Yeah, it's usually better to invest instead of paying your mortgage off earlier. But this is like the mildest, most benign form of being irrational with your money that there is. It's not even usually that bad when you consider taxes (idk about US tax deductions though) and the fact that the market and your health going south badly enough at the same time could make you lose your home. You have to let normal people have a normal emotional response to debt and "not owning their home fully" when it probably only costs them
@@luctapia Yes, it's not as simple as he made it out in the video. He even said a couple minutes in that he doesn't understand why banks loan money out instead of investing it in the market themselves. It's because the more you return you seek on borrowed money, the less margin for error you have. A completely safe investment that pays 4% is desirable in the short term even though the market averages double that in the long term. The market can have a bad 5 years, and if you borrow money at a low rate just to invest it, you may be forced to liquidate when the market is down and be worse off. What Destiny is saying in this video makes a lot of sense if you have enough income to pay mortgage and also invest with enough cushion that you wouldn't have to sell the investments to get by. Obviously if you leverage into investments and never have to touch that money for 30+ years you will end up with a far higher net worth than paying off your mortgage early.
Destiny, I'm not 100% disagreeing with what you said about stocks but one thing that could be addressed is how FED interest rates have been dropping over the past 30 years coupled together with historically high P/E ratios. Yes, it's true there's been an average 7% return but whether it is related to free credit being pumped into the market and whether it can be continued (over the next 5, 10, 30 years) is another issue entirely. There are also demographic issues (baby boomers after WW2 (which may be responsible for growth) who are now retiring) coupled together with large scale economic shifts (secondary sectors shrinking (manufacturing shifting overseas) but growth in tertiary sectors) and it may be a bit too oversimplified to say someone should expect a 7% on their ETF. These confounding factors may be what was responsible for Japan in the late 1980s. And there's also the 'endless economic bubble' theory as well... Will post sources if noticed. I'm also just a normie so don't ban me. SWEATSTINY.
This monologue kinda changed my mind about paying off a mortgage early. It makes sense that an extra $100 a month would be better spent on a safe investment that grows at 7% than paying extra principal on a debt that costs 3.5% especially when most of that debt's interest can be written off in taxes. I'll do a bit more research and speak to an advisor, but the logic seems pretty solid. Edit: then again, it would be good to factor taxes as well when it comes to overall gains. I think a good way to go about it, if possible, is to continue to make the recommended mortgage payments all year, then invest your mortgage interest tax deduction in something that will give you more of a return.
I know this is a long late reply, but another issue that Destiny failed to point out, particularly because he’s got a good head for money, is that oftentimes, while you can play the long con and win, people are forced to pull out early, for the same reason poor people feel forced to take out a credit card. Shit happens sometimes, and if you don’t have enough liquid, oftentimes the investment suffers. And because shit irl often follows shit in the market, when you withdraw you’re doing so at the worst possible time. For this reason, leveraging debt should always be done within your means, so that if stuff goes wrong you don’t get fucked. It’s when people see the theory for the whole, they go and over leverage themselves with debt and get absolutely rolled.
There is still risk to having debt. I agree with his take, but it's not as cut and dry as he says. There is no beta when you look at the difference of the interest rates alone.
The 7% average return is quoted after inflation, so the calculations using 7% was already adjusted for inflation if we're looking at the average case. Also the people who said that 7% was extreme were thinking about bank account interests and not actual stock investing. Risk adjusted returns are very relevant and it relates back to your "a single anecdote is worth jack shit", buying a single stock can give crazy returns but if you go back and do the risk adjusted returns then it would equal the market.
7% assumption is also pretax.. not taking one stance or another, but people should always model this stuff out before they make life decisions... also, there's also the consideration of liquidity volatility.. if you lever up and reinvest, and the market goes south and you can't payout to the bank, your 30 year averaged return of 7% pretax won't look pretty next to the their interest defaulted clause that hikes your interest rate to 20%, if they don't just straight up take your house.
Generally you want to put a higher down payment for lower interest rates beyond what you would just get through just having a low principle IIRC. The price of the house is a factor that brings down the interest rate beyond just adjusting what the principle ends up being with a higher down payment. You might get a better margin through investing extra money in a mutual fund instead of paying down your mortgage, but I wonder how far away the numbers would actually be considering money paid closer to the beginning of a mortgage is disproportionately valuable to the consumer (interest is paid most heavily in the beginning of all mortgages). Plus, practically speaking people set aside money for their mortgages (plus a good amount as safety), and the sooner that debit can be paid off the sooner those funds are free to be invested in other things. It's true that the wealthier you are the less this matters (since you aren't as unsure about catastrophic financial events), but practically speaking it is a huge factor for most people in investing.
Damn. This is literally going to change my life. I paid off all credit cards a year or so ago and I'm close to paying off student loans after almost a decade. Now I got an idea of how to math the future!
When you can revise your mortgage from a 30 year plan to a 15 year plan, you probably SHOULD do it only IF the interest rate goes down accordingly. If its a fixed interest rate theres no point in paying off a mortgage sooner.
He is assuming that people invest their money all the time. Not everyone likes to invest their money in the stock market. Normal people dont understand the "market" and how to control debt effectively. Loans are bad for normal people. Period.
