Guest
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| Posted: Wed Apr 20, 2011 1:57 pm GMT Post subject: Lots of Government Employees in Mass |
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Anyone else believe the booming BioTech- Defense Spending - Healthcare has also supported lots of Government and Educational jobs in Massachusetts?
Does austerity reduce Government employment for State and local Government - reducing Healthcare industry at the same time? |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Sat Apr 23, 2011 3:01 am GMT Post subject: |
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This is the money that most people need more than their kids. If there is too little money there, it is useless, if there is too much - it is pretty bad because if the kids dont use it, you have to pay a penalty when it is withdrawn.
Most people are house rich or cash-flow rich, but not liquid assets rich.
The plan is useful only to those who max out everything AND have lots of cash. This is probably a most top 10%. Everybody else is just wasting money. I told my low tax bracket clients to stop contributing. Its a waste of money, since they should better work hard to get their kids working hard and not depending on the money. If kids know they have nothing, trust me, they will work their butts off.
The 'hidden' fees are not really hidden at all. Mutual fund fees on top of 'hidden' fees, and you have an average of 1.4% mutual fund plus a 0.3% plan fee, giving you a 1.7% fee, vs. Vanguard's 0.2% fees plus the plan fee (which is around 0.2%-0.3% as you described). For a decent size portfolio, that 1.3% can translate into tens of thousands of dollars wasted.
There are only two plans in the country which have low fees. Vanguard's have lowest. There is a DFA plan in West Virginia, I believe, but I'm not sure that the fees are lower (but it is DFA).
All plan choices include stocks. They may be 'coded' for a particular style portfolio. But just like target-date funds, these portfolios are too risky.
Nevada allows you to change your portfolio to whatever you want using half a dozen low cost Vanguard index funds.
Schwab recently added lots of low cost index funds, but nothing can beat Vanguard ones. Remember - most managed funds lose in the long term, and if you want relatively stable returns you want very low cost bond index funds (Vanguard has the lowest cost). |
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GenXer
Joined: 20 Feb 2009
Posts: 703
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| Posted: Sat Apr 23, 2011 3:04 am GMT Post subject: Re: Lots of Government Employees in Mass |
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| BK wrote: | Anyone else believe the booming BioTech- Defense Spending - Healthcare has also supported lots of Government and Educational jobs in Massachusetts?
Does austerity reduce Government employment for State and local Government - reducing Healthcare industry at the same time? |
MA has the highest defense revenues in the country. Even CA doesn't come close. Lots of little players nowadays - big ones are getting clobbered because little ones get enough chunks to make a difference.
Defense employs 100k people here, but with cuts it will hurt the state economy long term. I see people simply leaving MA - nothing is holding anybody back, now that real estate prices in other parts of the country are dirt cheap. We'll end up like RI - high taxes and no jobs. |
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BK
Guest
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| Posted: Sat Apr 23, 2011 2:44 pm GMT Post subject: |
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Genxer,
Many cannot imagine what it was like in 1993 - with the demise of the Soviet Union - defense spending vanished - or at least it felt that way.
San Diego - was devasted - and many Massachusetts Defense companies were hit hard. This was alwo the best buying opportunity in Real Estate in the last 20 years.
No one I know has an imagination big enough to imagine it happening again - but, I suspect it will. |
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