Should You Invest or Pay Off Debt? (VERY Important)
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- Опубліковано 6 чер 2024
- Should You Invest or Pay Off Debt? (VERY Important)
Should you invest or pay off debt? This is a question many of us are faced with at one time or another. Finance influencers like Dave Ramsey insist that paying down debt is the best way to wealth while others believe that it’s a bad move. Why would you pay off debt when you could put that money to work to earn more money than the debt is costing? Is it better to use extra money to eliminate or at least pay down debt you’ve accumulated or is it better to invest that money so it grows and provides exponential returns for your future? The fact is, either can make sense but you might be surprised at the difference this simple decision will make. In some cases, these decisions could mean the difference of hundreds of thousands or even millions of dollars in the future. Let’s take a look at the advantages and disadvantages of both options so you can make the right choice that could mean the difference of being completely broke or financially free.
I was advised to diversify my portfolio among several assets such as stocks and bonds since this can protect my inherited portfolio of about $2.5m. I’m used to just buying and holding assets which doesn’t seem applicable to the current rollercoaster market plus inflation is catching up with my portfolio. I’m really worried about survival after retirement.
True, I mostly just buy and hold stocks, but my portfolio has been mostly in the red for quite awhile now. Unfortunately to be able to make good gains, you’ll need to be consistent and restructure your portfolio frequently.
It's often true that people underestimate the importance of financial advisors until they feel the negative effects of emotional decision-making. I remember a few summers ago, after a tough divorce, when I needed a boost for my struggling business. I researched and found a licensed advisor who diligently helped grow my reserves despite inflation. Consequently, my reserves increased from $275k to around $750k.
My partner’s been considering going the same route, could you share more info please on the advisor that guides you?
There are a handful of experts in the field. I've experimented with a few over the past years, but I've stuck with ‘’COLLEEN ROSE MCCAFFERY” for about five years now, and her performance has been consistently impressive. She’s quite known in her field, look-her up.
Thanks a lot for this suggestion. I needed this myself, I looked her up, and I have sent her an email. I hope she gets back to me soon.
I follow and love your videos. sadly, it's been a while since i visited it has been a very rough year... i am experiencing one of the most challenging phases of my life... Lost a fortune lnvesting in emerging companies. Hopeful, for a turnaround.
Investing so much in emerging companies is a horrible decision. BTW, I commend Gary's trading pattern too. Different perspective, different technique
With my mortgage at 1.9%, I earn money with that 10% inflation
Nevertheless, a point that should be highlighted in this video is the financial freedom. As long as you have debt, you are accountable towards banks and might loose everything if things turned out badly. In the meantime, if you pay your debt earlier, you may earn less money than if you didn't, but you'd acquire financial freedom and you'd whatever you'd like with your income afterwards.
Also, investing first only works out if your debt has a lower interest rate than your investments.
Scholars who study the stock market’s historical performance estimate that over time, the payment (and reinvestment, and compounding) of dividends have contributed anywhere from 30% to 90% of the S&P 500’s total returns. I want to spread across $400k into profit yielding dividend equities but unsure of which to get into.
Simply put, if you’re not investing in dividend stocks, you’re doing it wrong.I stopped listening and taking financial advise from these UA-camrs, because at the end of the day, I end up with a bunch of confusing stocks without knowing when to take profit, In reality, all I needed was professional advice to take advantage and make profits.
Very much appreciate it Scholars who study the stock market’s historical performance estimate that over time, the payment (and reinvestment, and compounding) of dividends have contributed anywhere from 30% to 90% of the S&P 500’s total returns. I want to spread across $400k into profit yielding dividend equities but unsure of which to get into.
@@maryHenokNft That's impressive, have you always had guidance?
Not exactly, I started out with a financial advisor called *Camille Alicia Garcia* Her honest approach gives me complete ownership and control of my positions, and her rates are incredibly affordable given my ROI. However, do your due diligence before contacting a financial advisor.
This reference seems valid.. Just looked up her full name on my browser and found her website without sweat over 15 years of experience is certainly striking!
Concerns about a potential recession and the Fed's talk of interest rate hikes have left me uneasy. I'm unsure about my $440K portfolio strategy, considering the uncertainty of a recession and the possibility that interest rates may not rise significantly
I completely understand your concerns. But In this current unstable markets, It is advisable to diversify while retaining 70-80% in secure investments. looking at your budget, you should consider financial advisory.
I agree. This is why having the right plan is invaluable, my $510k portfolio is well-matched for every season of the market and recently hit 100% rise fromm early last year. I and my CFP are working on a more figures ballpark goal this 2024
Mind if I ask you to recommend this particular coach you using their service?
'Carol Vivian Constable, a highly respected figure in her field. I suggest delving deeper into her credentials, as she possesses extensive experience and serves as a valuable resource for individuals seeking guidance in navigating the financial market.
Thanks for this. Found her and looked through her credentials before contacting her. Once again many thanks.
There's nothing like having no debt... a lot less stress, and a lot more money in my pocket.
There sure are some huge advantages
@@ChrisInvests you can't just look at the numbers. You have to consider the return on a risk adjusted basis. Paying off debt gives a 100% risk free return.
At a time where interest rates are rising and central banks are tightening, it's 100% guaranteed
@@aightm8 I addressed this point in the video
Amen
I'm there, been debt free for 15 years.
I paid off my house 20 years ago, have no debt and ample cash. I can sleep easy and retire early whenever I want to. I still have a sizeable retirement account.
You don't have to answer but I'm curious to know what your income was during that time?? 40-60k or 80k+?