"Normal" people can learn this shit pretty easily if they put a minimum of effort. People bust their bodies doing shit manual labor jobs but ask them to think for two seconds and they shut down. People need to git gud, stop being so mentally lazy.
Don't we have to account for taxes? I mean here in Sweden it's 30% tax for all your profit. So if you get 7% annual ROI that's 4,9% after taxes. And the breakeven point if you loan for 4% should be 4%/0,7=5,71% but you also gain the benefit of combining possible losses with the 5,71% profit you made.
Lucky you. I've never met anyone yet that's taken a personal finance class. really weird to me. It feels like something that should be taught Junior year of high school so students know about this stuff before applying to colleges.
In the s&p there has never been a 20 year period that would hace returned negative results. In a 20-30 year period the average return in 10.5 with a stamdard deviation of
Yeah so if someone magically only invested in those 500 companies that are currently there they'd be fine. However, loads of companies that underperform or go bankrupt are removed from the listing. Most people would have lost quite a bit having stocks tied up in them for some period of time.
@@masonman1996 my point is that those companies have not always been in there and many companies have fallen out which skews the gains. Investors would have put money into some companies that were in the index but fell out due to underperforming. Therefore they would not have got 10%+ so easily. On top of that mortgage rates 20-30 years ago were 8-16%.
An mutual fund will actively buy and sell companies. So investing in an index fund that copies the s&p 500 will result in changes what companies your invested in as companies fall in and out of the top 500. Also mortgage rates are going to correlate with the market rate of return so if rates were actually at 8-16% you could invest in the economy at even higher rates than that. I am a 4th year finance student if that gives any validity to what I'm saying for you.@@michaelh878
Wait so paying off a mortgage early is bad because you could invest that money in stocks and overperform the mortgage interest but just owning a home and not taking an equity on that home and investing the money in stocks to overperform is okay? I mean it's literally the same thing except in one case we are talking about a person who additionally owns a home or a portion of a home and in the other case we talk about a person that does not. It's literally mathematically the same situation.
Only if you use your house as a speculative investment vehicle. If it's just a commodity, for living or whatever, you shouldn't treat it as a financial asset.
Martin Shkreli says you should spend 500 hours at a minimum on buying any 1 stock. He also says that you should probably never buy any stocks with your own money.
For example you could either pay the loan(100k at 4,25%) for 1000$ a month in 10yrs and then invest 1000$ a month for 20yrs at 7%p.a. which would give you 510k(+ the 100k of the loan). Or you could pay of the loan for 490$ a month for 30yrs and invest 510$ at 7%p.a. in the market for 30yrs. This would give you 600k (+ the 100k of the loan). Same input but 90k difference in outcome(not considering taxes). Sure, if you feel better not having a loan in your name you could pay it of quicker, but you are losing the opportunity to use your money more efficiently which is his whole point. And again 7% is very conservative...:P
Get an fha loan to get a quadreplex and live in one unit and rent out the other 3. Your tenants are paying for your mortgage, you're earning passive income, and you're live for free.
Best advice i got was gold and silver trading. Mostly coins. Talk to your bank to take like 50 to 100 eur per month of gold and silver and sell when value goes over 2% or 3% of what you paid. And then bank auto rebuys gold and silver with all your new money. So it grows and eventualy you can even get it money out and grow your money. Its great if you have a stedy job. Sure you have to time it a little, when you take your money for max value out, but its secure and easy. And if i will get too much hate for this post is all a meme :P 420
Don't you have to invest the principal of the loan if you are investing it into something that gives you 7%, I don't know about property but does it give you a 7% return Edit: I see what he means because interest is 4% and the market is 7% you pay the bare minimum of principal and interest but everything else you would have payed to reduce the mortgage you invest in the market. So as your mortgage will increase by 4% compared to your say term deposit at 7% the money you make 3% in returns reducing the net loss of the mortgage. As all the money you make i.e the 3% will offset some proportion of the interest you pay.
Holy shit you just actually blew my mind... I live in australia and i was always SO FUCKING CONFUSED when people talked about how they NEED heating, etc etc. I thought like "i get that it's colder over there but fucking put on a blanket of a fucking electric blanket, buy a little heater or something" and i never ever understood it and just thought americans were pussies, but the pipes thing really makes sense.... Also im poor as fuck and financially illiterate so thnx 2016 destiny this helped
So Mutual funds just kinda ride with the market because they have such a wide portfolio that they loosely represent the market in general. Will the market always grow? It's kind of a mind blowing concept when you think about.
I see what he's saying but I'm not sure it's right. So assuming that investing the money myself, I will make 7% returns or I can take out a loan with 4% interest, essentially meaning the money I could have invested at 7% returns, I'm effectively investing at 3% returns (the cheap money he mentions) but I get a house. If I decide to pay that loan early, in say 20 years instead of 30, then I have 10 years where the money that would have been gaining at 3%, now gaining at 7%. So it seems to me, that paying off your debt early is still the best way to go in the long run, assuming you're constantly keeping your money invested.
