The more experience I get with personal finance, the more I realize that I fear different things than most people fear. Investing and mortgages illustrate these differences.
Almost all personal finance gurus recommend that investors put some fraction of their long-term savings into bonds or some other fixed-income investment. The reason for this isn’t because it will produce better long-term results than an all-stock portfolio. The reason is to prevent investors from panicking and selling at low prices when stock prices.
It could be that these gurus are right. If most people would sell at the worst possible time then owning stocks is a bad idea. If owning some bonds is enough to moderate the extreme losses enough that investors sit tight through the bad times then owning some bonds is a good idea.
But I don’t fear bear markets for stocks. I’m content to receive whatever the stock market will give me over the long term. When I think I’m 3 years away from permanent retirement I’ll shift a fraction of my savings into safer investments. The actual time I choose to retire permanently is likely to be affected by how well my stocks perform over the years.
I’m much more afraid of debt than I am afraid of stock market volatility. The recent mortgage rule changes that push people from 35-year to 30-year amortizations would never have made any difference to me. My first mortgage had a 15-year amortization and I was scared to death to owe so much money for so long. I ended up paying it off in 4 years.
The idea of trying to consistently hold a job that pays enough to make mortgage payments for 30 years seems crazy to me. But from what I can tell, people who take out these long mortgages are quite calm about it all.
My best guess is that the uncertainty in the investing case drives fear in most people, while the mortgage payments are quite certain. But it was the certainty of having to come up with the mortgage payment for hundreds of months in a row that scared me.