This videos isn’t for your boomer
@@Adam-kv2dh Around 55k when I paid the house off. It can be done with a frugal lifestyle. I am not so frugal now. :-)
@@E.E.F. very nice 👍🏻👍🏻 I'm cheap myself at the moment lol trying to get ahead only debt I have is mortgage. I didn't go to college
@@604h22a Why are you assuming they are a boomer?
I am about 3-4 years into my investing journey if you asked me in my first 3 years I would have chosen to invest. Now I am 100% sure i would pay off debt.
@@CaribbeanHustla i see alot of people say invest instead of pay off debt but investing is a risk 100% of the time while paying off a debt is guaranteed. My moms mortgage is 2500 If paid off her monthly cost would drop to 650 property tax. Guaranteed 22,200 a year in fewer expenses. If she invested the cost of her mortgage instead of paying it off she would need to 10%+ on the markets every single year for it to be worth it. Investing is only better in theory and would assume that you would never be forced to sell during down years. This is what decimated people in 2008 stock market crashes and people cant afford mortgages or anything so people are forced to sell stocks at pennies on the dollar. Ended up losing all of their investments and their homes, cars etc (that they could have paid off instead) thousands of people ended their own lives because of that crash and losing everything. I get that in theory investing is far more lucrative in theory but the reality is that most people are not beating the markets about 6% of investors do and most of those are already wealthy. It would take 15-20 PERFECT years for you to really see the benefit start to outweigh the risks vs mortgage pay off which would be immediate relief.
@@ExplorationRandomDestination if you are forced to sell your investments you made a mistake somehow. Also it doesn't take 10%+ a year to beat paying off your mortgage, just more than the interest rate of your mortgage is which is usually very low. You dont need to beat the market at all, the market has returned an average 10% CAGR for decades.
I had a huge debt back in 2015, about £50,000 (roughly $60,000). I decided that paying off the debt made more sense because the APR was roughly 9.9% (mostly credit card debt), so it made zero sense to invest, as there is no way of investing that guarantees more than 9.9% return.
Then at the end of 2019, I paid off all my debt. and two years later I'd bought my first property. So yeah, if I can do it, anyone can do it. Why do I say that? Cos I work as a secretary - I earn a modest salary. Being frugal helps a lot too.
@@Will-uj7yu And you might need decades for that to play out. Those returns are for the LONG term, which 1) some people may not have or can't afford to have (people die/have bills to pay), and 2) starting your buy-in point is basically buying into a mystery, and mysteries often start off or wind up with someone dead. You CANNOT correlate long-term results with short-term results. You yourself note we are talking about averages, not guarantees or anything remotely close. A paid-off debt is a guarantee and doesn't require any timing at all.
Great video but I will say…nothing made me feel more in control of my finances then paying off all my debt. I make good money but having no debt makes me feel like I have doubled my income which means I can invest much more
Yep the family went completely debt free right before my wife went back to school for her RN. We did not have cc debt or auto debt but we wanted our home payed off before she started college (we are middle age) plus going to school was going to cost us and we planned on paying it all in full per semester. She graduated debt free, works at the hospital, we have better insurance thats more affordable.
We still spend like when the income was just one instead of two. So being debt free and her working it feels like we really have tripled our income.
But I'll be honest...when we went completely debt free 3 or 4 yrs ago, it was and still is the best feeling ever! Everyday it feels good knowing I'm not paying on any debt anymore.
Bills still come but its way way easier for me once the house was payed off and our cc we still use but we pay the off every couple of weeks.
If one can invest 10% save 10% have the emergency fund maxed out to their liking.
And be debt free..
That feels like freedom.....👍
@@tinmanslickgreasy999 I still have a mortgage but all CC, vehicles, etc are completely paid off and literally nothing has ever let me feel more in control of my destiny than this.
@@DadsCigaretteRun right on...RIGHT ON!👍
Facts!!
In my opinion, it depends on each person's comfortability of holding debt. As the video said, the type of debt is important too. If your debt is in credit card with 30% interest rate, it must be paid out. However, if your debt is mortgage, especially in rental property, there is no reason to clear it fast because the rental income pays for the mortgage itself. Just my 2 cents!
The math is unquestionable but the math only works from a practical stand point if you invest the remaining amount. If you are going to spend that amount on consumer goods, better pay off the debt and stay out of debt.
Absolutely!
...well...OBVIOUSLY...
fictitious returns without taking into account emotions (of investors) like buying high and selling low and without taking into account the costs associated with investing leads me to believe that even at 2% interest it is better to pay off debt FIRST and then start investing...
@@jordycorvers7465 If you really can't control your emotions, then yes that's the best strategy. I opened a brokerage recently and bought some index funds and an individual stock. I'm not selling any of it for at least 12 months so I will pay the lower long term vs. short-term capitol gains tax rate. My mortgage is 2.25% APR. I can't bring myself to make extra payments on it with that interest rate.
Paying off debt is never a gamble. This is the way.
I know this is aimed at a US facing audience and I believe there is some significant differences across the world, but depending how you invest (and where) there are also tax implications where nowhere do you get taxed on paying off debt.
If you make below the roth max income level, your argument is completely negated as you never pay taxes again after 59.5 and at 144k filing singly that encompasses most of our society
@@jg7286 I don't understand how that applies to different countries
Inflation here was 14% last year 😂
I found a mixed strategy worked best for me. When the mortgage was “new” the additional $$$ paid on the mortgage reduced the term significantly with each additional payment, typically several months. However, after executing this strategy for quite some time, the reduction in the mortgage term with an additional principal payment was not much (determined by your actual circumstances). I then switched to investing the additional money, which enabled me to fully pay off the mortgage balance on retirement, allowing me to enter retirement debt free (which was a major financial goal). This strategy was made more complex by the fact that at the start of the mortgage term, my disposable income (and thus the amount available to use to execute the strategy) was much less than at the end of my career, which is typical (I assume). However, the mixed strategy paid off significantly for me.
