The title of this post may sound like a rhetorical question, but I assure you I don't mean it that way. It's a question I've been pondering for a while as I come across weird datapoints from the history of home financing around the world. A 30-year fixed-rate mortgage is maybe best defined by what it is not: it's not a one-year floating-rate mortgage. What would a one-year … [Read more...] about What is a 30-year fixed-rate mortgage?
I have the view, which I consider fairly obvious but not always clearly articulated, that virtually all low-enough-cost, adequately-diversified investments will yield positive nominal returns over the appropriate investment time horizon. If you own yen-denominated Japanese bonds, you should expect to receive a positive yen-denominated return over the term structure of the … [Read more...] about What’s the optimal amount of home-country (currency) bias?
To call the finance industry a "mixed bag" would be a gross understatement. There are a few functions essential to industrial capitalism that banks, bill brokers, and financiers mastered centuries ago, like moving funds from savers to borrowers, a process described marvelously by Walter Bagehot in 1873. Then there's the constant stream of financial "innovations," as bankers … [Read more...] about Indexed annuities are bad
On Friday I wrote about how people making payments in excess of the minimum to student loans need to make sure their student loan servicers have instructions to credit the excess payments to their highest-interest-rate loans first. It's the kind of simple measure you can take to save money on student loan interest, and all it takes is a single letter to put the appropriate … [Read more...] about The low-hanging fruit of personal finance
There's no subject personal finance bloggers love gushing over more than compound interest. Conjure up a conveniently "assumed" rate of return, give it a few decades or a few centuries, and presto, you're worth more than Warren Buffett. The thing about compound interest, though, is that it doesn't work over long time periods, it works over many time periods. I was riffing on … [Read more...] about On compound interest (and peeking)