#nostr #saylor
quoting
naddr1qv…vjr6The conventional wisdom was to never take debt and invest the money.
That’s probably true for most people in general. But this is not an absolute question with just a yes or no answer.
Most people would say that taking on debt to invest is risky, but most people won’t think or say that taking on housing loan, car loan, credit card loan is risky.
There are times when it is beneficial to take on debt and invest the money.
I will argue that over the long term, it is actually better to take on debt if you want to build wealth long-term. But of course, there are risks involved.
This is opposite of the traditional advice to never on take debt to invest.
But if you think about it, most traditional advice is bad advice.
Traditional diet is full of processed carbs and sugar.
Traditional media is poor of clickbait and fake news.
Traditional career is to get good grades to get a good job so that you can buy a house and car to impress people you don’t even like.
The point is that most traditional wisdom sucks.
Good debt & Bad debt This is common sense that there is good debt and bad debt.
Bad debt is debt where you get into debt to buy material things for example to impress people you don’t like with the risk of not being able to pay it.
Good debt is where you invest the money to something that will go up over time.
Is buying a house or car good debt or bad debt?
I don’t know.
That’s a personal question you need to answer for yourself. There is no absolute yes or no.
But what I can say is that it is definitely a bad debt if you cannot afford to pay it.
Why debt has change
What if you have debt that can be inflated away, and you use that proceeds to invest in an investment that continues to go up forever?
The reason why taking on debt to invest is becoming a winning strategy is because our debt can be inflated away.
Here is a concrete example to better understand this:
You take out a loan for 100,000 with terms of 20% interest over 5 years.
You invest this money on asset that will have 20% or more return over the 5 years.
If you can secure a loan now with a fixed interest rate of 20% for the next five years and invest that money in an asset expected to increase at least 20% over the same period, it’s a great opportunity.
However, you also need to consider the inflation rate. Let’s assume the inflation rate is 5% per year over the next five years, leading to a cumulative inflation of approximately 25%.
Taking the loan protects you from this inflation. Your loan payments remain fixed, but your salary may increase with inflation, making it easier to repay the loan over time.
To put it simply, getting a loan today when cumulative inflation will be 25% over the next five years is like choosing between receiving P100,000 now or P75,000 in five years. This comparison shows that you’re better off taking the loan, as the interest rate (20%) is lower than the cumulative inflation rate (25%).
If you invested that amount to an asset that is expected to continue to go up, you’re more likely to beat your interest rate because of inflation + rate of return of investment.
But you can’t predict inflation rate in advance, also inflation rate is a controversial topic, because what is really the inflation rate?
Inflation rate is published government increase in cost of living, but it is defined as a fixed set basket of goods, and those baskets of goods are not the only things we consumed and buy.
Housing price increases are definitely more than the CPI. Inflation average is around 2 to 4 % per year.
What I’m saying is that I’m not convinced that is the real increase on cost of living.
Taking on debt that is debasing and buying assets that are expected to go up forever is the playbook of the rich. What they do instead of selling their assets is that they borrow against their assets.
Think of it as sangla of gold. You have interest on loan on sangla, but what if your gold necklace keeps on appreciating in price. You can just take a new loan to pay for the old loan, because now you can take a bigger loan1
I wrote more of this in detail in this post.
Let’s get back to bitcoin and debt. The point I’m trying to make here is that considering taking out a loan is not just weighing the expected rate of return of bitcoin versus the interest expense on your loans.
Inflation or Currency debasement is a factor to consider too.
Think of those you know that bought houses or condos 10 years ago, you are jealous of their monthly payments and the prices of their houses.
We always say that house always go up in prices. That is technically true but that is not the true story.
House doesn’t grow or become more scarce or rare. That’s not the reason why they are becoming more expensive.
The real reason is that houses become expensive is because of debasement of money.
It simply means that more money is printed each year so it’s just natural for prices to go up. Almost everything goes up.