I'm doing both... investing $25 weekly and paying an additional $100 monthly on our mortgage. We're also building our emergency fund by $25 weekly. We have well over $1,000 in the fund.
Sounds like you're making progress 👍
not sure if it is worth investing if you are getting less returns than you would by paying your debt. but yeah saving some for an emergency fund. I have paid all my debt and have saved $100,000.00 I am unsure what to invest in the market at this point, seems like everything is going down. will see how things pan out in the next six months b4 i do anything...... keep going it happens faster than you think and having no debt is such a feeling of freedom..... nothing else like it.
@@malachycarson5846 search of how to dollar cost average. Slowly contribute into the market. There is a chance it will still go up as well. Can’t be too skeptical.
@@Dafish1738 nope.
i think i will go with Warren Buffet's advice rather than some random from the net...... clowns bragging about their crypto accounts to me... yeah they weren't scamming me but still I was right they are broke. even worse the ones that went into debt for crypto. for basic peoople like me that don't have much to gamble with i think it is better not to take much risk. OK maybe a mere 10% of your investments in random things, but nope, i don't like taking chances.
@@malachycarson5846 Just start buying companies that you think will have a bright future. The time to buy is as stock prices decrease, not as they increase.
Think long term.... you could make 40-60% returns in 5 years as the economy bounces back!
Depends on your risk tolerance.
Debt is a guaranteed liability.
Investment is only the possibility of a return.
If interest is significantly less than inflation it makes it more tempting to service it minimally and try to make money in the market.
depends on your time horizon. Investment is practically speaking guaranteed return over the long term if you invest in sound cash producing assets and are diversified.
An advisor in the 80s once told i and my colleagues at work that the only way never to go broke was to buy good companies. Miss Anita, of blessed memory then asked him how can one know good companies? This question is still lingering on mind. Great Video BTW!
After my experience in 2017 of slow emotional torture when i lost more than half of my portfolio here is my strategy i don't hold minor companies and hot picks except i want faster profits at that time or when i get greedy i then opt for them through a Pro only because being very much more profitable it is riskier too and i can't handle Lol.
I hope people will learn from your experience don't invest what you can't afford to lose.
I am in a similar fix, My portfolio is down with my tuition fee.
@@Thompson7888 May i ask Who's the Pro you work with? A friend recommended an American but his charges and term are quite crude.
@@Thompson7888 Smart Strategy! Pls what are your thoughts on ETFs and how profitable are they? And again can you say a genuine Pro to hire or work with till i get better. Someone who wouldn't run with my money. 🤣
According to Elon Musk", Since I’ve been asked a lot: I will always advise, we buy stock in several companies that make products & services that *you* believe in. Only sell if you think their products & services are trending worse. Don’t panic when the market does. This will serve you well in the long-term.
My advice to new investors: Buy good companies stocks and hold them as long as they are good companies. Just do this and ignore the forecasts and market views which are at best entertaining but completely useless
The key to big returns is not big moving stocks. It's managing risk in relationship to reward. Having the correct size on and turning your edge as many times as necessary to reach your goal. That holds true from long term investing to day trading
PRISCILLA DEARMIN-TURNER, That's whom i work with
i have seen loads of news of PRISCILLA DEARMIN-TURNER on the internet, she must really be that good for she to be talked about in such a way..,is she on youtube? please how do i reach her
No she's not!...You can just put her name on google and you will be directed to her website and drop her your message.
Compounding is a key too!
If you only invest once, that’s just not enough to do the trick!
It all depends on the interest rates. When interest rates are high like now, is better if you pay off your debt. If you had credit cards sitting in 20-30% interest, better to pay those off.
True
If you want to maximize your wealth, you have to take risks. There are people who are more on the more conservative frugal side who would overpay the mortgage, conversely those with a higher risk appetite will gamble more on higher returns leveragung mortgage debt in the stock market. The latter mindset is similar to that of entrepeneurs where we can see the rewards are very high for success.
Thanks for watching, msg the number above I have a great offer for you✍️👆🏻
Excellent video -- it fairly explains the pros and cons of each option, but does not choose one. There are many, many factors that affect the outcome, and different investors can have different values.
Thanks Bruce! I try to leave it open ended for the viewer to decide.
A fellow co-worker asked me the same question years ago....especially during the rocking 90's....
My answer: Do both. At this point however, I am not in debt....so what I do now is save in a money market (for emergencies) AND invest....EACH paycheck.
First though - you WILL NEED to establish an emergency fund. Get that done first....
Years later when I got laid off - I had paid my house off MANY, MANY years earlier. I sailed through the layoff without an issue. Others weren't so lucky...
Do both...
I couldn't agree more. I think the value of having your house paid off far exceeds that money you would have invested.
@@nerdobject5351 yeah...I mean, when you pay EXTRA on it, you are MAKING money...by SAVING interest. Those extra payments GUARANTEE you that you at least make whatever your interest rate is... And yes, I know you're not making 10 to 20% like you can with a mutual fund - BUT, it is guaranteed and you do get your house paid off faster. I got mine paid off in 11 years....and as I say, that PAID off when I was LAID off (sounds like a poem). I know some poor bastards who had to see their house.