If I did my math right, assuming: 1) In the 30 year payoff, you also matched your monthly payment in 7% growth account 2) In the 20 year payoff, you invested the difference from total payments in #1 and the 20 year loan payment 3) Loans and investments compounded monthly. If you paid your loan off in 30 years and invested during those 30 years, your net income at the end of 30 years would be $410k. If you paid your loan off in 20 years, invested the remainder those 20 years, then full-on invested the remaining 10 years, your net income at the end of 30 years would be $197k. In your scenario, the problem is that if you did the 20 year plan, you would be getting -4% interest for 20 years, THEN +7% for the final 10 years. After losing 4% for 20 years, those 10 years at a higher net interest rate can't catch up to the lower net interest rate of +3% spanned over 30 years because compound interest is exponential. Unless you invest HUGE amounts in a shorter term, you will always make more money by investing smaller amounts over a longer period because those early payments have a LONG time to compound. Another way of looking at it: if I wanted $100k at the end of 10yr@7% or 30yr@3%, I would need to invest $577.75/month in the 10yr@7%, but only need to invest $171.60/month in the 30yr@3%.
Ahh I see. The assumption then, is that if you have the extra money to pay off your loan early, you're still better off just investing it. That money could be going towards gaining you 7% interest, instead of going towards your debt (effectively making it a 3% investment instead). That's the detail I was missing. That makes more sense, thanks! I think I need to run these numbers myself to be absolutely sure though. I'm not in a position like this so I'm not going to bother but something still seems off. For one, your initial assumption about putting money in a growth account along w/ just making the normal payments for 30 years doesn't make sense. You don't have the money to put in a growth account. If you did, then your point number 2 doesn't make sense, since you should be able to have a growth account AND pay off the loan 10 years earlier, which would leave me back at my original question. (This is why I'd like to run it with some real numbers, to flatten out the details regarding how much you have to actually invest vs. pay off your debt earlier) The sooner you can stop putting money into a 3% growth account (the debt) and start putting it into a 7% growth account, the better. I did not consider however, the idea of putting the money you would have used to pay off your loan earlier, into a growth account on it's own. I think my take away here is, put all your money in growth accounts all the time. As soon as you can pay off a debt, do it and immediately start putting that money that was going to a debt, into a growth account and you win/win/win
IF you can find a higher interest rate to invest into than your loan interest rate. It works the same way when you do something like refinance. You refinance when looking for a better loan interest rate. By finding a lower loan interest rate, you "make money" by losing less because of interest. You could then take that saved money from the lower interest rate and invest it to make even more money. :D
banks loan out money as generally they make a profit on you paying them back, also when you invest/put your money on hold where you accrue interest they use that to make investments just like you have. they generally play the 90-10 rule, where they only hold 10% as reserve and use the other 90% to make money from the money they control.
4:40 because of fraction reserve lending. So if you put $100 in the bank and the bank pays you 2% APR. Okay that bank can create $900 in "bank money or "electric money" okay so they loan out that $900 out at 4% so that's 4% of $900 is $36 they pay out 2% of $100 $2, so they get in $36 while paying out $2 lol if Destiny or ANYONE believes I'm wrong look up "fractioal reserve lending" and do some research on the federal reserve.
you are forgetting about risk...always better to pay off a loan as quickly as possible. You wouldn't take out a loan to by stock...that doesn't make sense.
Destiny your problem is not net profit in this case, its cash flow. Yes, if you could go to the future, cash out your earnings from your investment and go back and live off the profits then your calculation would be reasonable. But your`e forgetting the cash flow that you are going to deal with (negative cash flow) each month for a higher profit in 30 years. That means that you are damaging your quality of life by paying more each month rather than paying less. People need the money more in their 30`s and 40`s and much less when they are 50 or 60 years old. So your claim has issues when you consider that people need more money (positive net cash flow) today than they would need a higher payout somewhere in 30 or 20 years.
Destiny's argument assumes that you have the appropriate cash flow to even invest the extra money into paying off your loan faster or investing it into a fund. If you don't have the money, you don't have the money. If you do have extra money, would you rather earn 4% on it (by saving 4% interest, you "gain" 4% interest) or earn 7% on it (by investing it in something like an ETF)?
"Why do banks loan at such low interest rates?" It's because they are giving these loans to people who won't pay them back and then sell the loans to a third party who is dumb enough to buy them. AKA the 2008 crisis.
That third party on guaranteed loans is often a Government body. When you've got the Government as a guarantor, it hardly matters if you're a bank lending 400k to a person or a pile of seaweed. You're making money.
The real compound growth comes from dividend reinvestment. Some dividends pay monthly, others pay quarterly. The rest of the growth is just capital gains
I'm in highschool and I have no fucking idea what this man's is talking abought but I if something has below 7% I should pay min payment and invest the money in other things
True but that's a reason not an excuse. In general people SHOULD be more financially literate and in general people SHOULD have better control over their emotions.
Well at 4.25% intrest and 2.5 % inflation then your at a 6.75% loss each year and if the stock market averages about 7% then your really not ging to be making very much.
