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The Thing About Debt Not Talked About

There is no shortage of opinions when it comes to the management of debt. Some say it's to be avoided altogether. Others say you should leverage up as much as you can. I wrote about debt recently on Calibrating Capital, but I want to focus on the ONE thing most people seem to be ignoring.

Debt presumes on the future. 

It takes out an obligation Today which is to paid back based on Tomorrow's assumption we have the ability to do so.

Somewhat common sense - right? Probably, but we don't always think about it.

Tomorrow is not promised to us, and unless we put some safeguards in place to pay off the debt in case those Tomorrows don't pan out, we can put ourselves (or our families) in a really hard spot. We could lose a job, we could become disabled, business plans could blow up. This is the inherent risk with debt. 

One way that can potentially guard against this presumption is to have a guaranteed way of paying off the debt. It could be equivalent money in the bank, or a pseudo-liquid underlying asset, or even life/disability insurance. 

Tomorrow's not promised to any of us, and we need to remind ourselves of that when evaluating taking on debt Today.
Interesting Resources 

1. Dimensional Funds Perspectives - Key Questions for Long Term Investors
"Jeremy, you seem to say the same things all the time." Guilty. But sometimes reminders are exactly what we need to be successful, especially with investing. While this article unpacks a number of good questions, my favorite highlights a common investment mistake I see: choosing to invest in funds that have recently done really well. Evidence shows that most funds that performed in the top 25% of previous 5 year returns did not remain there the following 5 years. In other words - past performance offers little insight into a fund's future returns.*
2. Forbes - How To Craft A More Fulfilling Vacation Using Insight From Business and Investing
Tim Mauer is another fellow advisor I have a lot of respect for. In this article he discusses how he wanted to be intentional in taking family trips outside the comfortable bubble (and has some great insight on that term) that his family has grown up within. The primary purpose of the vacation wasn't rest and relaxation - however valid those objectives are. The main intention was to expand mental, physical, and spiritual horizons through the pursuit of adventure and acts of service. This line has stuck with me for days now:


"I believe the less-visible risks of life in the bubble—insularity, entitlement, indulgence—are simply too high not to venture out." 
What's your view on debt? Something to be avoided? Something to be used as leverage? Something to not spend a lot of time thinking about? Reply back and let me know - I love the conversations. 

Gratefully,
Jeremy
* Disclosure: Source: Mutual Fund Landscape 2019, Dimensional Fund Advisors. This study evaluated fund performance persistence over rolling periods from 1999 through 2018. Each year, funds are sorted within their category based on their previous five-year total return. Those ranked in the top quartile (25%) of returns are evaluated over the following five-year period. The chart shows the average percentage of top-ranked equity and fixed income funds that kept their top ranking in the subsequent period. 
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