Paying off your house feels so good. About to pay off the 1st rental due to it's and higher interest rate then dump all extra cash into the 2nd rental to pay off. This gives me all of the rental incomes and no house notes. Life gets easier faster soon... with hardly any expenses as I never remarried...
Great!
Your videos are very much appreciated and timely.
This is by far one of the best videos on UA-cam. Thank you for all efforts and for sharing. Please keep all the good work up.
Thank you..,Glad it was helpful 😁
I don't have any high interest debt. I plan to keep it that way. A car loan, a mortgage, those are low interest loans which you leverage to have more money in your investments over time
The wisest thing that should be on every wise individual's list is to invest in different stream of income and don't depend on the government to bring in money especially now the pandemic is hitting the economy
you are definitely right , waiting on the government is a big waste
Investments are the stepping Stones to success especially if you been guided by a professional
Investing is good but investing in the right thing is the actual key to success . who is your pro ?
That was exactly what I did, I trade with a professional stock expert "TERESA JENSEN WHITE " who i met in one of the seminars..
There are so many investment out there but if profits must be considered then not all investments are good to go into.
Yes the financial formula is obvious. The problem is we are not robots and do not follow any formula to the T. Also the psychological benefit of having your house paid is unmeasurable. The weight you feel lifted off your shoulders when your house if paid off is incredible. Do what you feel is best but do not ignore the psychology of money and debt. And for most the best path is to simply be debt free.
Tks a lot
I forget I'm not a robot at times.
When your debt free you don't need that much money coming in
💯 I prefer being debt free than rolling the dice …
Yea once you have a place secured I'm gonna chill out for a bit. Maybe find work I like
I'm doing a hybrid. Paying of my house, saving for another and renting out this one.
Save investment in s&p is fine for people who want the 9-5, live frugally, and retire when they're 65 with a couple mil in the bank.
But for anyone wanting to live a little more lavishly or do more things before retirement age, exploding your income via businesses, side hustle etc rather than dumping it in s&p is the logical move.
Its easier to succeed in sp500 than it is to succeed in business......the average person.
@@kevingrant4491 for sure it's easier. Set it and forget it until 30 years later.
But nowadays there are hundreds of businesses that people can start for a few hundred dollars that is very low monetary risk and would of course require a lot of elbow grease.
For me at least, I'd much rather use a few thousand dollars lying around to use it towards building something that could have explosive growth rather than throwing it all in a 8% s&p.
The 8% could come later after I've exponentially grown my once-limited capital.
@@mrhuangsta you and I are not regular / average people. I can tell you have alot by your optimistic view on owning assets. Most people will fail badly at running a business long-term. That is why I recommend 401k and after tax index 500 shares or small muti family houses so they don't end up broke later in life because of failed business ventures.
I feel they will grow into business as they age if their financial education teaches them to.
You are 100% right.......but wrong for majority of people. I'm 57yrs old.....all I own now is a lot of heavily leveraged real estate and sp 500 shares.....first generation wealthy.
@@kevingrant4491 amazing. I've obviously still got a lotttt to learn!
At the end of the day, i think the point is still the same. People like to juggle both thinking like they are winning but at some point u need to pay off the debt. And at some point u need to invest if u want to live a financially free life.
Absolutely
You never really have to pay off your debt you can always take out more debt... but I understand at 60+ years of age you kinda want the peace of mind to be debt free and have less assets to manage.
What you left out is how much taxes will put a dent to those profits. In reality, even with all those numbers your 800k difference could shrink to as little as 100k depending on where you are from and your tax system. All that risk for 100k over 30 years may or may not be worth it for some
I’ve done both and it served me well…now debt free except the house and working on that next. But following Dave Ramsey and the Money Guy- I came up with my own plan hybrid, stuck with it and was able to do both at the same time.
Great! I think that's the best way to do things...gather information from different sources and develop your own plan.
Pay off debt now that interest rates are increased and then invest to keep those expenses from becoming debts. Only thing is businesses do not do this. They leverage debts and invest their profits.
Thanks for watching, msg the number above I have a great offer for you👆🏻👆🏻
Thanks!
I believe I could benefit from additional help in navigating the market; it is utterly daunting. I've liquidated $120,000 of my assets and would appreciate some suggestions on where to invest my money.
You may simply follow up on his recommendation; some of them turn out well.
At this stage, I believe professional services and advice from a financial advisor are your best hope for staying ahead of the market.
@@richardsimeon7272 Investment coaching seems tempting, but I'm not sure how to get started. Have you ever hired a coach? How was your experience?
@@antonialangstone1624 Yes, I'm in contact with a broker, and over the last 5 months, I've been able to stay afloat during market crashes, and my $160,000 portfolio has grown by more than 40%.
@@richardsimeon7272 That's accurate, contacting a consultant during the pandemic was how I was able to navigate the insane stock decline at the time.
It's quite complicated, especially taking the current state of Fiat and supply chain issues where inflation and food supply are threats.....just do the best you can, just do something and improve as you go along and as results unfold. It is currently the 5ime to be nimble and pivot according to need.
Very very good and useful information about start investing or pay off debt" thank you
Only works if you are American citizen. As an European you pay double tax. captial gain in USA market and additional 38% in Norway where I am (plus fees and currency exchange). At the end of the day the average 10% return on S&P500 gets reduced to 5% witch is basically mortgage interest rate + inflation (on average). while being exposed to risk for market not growing actually as fast as historically...
Nice video. Just wondering if the possible capital appreciation of the house has to be factored in?
No because it's comparing the end result after 30 years. In both scenarios the house will be worth the same.