I love how about five minutes in somebody quietly destroys destiny’s argument by pointing out how banks loan people money at an interest rate below market returns, indicating that there is risk in trying to achieve a 7% return for a long period of time
@@sublimesense7761 my guess would be that it's due to banks usually being required by law to maintain a diverse investment portfolio. Also you can't argue your way out of the fact that the stock market overall gives fairly predictable returns over time. www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
@@cowyeti21 The problem is that the stock market is not fairly reliable. There are years when stock market goes down. If a bank is highly leveraged into a position then that position giving a negative return could cause the bank to go under. Compare this to the much safer and more reliable returns of the bond market, which includes mortgage backed securities and corporate debt.
2:00 okay. He is correct. INFLATION is real!!! So in 1990 say I took the loan of $100,000. Well in 2020 $100,000 is only worth $50,000 in 1990 dollars. Money loses about 50 % value over 30 years time. Or about 3.333% per year.
There's no guaranteed that you will always make back the money investing into the market or even just signing up for a "Portfolio management for low budget income families." There will always be a market crash or a hiccup that you manager had lost 10% of you money invested. Just take the time to learn about money and manage the money yourself through a platform....that way no ones to blame but yourself when shit hits the fan. Also, DONT BUY A FUCKING HOUSE AT ALL.
@@darkflamingopontificates186 Well I'm currently an engineering student, but I have a pretty secure future as an engineer. The reason I believe I can retire at 30 is because I plan on saving and investing the vast majority of my income.
7 percent market return average rofl you live under a rock that may have been the case during the 1950-1970 but for the past 10 years when you factor in inflation and taxes you are looking at 2 percent return AT MOST
Maybe in T-Bonds or something but the point in investing is to diversify. even then, the best way to grow your money is to invest in stocks. You want to grow your money. When you get older is when you switch to the safer 2% stuff so your don't lose money. There are so many things to invest in that 7% is not crazy when you invest in thing such as mutual funds, Exchange Traded Funds (ETFs).
Did you not see the part of the video where he pulls up the Wikipedia page for the S&P 500 where it shows 5, 10, 15, 20, and 25 year annualized returns? Here's the link in case you didn't see that part: en.wikipedia.org/wiki/S%26P_500_Index#Annual_returns
"I dont want to get into this"
Oh boy here we go
famous last words
It's another "nevermind, I don't want to get into this" episode..
>when you try to teach your 14 year old audience about building credit and financial advising
bahahahah
same 100 xd
These videos always start with destiny going "Never mind I don't want to get into this" haha. Love it.
If it wasn't for the dildo analogy I'd be linking this video to all my friends and family lol.
ahahahahaha
Do it anyway. It'll be a fun Christmas topic.
@@idontlikeyouyo true
I'm noticing a theme in Destiny's rant videos... They always start with "I don't want to get into this..."
I feel like it's a "I don't want to but people are stupid so i feel like I have to" because I've been noticing it a lot lately too...
i need more financial literacy / advice streams from destiny. hell, i’d pay for classes.
Yeah, it's usually better to invest instead of paying your mortgage off earlier. But this is like the mildest, most benign form of being irrational with your money that there is. It's not even usually that bad when you consider taxes (idk about US tax deductions though) and the fact that the market and your health going south badly enough at the same time could make you lose your home. You have to let normal people have a normal emotional response to debt and "not owning their home fully" when it probably only costs them
@@luctapia Yes, it's not as simple as he made it out in the video. He even said a couple minutes in that he doesn't understand why banks loan money out instead of investing it in the market themselves. It's because the more you return you seek on borrowed money, the less margin for error you have. A completely safe investment that pays 4% is desirable in the short term even though the market averages double that in the long term. The market can have a bad 5 years, and if you borrow money at a low rate just to invest it, you may be forced to liquidate when the market is down and be worse off. What Destiny is saying in this video makes a lot of sense if you have enough income to pay mortgage and also invest with enough cushion that you wouldn't have to sell the investments to get by. Obviously if you leverage into investments and never have to touch that money for 30+ years you will end up with a far higher net worth than paying off your mortgage early.
you know when the videos starts with steven saying:" im not gonna get into this" or "im not gonna get triggered by this" , its gonna be a good video
The credit card thing really hit home.......
@Lubbert Romkes lmfaooaoaaoaooaoa
You need Dave Ramsey not Destiny lol
How much progress have you made on your debt?
Destiny, I'm not 100% disagreeing with what you said about stocks but one thing that could be addressed is how FED interest rates have been dropping over the past 30 years coupled together with historically high P/E ratios. Yes, it's true there's been an average 7% return but whether it is related to free credit being pumped into the market and whether it can be continued (over the next 5, 10, 30 years) is another issue entirely.
There are also demographic issues (baby boomers after WW2 (which may be responsible for growth) who are now retiring) coupled together with large scale economic shifts (secondary sectors shrinking (manufacturing shifting overseas) but growth in tertiary sectors) and it may be a bit too oversimplified to say someone should expect a 7% on their ETF. These confounding factors may be what was responsible for Japan in the late 1980s.
And there's also the 'endless economic bubble' theory as well...
Will post sources if noticed. I'm also just a normie so don't ban me. SWEATSTINY.
Whenever you hear: "Eh I don't want to get into this", brace yourselves for a rabbit hole of internet argumenting bois.
