The short answer is no. I am not an economist, but I have always believed that having little or no debt as an individual (or as a country for that matter) is certainly more desirable than drowning in payments. While there is a period in everyone’s life where debt is necessary, the ultimate goal for most investors is to eventually become debt free.
Apparently not everyone agrees. Much to my surprise I found Ken Fisher, CEO of Fisher Investments, heavily promoting the use of debt as a good thing in his article titled “Learning to love debt.”
While it makes for interesting reading, there isn’t much I can agree with, especially since he makes no distinction between debt for investment (growth of business) and consumer debt (reckless spending). Some of his comments about the economic benefits when a heroin addict borrows money might even make your hair stand up.
I far more enjoyed the article analysis/rebuttal by Michael Shedlock, who writes on global economic trends. His points are succinct and well thought out. He even went through the trouble of calling Fisher Investments to find out how Ken uses debt and leverage himself. Turns out he doesn’t use it at all!
Huh?
Apparently, Ken doesn’t eat what he cooks. There goes the credibility. Oh well…
Comments 3
Wow, that’s just crazy talk. He probably wouldn’t like my wife and I much. No debt except when it’s to our advantage like when the dryer died and we could buy a new one on credit and not have to pay interest for a year. We’ve done that a few times, but only one item at a time and we keep enough money to pay the items off in good yielding savings account at all times. I know all the business about yielding more in a year than the mortgage rate and the difference being money in your pocket, etc. But when we got some inheritance we paid down the mortgage principal, I always paid extra against the principal on regular payments, and we finally finished it off last summer. Had a good rate after a refi (5.75%), but peace of mind in knowing the bank can’t come in and take all your equity is a hard thing to calculate and that never seems to occur to him. If I were to get laid off (and my employer has sold assets in the last year causing some worries about layoffs here at the corporate office) my family and I won’t have the serious stress of facing problems with paying the mortgage and possibly losing the house. I saw that happen to my parents when my father’s business went bust in 1992. I got to experience the full brunt of debt collectors calling at all hours for a couple years. Not pleasant… I’m intent on that not happening to my family.
I’m not bragging, I have no room to considering my own financial mistakes (like letting ourselves be brainwashed into “buy and hold good companies” through the last bear market incurring horrible losses that never recovered), just asking what price do you put on living with as little debt as you can? Having personally seen both sides of the tracks IMHO it’s darn near priceless to live life without debt you can’t pay off tomorrow.
Hi Ulli, Thanks for spreading the word.
Telling people to leverage up now after this runup is simply unbelievable.
Mish
Mish,
You’re welcome. I enjoy your writings very much and hope that many of my 17,000 newsletter subscribers will find value in it too.
The hotbed of leverage has to be Orange County (Southern California), where most homeowners are leveraged to the hilt (cars, houses, credit cards, private schools) just to be part of the glamour lifestyle. Prudent handling of financial affairs has given way to instant gratification.
Ulli…