New credit cards now offer 20.9 to 30.9 interest rates. How do you pay that off?
This was very informative. Thank u. I learned a lot.
Thanks for watching, Jacob!
Let's say you are the bank and you have the option of either lending a single person $500K for 30 years at a low interest rate, or putting $500K in an index fund that tracks the S&P 500. Which would you rather do? Seems like an easy decision, right?
So if you are the person that got the $500K, would you prefer to quickly pay it back, or invest rhe extra payments in an index fund that tracks the S&P 500?
At long as you can make the minimum payments for the life of the loan, investing the extra will work out in your favor.
Also factor in inflation. When you take out a 30 year mortgage, you pay the same amount each year for 30 years. However, due to inflation, the value of the dollars you paid in year 1 is worth more than the value of the dollars you paid in year 30. So even though the total dollar amount over 30 years seem high, when you determine how much it is in today's dollars, you realize that you didn't actually pay double the cost of the house. In fact, it's a lot less.
So should you rush to pay back a low interest loan with the dollars that have a high value?
Thank you
I think its important to invest, save and also get rid of debt. I know for some its harder than others but if you can work towards that goal and accomplish it....thats a good feeling.
If the money you bring in is greater than your expenses then you should be fine. Afterall, the payments on your debt is already factored in as expenses. If you feel that this will change in the future, then you'll want to reduce your expenses before it happens.
nah... debt is the one of the most powerfull tool you have to become rich. All the wealthy people are in debt. They just know how to use it properly.
@@Will-uj7yu indeed, I'm poor af and I have no debts 😂😂😂
Do both, but a bulk of your money goes towards debt while 10% in investments.
I think doing both makes sense. 15% to invest and a chuck to the principal of the loan. No one has been evicted when the mortgage is paid for
Except over property taxes.
I needed this video .I only make 27k and able to max out my Roth but I have 8k in student loans .I’m doing both actions from each paycheck .hopefully it’s paid off with this method
I really want you to increase you income. Update that resume, cold call, walk in whatever you have to do but get that income up. Pay off debt, save, invest and live. Enjoy life!
It will be better to pay off your debt and then focus on the ROTH
@@matthewmitchell2934 thanks for this advice but the crazy part is the only debt I have is paused so I’m kind of just saving it up until it resumes instead of paying it off
Fight to get a better job, the faster you pay off debt the more freedom you have.
@@Peglegkickboxer appreciate this
Buy a good cross section of an economy and you should do well over the long term. The market will be high in 10 to 20 years, and significant higher in 30. It’s almost impossible for a company with no debt to go bankrupt. The U.S is about 50% of the global market place, pay yourself first. It’s time the market. Not timing the market. Last year I invested 200 grand in the S&P 500/ an allocation fund (with the help of my advisor Mary Margaret Carter of course) and made 670k, but guess what? I put it back and traded with her again and now I’m rounding up close to a million.
Oh she has a webpage perfect
Growing affluence is such a lovely thing to see
How? The S&P500 is down right now
Dollar loosing value vs loan payment , thats y banks offer variable rate, and later keep screwing up by increasing rates!
Just follow Ramsey's baby steps, simple process to understand.
15% pre-tax income into retirement and the rest at the house, pretty darn good advice.
Ramsey gives the same advice for every single person. He’s also stuck in his ways even when he’s wrong (mutual funds vs index funds).
@@MechE11B the money guys are way better than dave Ramsey
Dave Ramsey owns all.
Dave Ramsey provides great advice for getting out of debt. But, I strongly suggest you do not follow his investment advice.
It depends on the size of the debt. 5% interest on a home loan you lose more money than you'd make with 15% profit on investments. Put extra money on the home loan to pay it off quicker will be better.
I think there is an additional factor this math should consider in your pay-off of debt vs invest equation using assets that normally increase in value over time. Over the 20 to 30 year period of paying off the house, Its retail resale value should increase. Given 20 to 30 years, the houses value will most likely have at least doubled. This increase in home value could shift some of the final dollar amounts. Still the longterm compounded investment will most likely win.
The flip side to that is the increase in the property value happens irrespective of the debt. Let's say theoretically that you've only paid down 10% of the loan (IE 270k vs 300k) and the value of your home has increased by 50% (now worth 450k). When you sell the home, the bank recoups there 270k only - they get no benefit from the house value increase other than it being a safer loan should they need to repossess the property.
Because of this, the final dollar amount is unaffected by real estate value gains.
Normal people don’t make money because profitable trading is not done alone. Most profitable traders can’t start all by themselves,They start with experts first then in the process of making profits they learn the key strategies to self trading
@Aarav Rain i’m new to trading and from my assumptions i’ll be needing trading assistance but i’m a bit curious about your advisor, hope it ain’t a freelance expert? If it is I won’t want to get my hands in and my hopes up high
Scam.
Report it.
You make more money by placing the money in what grants higher return. An investment with a 8% return is better than paying down a mortgage a 3% - or viceversa, of course.
And yet, the debt must be payed regularly and WILL be there until it is repayed, while the investment usually can wait, and can also do not give the expected returns. So, if you invest instead of paying your debts more quickly, make sure that you can at least still cover your basic payment for the debt.
There, 10mins saved.
Great video!
Thanks for watching 😁
The thing is mostly people are better off paying off their debt because they don't have the self discipline to invest the difference. They'll just blow it all. That's why they're in debt!
So true 😬
Not considered here, likely because is it complicated and situation specific, is how taxes play into the picture. In my high tax state, that investment return could easily be reduces over 33% marginal rate, and I might be able to write off mortgage interest to save 33% instead. Your mileage may vary. (Note that the tax rate on investment income will typically be lower, but conventional IRA/401K returns get taxed at the full ordinary income rate). PMI, which has no benefit for the mortgage holder, was also not accounted for.
