[Katatonic]

(10-24-2012 03:04 PM)smashley Wrote:  

I know a lot of you guys criticize living off the interest as i've seen by a few comments, and that all you need to do is start a business or by a four-plex, but it's really not that simple.

Lets break down the living off the interest thing. Yes, I know CD's are making only 1% but lets look at CD's over history.

http://3.bp.blogspot.com/-qxi8eUIvnAI/Ti...istory.jpg

You could average Cd's over the last 50 years at roughly 5-6%. Now 5-6% of 500,000 is $20,000 to $30,000 per year, EVERY YEAR.. Guaranteed with no work!! Yes there is inflation, but add 30,000 to your current salary every year and you'll see that it more than helps pay bills/ travel, etc. Good luck taking risky business ventures at the shot to make 30,0000 a year. I've started various businesses and let me tell you the best businesses to start take little to no financial investment... Only lots of time, but with that you can stop at any time without losing money. Also making 30,000 with your own business is not easy.

Once the FED stops keeping rates down as inflation increases, you will CD rates raise again. Quantitative easing is in place now, but with time inflation will creep up and CD rates will increase again and things will be better again for savers.

Don't downplay living off the interest.

Also with real estate, run the numbers.... Investing the entire 500,000 in a house will only make you 3000 a month in rent (roughly..) thats $36,000 a year, just slightly over what you would make in the Cd. Plus you have management costs, maintenance, hoa's, time, everything else, it makes you question whether it's worth it. And by no means is it even guaranteed. It could take 90 days to evict without payment, costs to replace after the tennant trashes your place, etc. It's not all gravy... That 36,000 would probably be down significantly on average. Yes the house appreciates, but it also depreciates in certain scenarios.

So you're advocating buying variable rate CD's today in the hopes that the rates will go up sometime soon? You do know that super ultra commander Bernanke has stated that the Fed is going to keep rates artificially low for the next few years right? Anyone who buys a CD today is assured to lose money for the next few years as inflation is greater than the interest rate.