Bryan Caplan  

Curious Brad

Obscure Demand Function Factoi... Spencer Lives - and He Teaches...

Brad DeLong seems pleased that I believe in and act upon the equity premium and home bias puzzles. Now he wants to know more:

But has he mortgaged his house to the gills and invested the proceeds in international equities? Enquiring minds want to know!

That's how most people would describe it - on net we've paid back less than zero on our house since we bought it five years ago, and we're going to continue in that direction. But we're not truly "to the gills." Given the real estate price rise in the DC area in last five years, there's no way my ever-prudent wife would have allowed this. I think she'd say there's a high fixed cost of losing our house, and she'd probably be right.

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COMMENTS (3 to date)

Re: your wife... are professional economists (she's an economist, right?) more risk-averse or simply more risk-aware?

paul writes:

Free investment advice (remember you only get one roll of the die)

1 keep costs LOW (this includes interest on mortgages)

2 diversify a lot

3 keep costs real low

4 invest in your human capital. its the only way to make real money.

Paul N writes:

My faith in efficient markets makes it hard for me to believe that this "puzzle" will continue; I actually expect long-term bonds to perform nearly as well as stocks in the coming 50 years.

Maybe Nobel-winning economists who invested poorly shared the same delusion that I currently do, and only in retrospect do they admit that their investment decisions were wrong. (Flattering myself is fun!)

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