Mortgage rates will always be higher than inflation at the time the loan is made. They will only be the same as inflation if inflation has risen since the loan was originated. If you anticipate higher inflation, though, a not paying off fixed rate mortgage early definitely makes sense. In fact, some people who bought houses just before the high inflation years in the 70s ended up paying less than the purchase price once inflation was taken into account. That is, the total of the principal and interest over the life of the mortgage was, after inflation, less than the purchase price of the home. Disclaimer: I am not a professional so don't construe this as advice. I don't expect to see that kind of brutal inflation again.
What about over the past couple of months? Inflation is 8%+ and interest rates were 3%, 4%, 5%, 6% etc.
@@ChrisInvests You are correct. I stand corrected. Interest rates have not caught up to inflation. It would have been more accurate to say that mortgage rates will always be above the prime rate, which is affected more by policy than by inflation.
I feel torn. Right now most stocks are in a bear market. And will go Bull in a year or so. So right now you are getting a discount.
pay off student loan (compound daily!!) and high interested cc first! Car and mortgage loan is a lot lower and inflation work in our favor so by then I rather invest, best into 401k and S&P funds/stocks. Like many said in here, use build up equity to get more for assets and rental incomes. But make sure one has very stable income streams ie two or more from different sectors (health is most stable)
Wise advice!
One of the variables no one talks about when paying down mortgage vs. investing is personal freedom and time. Without a mortgage you have no 'pressing' bills with the exception of property taxes so you can work less, take bigger risks, change careers or start a business. The possibilities are nearly endless. I quite frankly find that retiring/slowing down at 63, 67, 69 is insane. The gives you a max of 20 years pending your health of actually doing things and that is no time at all. Giving up that 800 - 1,000,000 is well worth the time and freedom you can by getting an extra decade or maybe even two. This obviously a very personal question and people have to decide whats best for them. I still think you should invest 15-20% but I think anything you can manage after should go into your mortgage principle.
I get what you're saying but if you have more money invested/passive income wouldn't it accomplish the same thing?
@@ChrisInvests I think I missed including a big part of this at that was all of my retirement investment goes into my 401k currently which I max out and Which I can’t touch until 60. Then I refinanced to a 15 year mortgage and plan to pay off at 50. I’m currently 39. The question would be if I had a 30 year mortgage would that extra I’m putting into my 15 be better served in the stock market from my current age to 50. Then use that “pending taxes” to pay off the mortgage (if at all).
I’d like to see the numbers of a both/and scenario = $500 extra to mortgage & $500 invested. Just from the money perspective, I’d wholeheartedly support investing the extra, but having the ability, and having paid off my home early, the psychological freedom this provides me is immense! If I lose my job we could survive on thrift and a McDonalds salary, which is an amazing feeling! My wonder, using your math (I’ve done spreadsheets and spreadsheets of my own for my own situation), is how a middle of the road strategy would fare..
Paying off your house only frees up the money you pay on principal and Interest. Still have to pay property taxes and insurance. Your never really done paying for your property.
Those who invest the extra instead of investing will come out ahead. It's simple math.
@@aaront936except that when you have a paid-for home, your career options massively open up, so that's incorrect. It's not "simple math."
@@doubleoblit not really, your career options are a lot worse then as you're much older and have no ability to move elsewhere for work. It's not worth buying a house unless it's really cheap or you're really wealthy.
@Peglegkickboxer that's just not true lol. Want to talk about paying forever. Renting your entire life is a far worse option, qualitatively and quantitatively
Stay out of interest debt that is above the rate of inflation. Having debt below or at the rate of inflation isnt a bad idea provided the funds gained are used in a manner that will get you more value than you gave up. Additionally mortgage interest is tax deductible. That may not be a big deal at the lower end, but at the higher end it is a big deal in that it will move your upper end tax bracket significantly.
Check the interest rate on your credit card(s). It could be as high as 30%.
In my country it is as high as 45%
My mortgage is 2% 15 yr. The extra I can put towards it is pretty minimal right now, so I just invest it. I figured even in a bad market, I should do better than 2% over that time.
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Yes, with inflation as high as it is it does not mathematically make sense to prepay that mortgage.
@@BarbellFinancial fixed rate mortgage not affected - Arm and variable rates, yes. Secondly, and again, you cannot simply take risk off the table. you don't have a job, you cash investments and you pay debt - take the risk off the table and pay off the debt, you don't have dead money as you stated before, you have a paid off asset likely appreciating resulting in BUILDING WEALTH. - CASH is not WEALTH - MONEY is a TOOL to build wealth, don't believe me, go see history on how much money is devalued.
Great advice. Subscribed
Thanks for watching!
I would certainly pay off any credit card debt you may have. I know of very little investments if any that you can make 20% in your money like the interest rates on credit cards…
Great video
Thanks for watching 😁
I needed this. Thank you 🙏🏼😀
Thanks for watching 🙂
If the interest rate on the debt is below 6% prioritize investing.
