Reason why people simultaneoulsy hold assets and liabilities??

Question

Hello, Reading a newspaper, I got to ask myself why people simultaneously hold financial assets and liabilities.
Do you know why?
Is there any advantage to doing so? If so, what is it?
I am looking forward to having good answers from you guys.
Thank you for reading!

Answer 1

If you can borrow money and invest it, and get a greater return on your investments than the interest on the loan, then your portfolio will grow.

Also, if you can borrow money to buy an asset, and get a return (financial, functional, pleasurable) on the asset that exceeds the cost of the loan, then you are better off.

When you are buying a house, you are buying something big and expensive. When you work, you get paid a little bit every week. But if you stay in the house 20 years, that little bit every week adds up to more than the value of the house. So the mortgage loan allows you to spread the cost out over time and match it to your income.

Answer 2

It makes life easy for you.

Lets say you get a car loan (Liability) Yet, you own a house (asset), have some cash, enough to get the bills paid and have some fun, not out right buy a car though, (asset)

then when you get bills, electricity, gas, water, those become liabilities to. So in reality, there isn't a way to have assets and not have liabilities.

Answer 3

Leverage is the only beneficial reason.

Also, holding a liability to invest with a higher rate, is not necessarily correct(usually not correct). When considering an expected rate of return, you must compare the expected return relative to the risk involved(the beta of the investment). Lower risk items have lower beta's and considering that paying off a debt has no risk whatsoever, it is better from this standpoint. Which leads back to Leverage being beneficial reason(because leverage can possibly reduce the risk-or beta, of a portfolio, making your overall portfolio return a higher rate relative to the risk).