Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - 30th Nov 21
Omicron Covid Wave 4 Impact on Financial Markets - 30th Nov 21
Can You Hear It? That’s the Crowd Booing Gold’s Downturn - 30th Nov 21
Economic and Market Impacts of Omicron Strain Covid 4th Wave - 30th Nov 21
Stock Market Historical Trends Suggest A Strengthening Bullish Trend In December - 30th Nov 21
Crypto Market Analysis: What Trading Will Look Like in 2022 for Novice and Veteran Traders? - 30th Nov 21
Best Stocks for Investing to Profit form the Metaverse and Get Rich - 29th Nov 21
Should You Invest In Real Estate In 2021? - 29th Nov 21
Silver Long-term Trend Analysis - 28th Nov 21
Silver Mining Stocks Fundamentals - 28th Nov 21
Crude Oil Didn’t Like Thanksgiving Turkey This Year - 28th Nov 21
Sheffield First Snow Winter 2021 - Snowballs and Snowmen Fun - 28th Nov 21
Stock Market Investing LESSON - Buying Value - 27th Nov 21
Corsair MP600 NVME M.2 SSD 66% Performance Loss After 6 Months of Use - Benchmark Tests - 27th Nov 21
Stock Maket Trading Lesson - How to REALLY Trade Markets - 26th Nov 21
SILVER Price Trend Analysis - 26th Nov 21
Federal Reserve Asks Americans to Eat Soy “Meat” for Thanksgiving - 26th Nov 21
Is the S&P 500 Topping or Just Consolidating? - 26th Nov 21
Is a Bigger Drop in Gold Price Just Around the Corner? - 26th Nov 21
Financial Stocks ETF Sector XLF Pullback Sets Up A New $43.60 Upside Target - 26th Nov 21
A Couple of Things to Think About Before Buying Shares - 25th Nov 21
UK Best Fixed Rate Tariff Deal is to NOT FIX Gas and Electric Energy Tariffs During Winter 2021-22 - 25th Nov 21
Stock Market Begins it's Year End Seasonal Santa Rally - 24th Nov 21
How Silver Can Conquer $50+ in 2022 - 24th Nov 21
Stock Market Betting on Hawkish Fed - 24th Nov 21
Stock Market Elliott Wave Trend Forecast - 24th Nov 21
Your once-a-year All-Access Financial Markets Analysis Pass - 24th Nov 21
Did Zillow’s $300 million flop prove me wrong? - 24th Nov 21
Now Malaysian Drivers Renew Their Kurnia Car Insurance Online With Fincrew.my - 24th Nov 21
Gold / Silver Ratio - 23rd Nov 21
Stock Market Sentiment Speaks: Can We Get To 5500SPX In 2022? But 4440SPX Comes First - 23rd Nov 21
A Month-to-month breakdown of how Much Money Individuals are Spending on Stocks - 23rd Nov 21
S&P 500: Rallying Tech Stocks vs. Plummeting Oil Stocks - 23rd Nov 21
Like the Latest Bond Flick, the US Dollar Has No Time to Die - 23rd Nov 21
Why BITCOIN NEW ALL TIME HIGH Changes EVERYTHING! - 22nd Nov 21
Cannabis ETF MJ Basing & Volatility Patterns - 22nd Nov 21
The Most Important Lesson Learned from this COVID Pandemic - 22nd Nov 21
Dow Stock Market Trend Analysis - 22nd Nov 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

A Wall Street Veteran: Paying Off Your Debt Is the Best Investment Today

Personal_Finance / Debt & Loans Nov 21, 2017 - 10:31 PM GMT

By: John_Mauldin

Personal_Finance

BY JARED DILLIAN : I try to keep my investment ideas a secret—if you want them, you have to subscribe! But I’m going to give away this month’s idea. Are you ready? Here it is:

Pay down your mortgage.

Yes, that’s a bit unorthodox to hear from a person writing financial newsletters. But people think too much about the next get-rich-quick idea and not enough about their overall financial well-being.


I bet that in addition to having a successful portfolio, many of you have a lot of debt. And going into what could be a serious downturn (I wrote about that in free special report, Investing in the Age of the Everything Bubble, which you can download here), I’m uncomfortable having a lot of financial leverage.

If you think the market will go down, then:

  1.  you should stop thinking about buying inverse VIX ETNs
  2. and start thinking about how to deleverage in a smart fashion.

Paying Off Debt Gives a Much Better Risk-Reward Today

Paying down your mortgage is part of that. It is part of an overall exercise in balance sheet repair, which includes…

  1. Building a cash position
     
  2. Paying off debt:
    1. Margin debt
    2. Credit card debt
    3. Car loans
    4. Mortgage debt

Financial leverage cuts both ways. It can help you on the way up, and it can hurt you on the way down.

Funny thing about paying down debt—technically, you are “making” whatever the interest rate on your loan is. If you are paying down a 4% mortgage, you are actually earning a 4% return (on a pre-tax basis).

Given that high-yield ETFs yield about 5% these days (and are circling the drain), it seems like a much better risk-reward.

Also, I would not get get too caught up in thinking about your mortgage interest deduction. Chances are, it is going away anyway in the tax reform bill, and besides, that is a terrible reason to have debt.

As for credit card debt… there is no reason to have credit card debt unless you are experiencing temporary financial stress.

And I would not worry too much about your credit score suffering because you do not have any debt. That’s the wrong reason to take out debt.

Deleverage Before It’s Too Late

There is no freedom in the world quite like freedom from debt. All this money going out the door in monthly payments… you can make it stop.

If you don’t do this, and we get the downturn I think we are going to get, your balance sheet is going to deteriorate as the asset side of the ledger gets smaller. So the goal here is to deleverage when you can, not when you have to.

Forced deleveraging (i.e., margin calls) is never any fun.

The heuristic on paying down your mortgage is that you shouldn’t do it when interest rates rise. To use an extreme example, if interest rates rose to 10% and your mortgage was 4%, you would be better off keeping the money in a savings account than paying down your mortgage.

But one thing that is not factored into that calculation: less debt is always better than more debt.

My guess is that when the market turns, we are going to be hearing about a lot of hidden leverage that we never even knew was there. It is like that old Warren Buffett quote: “You only find out who is swimming naked when the tide goes out.”

Grab Jared Dillian’s Exclusive Special Report, Investing in the Age of the Everything Bubble

As a Wall Street veteran and former Lehman Brothers head of ETF trading, Jared Dillian has traded through two bear markets.

Now, he’s staking his reputation on a call that a downturn is coming. And soon.

In this special report, you will learn how to properly position your portfolio for the coming bloodbath. Claim your FREE copy now.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in