From this, may the inflation point was the strongest point towards retaining the debt. Investing is risky a business, the debt give you stress and kill your drive to change jobs and risk freely. Investing is not for everyone, in a way, is also work, that requires dedication and attention, and most importantly knowleadge and understanding. Problem with that is you self-esteem and your self assessment might be wrong, and you could end up losing all the invested money, and have crippling debt still hanging. My advice is: if you are not sure you can achieve something with investment - throw money in the debt - you will clear enourmoust amount of the interest, that was set for the full period, and so, also you will catch-up on the inflation side. In general - make hybrid between the 2, the way it fits you. Also don't buy useless stuff, that will enslave you, and take time and space managing it, so you have more time to self-improve, and eventually invest.
wayyyy ahead of ya, i havent been paying my student debt for YEARS now lololol
😬
I never invest in the market as buying shares. You buy and just sit and watch your money go up or down. I invested in myself as work for my money that I earn. As buying and selling goods and services. Money always go up. The worst is just breaking even, to move that money to make money later. I like the work and not the sit down option. It's fun and I enjoy it and I'm always happy and thinking its prolonging my livability. I'm a cash person and been like that after I got out of debt and that was 23 years ago. My credit score the last three years has been N/A. I guess that's what happens if no credit is showing the past 20 years. I own my home and always bought all my cars, vans, trucks in cash. Never bought a new car and never will. My current one has been going for me for the past 9 years. At a price of $4,200 and maybe put in $1,800 of fix maintenance in those nine years. Save a ton of money doing it that way. Might be buying another used car this year, maybe.
Wow, that's a low price for a truck!
@@ChrisInvests It's a 2006 Ford Freestyle a mini SUV, not a truck. This was 9 years ago, when I payed $4,200 for it. Still own it, but thinking to buy another used car this year. I already have $8,000 save up to start looking around for one.
@@gimcrack555 oops, I misread it
I do both. Always working on my nest egg.
I pay myself first. Retirement accounts take time for compounding to occur. Of course, my mortgage is at 4 percent… I still think I’d put in regularly to a retirement account even if my rate was higher, just wouldn’t max it out.
The real secret....Pay such a huge amount down so when you take out your loan for your house, it's only $500 a month or less. That's what I and my wife did. IF YOU CAN'T DO THAT - then you have NO damn business buying a house unless you enjoy financial slavery....
We knew I could get a job at Burger King .....and STILL MANAGE to keep the house IF I got laid off.
And yes, I did get laid off....but it was many, many years AFTER I had paid the house OFF. And yes, we sailed through the layoff without an issue. Having no debt is FREEDOM.
While we were paying off our house - we invested the WHOLE way along too......DO both.
By the way - 2nd secret - Never, EVER, BUY NEW cars....buy USED cars.....WITH cash (emergency savings - see how that works? ABS - Always Be Saving)
This was sound advice 5+ years ago. If my mortgage was 500 per month I could only afford a 2 bed 1 bath 1000 square foot condo in the Midwest. Also because of the chip shortage it’s smarter to buy new cars rn if you have the option. Used cars are insanely overpriced and people are purchasing hybrid and electric vehicles now. Not many of those on used market.
Have you seen the vehicle market? A decent used vehicle currently cost about as much as a new one. Unless you want some 1997 ford ranger with 198,000 miles on it that will probably spend more time in the shop then on the road then you are better off buying new. I assume most people just want something dependable, low cost, and low maintenance.
@@HIB801 I would agree....that IF a used car is only a few thousand LESS than a new car, yes, you may was well get a used car. For me, I buy shit cars for not much more than 6 grand - hence I a new car is not an option for me. All I'm saying is that you need to GET your monthly mortgage payment down to a VERY reasonable amount per month. AT one point, I had mine down to $368 a month. Needless to say, I paid my house off in 11 years...
@@dancalmpeaceful3903 368 is wild. Mine is almost 10X that.
@@petelee2477 Well...I can't say I've looked.....for quite some time. And maybe I will get sticker shock when I do...in the meantime my Toyota has only 165K...so I"m good for another 20K or so. I don't drive very far nowadays...so it may be awhile before I have to bite the bullet. We'll see...
Not sure why you would subtract the interest when the money calculated is earned in spite of the interest paid. You still end with the money you don’t pay the $2xx,xxx twice
I'm glad you figured in the inflation and the reduction of the value of the dollar. Most people ignore that. Inflation over the last 10 years has been 27%. OUCH
Absolutely, that's why some people love low interest debt 😀
We used debt as a leverage and now own a rental and just hit $1 million dollar in our net worth.
If we spent years paying off our first home’s mortgage, we would never purchase a second house and gain equity in both homes.
yep, I think timing matters of course but I'm in the same boat...not 1 million dollars net worth but about half a million, just shy of it...took money I could have paid off all my debt with and invested it, now I have more than enough to pay my debt AND live comfortably with a big chunk of savings...if I had paid My.debt off I'd just now be done with it and be debt free but also have no money
Do you own both homes yet?
@@KINGkong3747 Not yet but it doesn't matter since net worth = assets minus liabilities. My assets' worth is much higher than my liabilities (2 mortgages and one car loan. No other debt. Credit cards are always paid off every month).
@@MarkSmithhhh That's smart.
Yes I know what a net worth is and leverage is. I don’t think net worth is the proverbial catch all for you’ve made it. Plenty of people with significant net worths who’ve still gone broke due to being over leveraged. Until you’ve payed off both properties you’re not in the clear yet, sounds great in theory, but say the HVAC goes out, or your renter trashes the place, can’t get a new tenant for months, or an economic recession/lose your job and your unable to hit the monthly payments. It is still a risk. I just hope someone in your position with debt, especially a car payment, is still living below your means, accumulating plenty of liquid assets to cover you in such a case.
A big yes ! to doing both. ☝️
Where would an auto loan fall in this debate?
Great advice and all, but what if you can't even save up an emergency fund in the first place?