4:06 "you will get your money back in the market. Oh kay?" - Stephen "Jim Cramer" Bonnell - Financial genius
This monologue kinda changed my mind about paying off a mortgage early. It makes sense that an extra $100 a month would be better spent on a safe investment that grows at 7% than paying extra principal on a debt that costs 3.5% especially when most of that debt's interest can be written off in taxes. I'll do a bit more research and speak to an advisor, but the logic seems pretty solid.
Edit: then again, it would be good to factor taxes as well when it comes to overall gains. I think a good way to go about it, if possible, is to continue to make the recommended mortgage payments all year, then invest your mortgage interest tax deduction in something that will give you more of a return.
I know this is a long late reply, but another issue that Destiny failed to point out, particularly because he’s got a good head for money, is that oftentimes, while you can play the long con and win, people are forced to pull out early, for the same reason poor people feel forced to take out a credit card. Shit happens sometimes, and if you don’t have enough liquid, oftentimes the investment suffers. And because shit irl often follows shit in the market, when you withdraw you’re doing so at the worst possible time.
For this reason, leveraging debt should always be done within your means, so that if stuff goes wrong you don’t get fucked. It’s when people see the theory for the whole, they go and over leverage themselves with debt and get absolutely rolled.
Mortgage interest tax deduction doesn't help many people at this point. Standard deduction is nearly $30k for a couple.
There is still risk to having debt. I agree with his take, but it's not as cut and dry as he says. There is no beta when you look at the difference of the interest rates alone.
The 7% average return is quoted after inflation, so the calculations using 7% was already adjusted for inflation if we're looking at the average case.
Also the people who said that 7% was extreme were thinking about bank account interests and not actual stock investing.
Risk adjusted returns are very relevant and it relates back to your "a single anecdote is worth jack shit", buying a single stock can give crazy returns but if you go back and do the risk adjusted returns then it would equal the market.
"nevermind, i don't want to get into this" *proceeds to get into this*
7% assumption is also pretax.. not taking one stance or another, but people should always model this stuff out before they make life decisions... also, there's also the consideration of liquidity volatility.. if you lever up and reinvest, and the market goes south and you can't payout to the bank, your 30 year averaged return of 7% pretax won't look pretty next to the their interest defaulted clause that hikes your interest rate to 20%, if they don't just straight up take your house.
Yeah exactly. If the tax in the us on capital gains is 20% and he earns 7% interest that's 7%*0,80 = 5,6% after taxes.
That got really real all of a sudden...
damn that rant about being poor is a punch in the gut. I'm sorry poor people :(
Generally you want to put a higher down payment for lower interest rates beyond what you would just get through just having a low principle IIRC. The price of the house is a factor that brings down the interest rate beyond just adjusting what the principle ends up being with a higher down payment.
You might get a better margin through investing extra money in a mutual fund instead of paying down your mortgage, but I wonder how far away the numbers would actually be considering money paid closer to the beginning of a mortgage is disproportionately valuable to the consumer (interest is paid most heavily in the beginning of all mortgages).
Plus, practically speaking people set aside money for their mortgages (plus a good amount as safety), and the sooner that debit can be paid off the sooner those funds are free to be invested in other things. It's true that the wealthier you are the less this matters (since you aren't as unsure about catastrophic financial events), but practically speaking it is a huge factor for most people in investing.
Damn. This is literally going to change my life. I paid off all credit cards a year or so ago and I'm close to paying off student loans after almost a decade. Now I got an idea of how to math the future!
S&P 500 would go on to return about 14% per year after this was recorded (8/10/2024) 😂
Was listening to people arguing with him about how 7% is unattainable and thinking this 😄
When you can revise your mortgage from a 30 year plan to a 15 year plan, you probably SHOULD do it only IF the interest rate goes down accordingly. If its a fixed interest rate theres no point in paying off a mortgage sooner.
He is assuming that people invest their money all the time. Not everyone likes to invest their money in the stock market. Normal people dont understand the "market" and how to control debt effectively. Loans are bad for normal people. Period.
"Normal" people can learn this shit pretty easily if they put a minimum of effort. People bust their bodies doing shit manual labor jobs but ask them to think for two seconds and they shut down. People need to git gud, stop being so mentally lazy.
Don't we have to account for taxes? I mean here in Sweden it's 30% tax for all your profit. So if you get 7% annual ROI that's 4,9% after taxes. And the breakeven point if you loan for 4% should be 4%/0,7=5,71% but you also gain the benefit of combining possible losses with the 5,71% profit you made.
I very much enjoyed this video and i learned a couple things as well!
"talking"
methstiny was wild back in the day
Thanks Destiny. This helped a lot.
lost it at Double Harambe candle formation
After becoming a big brain over the last few years this is an excellent video.
32:00 destiny data is just the plural of anecdote PEPE
my american public high school required us to take a class about credit cards, mortgages, etc.
