Is some debt good?

I often write on Quora.com, where I am the most viewed writer on financial matters, with over 460.2 million views in recent years.

In the answers below I focused on the following topics and issues:

  • Is some debt good?
  • Do you agree that being wealthy takes away depression?
  • Is Forex brokers with big leverage dangerous?

If you want me to answer any questions on Quora or YouTube, or you are looking to invest, don’t hesitate to contact me, email (advice@adamfayed.com) or use the WhatsApp function below.

Some of the links and videos referred to might only be available on the original answers. 

Source for all answers – Adam Fayed’s Quora page.

Is some debt good?

This is a difference in mentality.

Consider people are asked two questions:

  • If you could receive debt at 0% interest rates, how much would you take?
  • How long would you take to repay this debt?

Most people would say they don’t want debt, or would take just a bit, and repay as quickly as possible.

Wealthier people are more likely to say they want to take as much debt as possible at 0% interest rates, and repay it as slowly as possible.

That is because this money can be used to create cashflow, and in some cases, decrease taxes, depending on the tax jurisdiction in question.

There is increasing education about the difference between good and bad debt though, as this simple graphic from Debt.org – America’s Debt Help Organization shows:

That doesn’t mean you should leverage yourself in all circumstances, or at all. I have seen many smart people go broke due to leverage.

The big danger is that interest rates rise, and you get greedy after succeeding with leverage. Look how many real estate developers and investors went broke in 2008.

They needed to sell properties, in many cases, to pay the bills, and loans sometimes got called in. So, debt needs to be used sensibly.

The point is, not all debt is bad. It can be good, if you are careful and sensible with how you use it.

Most people realize that getting a mortgage can be cheaper than renting, even if too few people do the full maths on that and assume that renting is just dead money, which it isn’t.

Mortgages are familiar to people, as is student debt. Using leverage to grow a business or buying assets seems less familiar, which is why fewer people use it.

It also depends on your age. At a certain age you should want to be debt-free in most cases.

Do you agree that being wealthy takes away depression?

Mike Tyson.

Made $500+. More adjusted for inflation. Had depression.

You might say that he wasn’t wealthy. What came in, went out. He actually had negative net worth at one stage, so was merely high-income.

So, let’s look at some others.

Robert Maxwell. Killed himself. Was worth about $1billion and was as influential as Robert Murdoch at the height of his power:

Kurt Cobain. Worth over $100m. Died of suicide:

The list could go on. Being wealthy, or being very high-income like Tyson was and not wealthy, doesn’t stop you being human. You can get depressed, have stress, ill health etc.

With that being said, if you take a huge sample of people, having more wealth does, on average, increase happiness.

You just get diminishing returns. If you go from struggling to comfortable that will make you happier, if all other things stay the same.

If you go from upper-middle to rich, it might make a small difference. Rich to super rich even smaller, when it comes to both income and wealth:

Wealth should be the cherry on the top of a cake which is already happy. It shouldn’t exist to validate yourself in the eyes of others.

That is one of the biggest mistake wealthier people can make, especially younger people in the sports and entertainment industry.

Often from poorer backgrounds, they use spending as a way to become more popular, happier etc. It seldom works.

Most of the happier wealthier people know when enough consumption is enough, and focus on creating security for themselves and their families, and giving to charities.

They also practice gratitude, which is a good habit for people on all ends of the income and wealth divide.

Would you swap places with a 98-year-old billionaire who only has one eye – Buffett’s business partner Charlie Munger?

I wouldn’t even if you offered me $100billion, and most wealthy older people would give up a lot of their fortune to be twenty or thirty again.

Is Forex brokers with big leverage dangerous?

The simple answer is yes.

Leverage taken to the extreme is risky, regardless of the asset. Losing leverage with index funds (margin trading) and housing is risky if you use too much, even though the underlying asset isn’t always risky.

It can simply increase returns if used properly and sensibly.

With Forex, the risks are much higher. The reason is simple. Currencies as an asset class don’t go up in value.

The USD can’t go up against the British Pound at the same time as the British Pound goes up against the USD.

The same is true with any currency. So, it isn’t like investing in the stock market. If I buy the S&P500 and so do you, we can both win.

If I sell you Euros and you buy USD, it is a zero sum game. One of us will win, and one will lose.

Pained by financial indecision? Want to invest with Adam?

Adam is an internationally recognised author on financial matters, with over 492.3 million answers views on Quora.com and a widely sold book on Amazon

Add a comment

*Please complete all fields correctly

Related Blogs