Two options: decrease expenses or increase income
Lately I've been considering setting up an investment account for retirement, I have set asides $240k but somewhere along the line, I get cold feet maybe because I'm a rookie and have no idea what I'm doing, please I could really use some guidelines.
I have the same fear too because I think I'll make a mistake
If you are new to the markets, I'd advise you get some kind advise or assistance from a financial consultant or Investment coach. That’s the most ideal way to jump into the market in these uncertain times.
@@dragonkiss3055 I agree with this, Investment coaching sounds like a great idea, thought about it before but never knew how to go about it, Have you used a coach? what is the experience like?
@@mredemption7016 Profit comes for proper trade execution. I have racked up in profits $558,405 from $185k capital in august last year to be exact on my portfolio, but i have to attribute some credit to my adviser, 'Mary Freed Lorenz". I watched a news interview on where she featured during an IPO and spoke proficiently, caught only her name and did a search later online.
@@dragonkiss3055 I just looked up this person out of curiosity, surprisingly she seems really proficient, I thought this was just some overrated BS, I appreciate this.
Sounds great in theory but most people aren’t as disciplined as to invest regularly each month and will use the money for this or that at some point. Hence it’s better to pay off the house instead as once it’s in the banks hands, you can’t take it back
I think my only problem is where/what is the best place in invest my money in outside my 401k from work any tips for best websites or companies with low fees to invest my through will help thank you
Fidelity, Vanguard, M1 Finance, TD Ameritrade
I think it all depends on one's risk tolerance. Those who can take higher risk, they will invest first and pay the exact monthly mortgage payment with the hope that the ROI of their investment will rise much more than their mortgage interest. Those who cannot afford risk, they will always say paying off debt is better as they cannot afford to lose their capital at all. For me, I am investing every extra penny and pay only exact monthly mortgage payment. My investment return is almost guaranteed to be much higher than mortgage interest. It's quite pointless to invest at age 45 or 50 when your time is running out. You might not even have chance to invest at that age due to various diseases. Invest at age 25-30 makes a hell lots of difference because you have time and you can afford to lose. So for me, invest first if you are young and pay off debt first if you are old.
I would not discourage anyone from investing as it has advantages at any age. But yes, starting earlier is better and be disciplined enough not to withdraw those invested funds. Compounding over time is what makes investing more valuable than just paying off debt and putting money in a savings account. Risk tolerance is an important factor as well as other variables. Better to invest than not invest and also avoid bad debt.
My mortgage is paid off. Just have my car payment and cc
In general, positive ROI is not guaranteed; but the interest on the debt, pretty much, is.
Absolutely
I think the risks associated with your plan here far outweigh the benefits considering that interest is crushing and is absolute. The returns on investment are variable as well your personal health. Expecting to be able to do anything for 30 years is a huge assumption. I had this decision when covid started and I decided to pull money out and pay off home. 2.5 years later my decision has been undoubtedly the best one. Others may have different experience.
“Business opportunities are like buses, there’s always another one coming.” - Richard Branson. This quote always reminds me of there are enough opportunities to grow in 2023... a fellow creator...====
Owe no man anything. Except to love one another. Long term paying off debt is the best. It gives the best fico score. FICO = Finally I'm Cash Only.
Trying to do both at once..
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You may want to factor in taxes. In your example $1.8 million of capital gains is going to be taxed. Assuming rate of 24% we get $1.3 million after tax return, which is much closer to the first example. Now factor in today's mortgage rates of 6-8% and suddenly paying off that mortgage becomes a priority. It may be beneficial to explain how to do the math, instead of giving a specific example, which may not be applicable in different location or time.
So close to 100k!!
There now! Thank you 🙏
One thing not mentioned is that paying off debt lowers the FICO score (as does being debt free)
that has a very minor effect
I like to do both. I only have a mortgage now and that's easily manageable. If you plant corn then the most likely thing to happen is corn is going to grow.
Are you aggressively paying down your mortgage?
I'm not Chris. It's a part time vacation rental. My vacationers are paying the interest and then some on my mortgage. I should be putting some towards principle though.
Do both.
I did it the wtong way. I put 100k in stocks and roth then paid my credit cards and loans off. Now i wish i paid debt then invested bevause i would have bought stocks at a cheaper price. Now with no debt, no car payment. Im no longer investing and paying extra to pay my home off.
Great video! I don't think this was mentioned, but I think another good question to ask yourself about what to do with your extra cash would be" do I want to spend the rest of my life in this house, or will I probably need a bigger or smaller house someday?" If you don't plan to spend the rest of your life in your current house, it would make more sense to make the minimum payments and invest your extra cash
Interesting point. Thanks for watching!
Man please. I'm paying off debt. Then I have more money to invest.
Idk i see alot of people say invest instead of pay off debt but investing is a risk 100% of the time while paying off a debt is guaranteed. My moms mortgage is 2500 If paid off her monthly cost would drop to 650 property tax. Guaranteed 22,200 a year in fewer expenses. If she invested the cost of her mortgage instead of paying it off she would need to 10%+ on the markets every single year for it to be worth it. Investing is only better in theory and would assume that you would never be forced to sell during down years. This is what decimated people in 2008 stock market crashes and people cant afford mortgages or anything so people are forced to sell stocks at pennies on the dollar. Ended up losing all of their investments and their homes, cars etc (that they could have paid off instead) thousands of people ended their own lives because of that crash and losing everything. I get that in theory investing is far more lucrative in theory but the reality is that most people are not beating the markets about 6% of investors do and most of those are already wealthy. It would take 15-20 PERFECT years for you to really see the benefit start to outweigh the risks vs mortgage pay off which would be immediate relief.