Lucky you. I've never met anyone yet that's taken a personal finance class. really weird to me. It feels like something that should be taught Junior year of high school so students know about this stuff before applying to colleges.
meppers the only financial class I've had was a few years ago my health teacher decided hmmm I should teach them this as extracurricular kinda
This should be law
In the s&p there has never been a 20 year period that would hace returned negative results. In a 20-30 year period the average return in 10.5 with a stamdard deviation of
Yeah so if someone magically only invested in those 500 companies that are currently there they'd be fine. However, loads of companies that underperform or go bankrupt are removed from the listing. Most people would have lost quite a bit having stocks tied up in them for some period of time.
Michael H those magic 500 company’s are called an idex fund and they are very easy and cheap to invest in
@@masonman1996 my point is that those companies have not always been in there and many companies have fallen out which skews the gains. Investors would have put money into some companies that were in the index but fell out due to underperforming. Therefore they would not have got 10%+ so easily. On top of that mortgage rates 20-30 years ago were 8-16%.
An mutual fund will actively buy and sell companies. So investing in an index fund that copies the s&p 500 will result in changes what companies your invested in as companies fall in and out of the top 500. Also mortgage rates are going to correlate with the market rate of return so if rates were actually at 8-16% you could invest in the economy at even higher rates than that. I am a 4th year finance student if that gives any validity to what I'm saying for you.@@michaelh878
Wait so paying off a mortgage early is bad because you could invest that money in stocks and overperform the mortgage interest but just owning a home and not taking an equity on that home and investing the money in stocks to overperform is okay? I mean it's literally the same thing except in one case we are talking about a person who additionally owns a home or a portion of a home and in the other case we talk about a person that does not. It's literally mathematically the same situation.
Only if you use your house as a speculative investment vehicle. If it's just a commodity, for living or whatever, you shouldn't treat it as a financial asset.
I always love going back to this video lmao
Martin Shkreli says you should spend 500 hours at a minimum on buying any 1 stock. He also says that you should probably never buy any stocks with your own money.
If you have a mortgage at 3% instead of paying that down faster, invest the extra $$ into an investment paying say 10%. You profit the 7% difference.
I understand what he’s saying. But if you payed off the loan sooner, you could be investing money without being in debt for even great return?
For example you could either pay the loan(100k at 4,25%) for 1000$ a month in 10yrs and then invest 1000$ a month for 20yrs at 7%p.a. which would give you 510k(+ the 100k of the loan). Or you could pay of the loan for 490$ a month for 30yrs and invest 510$ at 7%p.a. in the market for 30yrs. This would give you 600k (+ the 100k of the loan). Same input but 90k difference in outcome(not considering taxes). Sure, if you feel better not having a loan in your name you could pay it of quicker, but you are losing the opportunity to use your money more efficiently which is his whole point. And again 7% is very conservative...:P
man i love 2016 destiny
tru
34:47 GODSTINY
Amazing financial advice mate, i wish they taught this in school.
Real estate: location, location, location
Finance: TVM, TVM, TVM
On low monthly payments, everyone who doesn't get it should google "4 squaring car". It's what car dealers do.
11:22 new notification tone
Get an fha loan to get a quadreplex and live in one unit and rent out the other 3. Your tenants are paying for your mortgage, you're earning passive income, and you're live for free.
Best advice i got was gold and silver trading. Mostly coins. Talk to your bank to take like 50 to 100 eur per month of gold and silver and sell when value goes over 2% or 3% of what you paid. And then bank auto rebuys gold and silver with all your new money. So it grows and eventualy you can even get it money out and grow your money. Its great if you have a stedy job. Sure you have to time it a little, when you take your money for max value out, but its secure and easy. And if i will get too much hate for this post is all a meme :P 420
4:40 Because central banks buy government bonds from banks, the banks then have larger cash reserves and lower interest rates to lend out more money.
Don't you have to invest the principal of the loan if you are investing it into something that gives you 7%, I don't know about property but does it give you a 7% return
Edit: I see what he means because interest is 4% and the market is 7% you pay the bare minimum of principal and interest but everything else you would have payed to reduce the mortgage you invest in the market. So as your mortgage will increase by 4% compared to your say term deposit at 7% the money you make 3% in returns reducing the net loss of the mortgage. As all the money you make i.e the 3% will offset some proportion of the interest you pay.
Local accountant who saves power by turning off lights when not moving gives anime enthusiast minors advice on dakimakura loan repayment
Holy shit you just actually blew my mind... I live in australia and i was always SO FUCKING CONFUSED when people talked about how they NEED heating, etc etc. I thought like "i get that it's colder over there but fucking put on a blanket of a fucking electric blanket, buy a little heater or something" and i never ever understood it and just thought americans were pussies, but the pipes thing really makes sense....
Also im poor as fuck and financially illiterate so thnx 2016 destiny this helped
3:59 I think he meant long term bull in the market
You know it's a good video when he says "I don't wanna get into this"
Why do banks lend money? Because they can lend out 10x their deposite amount so they're effectively creating money and getting interest to do so
So Mutual funds just kinda ride with the market because they have such a wide portfolio that they loosely represent the market in general.
Will the market always grow? It's kind of a mind blowing concept when you think about.
Also thank you for the information Destiny, this is some useful shit.
Yes! I love financial literacy talk (I'm being serious)
Does Destiny realize this is elite knowledge..
I see what he's saying but I'm not sure it's right.