Houses and other investments just go up more because these are scarce and desirable assets. Also, they are used as investments where people park their money and savings.
You can’t save in cash.
Most people don’t know it but, they view houses as investment because they go up in value.
They aren’t aware of the debasement of money is the reason why housing prices go up, they just know that they continue to go up.
It’s actually another sad reason why we have to go into debt when buying houses that we need to live in. Because we can’t afford to saved money to buy a house. By the time we have saved up for a house to buy, housing prices have already increased.
The main point I’m trying to make is that taking a loan to buy bitcoin, if time properly and if you’re able to handle the monthly payments can be beneficial over the long term.
Over the past 2 years, I’ve done that with my personal strategy to buy bitcoin.
I bought from \(50k in 2022 down \)20k and back above $60k with my salary and with my borrowed money.
Of course, this is not financial advice. You have to had conviction in bitcoin to be able to do that. You will only have conviction if you spent more than 100 hours studying bitcoin on different angles.
If you’re new to bitcoin, DCAing with your salary is the best strategy.
Don’t trade and don’t get over-leverage.
Leverage and debt aren’t always bad, as long as it is managed properly. Only you can determine how you will use leverage.
How I take on debt to buy bitcoin I started buying bitcoin in March 2022, almost 2 years ago. I arrived on the late-stage bull cycle when price was around 40k to 50k.
I initially looked at bitcoin in 2017 but like most, quickly dismissed it without even studying it. But during 2022, I saw a lot of ads on NBA games and NBA players endorsing different cryptos. NBA arenas were renamed to crypto exchanges. I thought if this has penetrated mainstream, maybe there’s something to it.
I studied bitcoin and cryptos (which is a mistake), because cryptos are just scams. Bitcoin is the only thing that you should spend time studying. Fortunately, I quickly realized that and focused my time and attention to bitcoin only.
I started buying bitcoin at 50k to 40K due to mainly greed at first. But I continued to study it so despite price going down to $16k, I continued to buy with my salary and also, I took out debt on my credit card limits.
There are two reasons why I took out debt to buy bitcoin.
First, the price was going down, so I wanted to buy more.
Second, I believe that by taking a fixed debt that is continued to debase by inflation, it will be beneficial over the long run to take on debt and buy bitcoin.
Even though the annual interest rate ranges from 5% to 12% on these debts. I took them because I firmly believe on my longer-term thesis of locking down those coins at those prices and interest rate.
Of course it wasn’t smooth sailing. My bitcoin has unrealized loss of around 50% at the bottom. If I remember correctly, that was around P200k of unrealized losses.
Only recently my bitcoin unrealized losses turned into unrealized gain.
My cost basis was around 30k, but since I bought more during recent pump starting October 2023, the last time I checked, my cost basis per coin is around 35k.
For now, I stopped taking on debt to buy bitcoin because, I’m already satisfied with my cost basis, even though sometimes I wanted too, I have to check myself.
I don’t recommend doing it now, and generally I won’t really recommend anyone to take on debt to buy bitcoin because everyone has difference circumstances, and you will blame me if you fail.
The reason I’m sharing this is so that you can weigh it yourself if you want to do it.
Also, we are on a bull run, it’s much easier to recommend buying bitcoin when it was 20k, because I know that eventually we will run up. Sadly, most people won’t buy when the prices are going down, most people will buy when price is going up due to greed and FOMO (Like me in March 2022).
The rationale that I told myself when I took on debt to buy bitcoin is if people are taking on debt to buy car or houses, why shouldn’t I do it also but instead of buying a depreciating asset, I am buying bitcoin.
But it wasn’t rosy and easy. Like I said, I was down 50% at one point.
Now I’m up 200% on my investments. This includes all the debt + my salary invested into bitcoin.
I don’t recommend doing this now because we are on a bull run. Right now, I’m happy with not taking on debt. I do plan to take on debt around the downturn on the 4-year cycle which I expect to happen around 2026 to 2027. For now, I will just DCA and chill and pay the monthly payments on my debts.