So assuming that investing the money myself, I will make 7% returns or I can take out a loan with 4% interest, essentially meaning the money I could have invested at 7% returns, I'm effectively investing at 3% returns (the cheap money he mentions) but I get a house.
If I decide to pay that loan early, in say 20 years instead of 30, then I have 10 years where the money that would have been gaining at 3%, now gaining at 7%. So it seems to me, that paying off your debt early is still the best way to go in the long run, assuming you're constantly keeping your money invested.
If I did my math right, assuming:
1) In the 30 year payoff, you also matched your monthly payment in 7% growth account
2) In the 20 year payoff, you invested the difference from total payments in #1 and the 20 year loan payment
3) Loans and investments compounded monthly.
If you paid your loan off in 30 years and invested during those 30 years, your net income at the end of 30 years would be $410k.
If you paid your loan off in 20 years, invested the remainder those 20 years, then full-on invested the remaining 10 years, your net income at the end of 30 years would be $197k.
In your scenario, the problem is that if you did the 20 year plan, you would be getting -4% interest for 20 years, THEN +7% for the final 10 years. After losing 4% for 20 years, those 10 years at a higher net interest rate can't catch up to the lower net interest rate of +3% spanned over 30 years because compound interest is exponential.
Unless you invest HUGE amounts in a shorter term, you will always make more money by investing smaller amounts over a longer period because those early payments have a LONG time to compound.
Another way of looking at it: if I wanted $100k at the end of 10yr@7% or 30yr@3%, I would need to invest $577.75/month in the 10yr@7%, but only need to invest $171.60/month in the 30yr@3%.
Ahh I see. The assumption then, is that if you have the extra money to pay off your loan early, you're still better off just investing it.
That money could be going towards gaining you 7% interest, instead of going towards your debt (effectively making it a 3% investment instead). That's the detail I was missing.
That makes more sense, thanks!
I think I need to run these numbers myself to be absolutely sure though. I'm not in a position like this so I'm not going to bother but something still seems off.
For one, your initial assumption about putting money in a growth account along w/ just making the normal payments for 30 years doesn't make sense. You don't have the money to put in a growth account.
If you did, then your point number 2 doesn't make sense, since you should be able to have a growth account AND pay off the loan 10 years earlier, which would leave me back at my original question. (This is why I'd like to run it with some real numbers, to flatten out the details regarding how much you have to actually invest vs. pay off your debt earlier)
The sooner you can stop putting money into a 3% growth account (the debt) and start putting it into a 7% growth account, the better. I did not consider however, the idea of putting the money you would have used to pay off your loan earlier, into a growth account on it's own.
I think my take away here is, put all your money in growth accounts all the time. As soon as you can pay off a debt, do it and immediately start putting that money that was going to a debt, into a growth account and you win/win/win
IF you can find a higher interest rate to invest into than your loan interest rate. It works the same way when you do something like refinance. You refinance when looking for a better loan interest rate. By finding a lower loan interest rate, you "make money" by losing less because of interest. You could then take that saved money from the lower interest rate and invest it to make even more money. :D
Damn you guys are thick
banks loan out money as generally they make a profit on you paying them back, also when you invest/put your money on hold where you accrue interest they use that to make investments just like you have. they generally play the 90-10 rule, where they only hold 10% as reserve and use the other 90% to make money from the money they control.
4:40 because of fraction reserve lending. So if you put $100 in the bank and the bank pays you 2% APR. Okay that bank can create $900 in "bank money or "electric money" okay so they loan out that $900 out at 4% so that's 4% of $900 is $36 they pay out 2% of $100 $2, so they get in $36 while paying out $2 lol if Destiny or ANYONE believes I'm wrong look up "fractioal reserve lending" and do some research on the federal reserve.
first i did the math, and i agreed, then i did more math, and i disagreed, then i did more math, and i agreed. gj destiny
Shouldn't you never buy a house to live in? if you do buy one you should plan on selling it for profit or renting it out no?
Why never?
you are forgetting about risk...always better to pay off a loan as quickly as possible. You wouldn't take out a loan to by stock...that doesn't make sense.
More like "financial illiteracy" am I right? heehhghgaharegrrrrrrr
Destiny your problem is not net profit in this case, its cash flow. Yes, if you could go to the future, cash out your earnings from your investment and go back and live off the profits then your calculation would be reasonable. But your`e forgetting the cash flow that you are going to deal with (negative cash flow) each month for a higher profit in 30 years. That means that you are damaging your quality of life by paying more each month rather than paying less. People need the money more in their 30`s and 40`s and much less when they are 50 or 60 years old. So your claim has issues when you consider that people need more money (positive net cash flow) today than they would need a higher payout somewhere in 30 or 20 years.
Destiny's argument assumes that you have the appropriate cash flow to even invest the extra money into paying off your loan faster or investing it into a fund. If you don't have the money, you don't have the money. If you do have extra money, would you rather earn 4% on it (by saving 4% interest, you "gain" 4% interest) or earn 7% on it (by investing it in something like an ETF)?
"Why do banks loan at such low interest rates?" It's because they are giving these loans to people who won't pay them back and then sell the loans to a third party who is dumb enough to buy them. AKA the 2008 crisis.
That third party on guaranteed loans is often a Government body. When you've got the Government as a guarantor, it hardly matters if you're a bank lending 400k to a person or a pile of seaweed. You're making money.
nice memes steven
26:11 Dave Ramsey claims his Mutual funds avg about 10% over a 50 yr span. CLAIMS idk if it's true
Easily could be true. 7% is one of the conservative of the long term funds.
10% EACH of the 50 years, not the entire 50 years.
Upload more content like this
vanguard fund hmmm....
Does anyone know how long ago this stream happened?
Good meme.
But what about Dave Ramsey
do returns on the stock market really compound monthly?
The real compound growth comes from dividend reinvestment. Some dividends pay monthly, others pay quarterly. The rest of the growth is just capital gains
>Invenst it in the market,
What the fuck does this mean
Dave Ramsey doesn’t agree. You should call him up to debate.
31:07 I SEE DAT GUP
I'm in highschool and I have no fucking idea what this man's is talking abought but I if something has below 7% I should pay min payment and invest the money in other things
destiny operates in an area of cold logic and emotionless numbers.
He forgets that people don't like a sword hanging over their heads
True but that's a reason not an excuse. In general people SHOULD be more financially literate and in general people SHOULD have better control over their emotions.
This is so hard to watch, we really need to invest in financial literacy so people understand this stuff
Listening to this and reading about vegan cheese, I am learning so hard.
180 IQ here I come.
Well at 4.25% intrest and 2.5 % inflation then your at a 6.75% loss each year and if the stock market averages about 7% then your really not ging to be making very much.
This video convinced me to re mortgage my house and look at my finances in the morning. Cheers :)
i think the chatters are just trolling him lmao
This was pretty great, but where the f is a house only 100k? I live in Seattle, they spend 600k on a teardown here
I have no clue how any of this works, thanks high school :)
I love how about five minutes in somebody quietly destroys destiny’s argument by pointing out how banks loan people money at an interest rate below market returns, indicating that there is risk in trying to achieve a 7% return for a long period of time
??? It's a home loan
the market's have averaged 10% for over a century so idk about that one chief
@@cowyeti21 Then explain why a bank would give someone a thirty year mortgage at 5% interest.
@@sublimesense7761 my guess would be that it's due to banks usually being required by law to maintain a diverse investment portfolio.
Also you can't argue your way out of the fact that the stock market overall gives fairly predictable returns over time. www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp
@@cowyeti21 The problem is that the stock market is not fairly reliable. There are years when stock market goes down. If a bank is highly leveraged into a position then that position giving a negative return could cause the bank to go under. Compare this to the much safer and more reliable returns of the bond market, which includes mortgage backed securities and corporate debt.
Is Destiny in pain?
what's the outro?
2:00 okay. He is correct. INFLATION is real!!! So in 1990 say I took the loan of $100,000. Well in 2020 $100,000 is only worth $50,000 in 1990 dollars. Money loses about 50 % value over 30 years time. Or about 3.333% per year.
"San Fransisco is a pretty expensive state to live in."
Loans are expensive now, 😂
FFR goes up, FFR goes down. You can't explain that.
he really doesn't understand interest rates at all
Too bad most of us can’t afford to pay loans early OR invest in the stock market lol
There's no guaranteed that you will always make back the money investing into the market or even just signing up for a "Portfolio management for low budget income families." There will always be a market crash or a hiccup that you manager had lost 10% of you money invested. Just take the time to learn about money and manage the money yourself through a platform....that way no ones to blame but yourself when shit hits the fan. Also, DONT BUY A FUCKING HOUSE AT ALL.
13:20
Destiny: Teaching financial "literacy"
Also Destiny: Uses Microsoft paint to type numbers
That Twitter stock fun money from destiny did not age well lol
Why not?
You've gotten 6.8%?! I've been calculating my projected return at like 5%. I was going to retire at 30, now I'm going to retire at 25!!!
skeptic moderate what job do you do?
@@darkflamingopontificates186 Well I'm currently an engineering student, but I have a pretty secure future as an engineer. The reason I believe I can retire at 30 is because I plan on saving and investing the vast majority of my income.
@@skepticmoderate5790 Hope it works out for you
7 percent market return average rofl you live under a rock that may have been the case during the 1950-1970 but for the past 10 years when you factor in inflation and taxes you are looking at 2 percent return AT MOST
Maybe in T-Bonds or something but the point in investing is to diversify. even then, the best way to grow your money is to invest in stocks. You want to grow your money. When you get older is when you switch to the safer 2% stuff so your don't lose money. There are so many things to invest in that 7% is not crazy when you invest in thing such as mutual funds, Exchange Traded Funds (ETFs).
"for the past 10 years"
Nice time horizon, m8.
but in his example, the inflation also subtracts from your effective mortgage interest rate so, uh...
Did you not see the part of the video where he pulls up the Wikipedia page for the S&P 500 where it shows 5, 10, 15, 20, and 25 year annualized returns? Here's the link in case you didn't see that part: en.wikipedia.org/wiki/S%26P_500_Index#Annual_returns
that feeling when shkreli proves a youtube commentor right