Best of the Week
Most Popular
1. Crude Oil and Water: How Climate Change is Threatening our Two Most Precious Commodities - Richard_Mills
2.The Potential $54 Trillion Cost Of The Fed's Planned Interest Rate Increases - Dan_Amerman
3.Best Cash ISA Savings for Rising UK Interest Rates and High Inflation - March 2018 - Nadeem_Walayat
4.Fed Interest Hikes, US Dollar, and Gold - Zeal_LLC
5.What Happens Next after February’s Stock Market Selloff - Troy_Bombardia
6.The 'Beast from the East' UK Extreme Snow Weather - Sheffield Day 2 - N_Walayat
7.Currencies Will Be ‘Flushed Down the Toilet’ Triggering a ‘Mad Rush into Gold’ - MoneyMetals
8.Significant Decline In Stocks On The Cards! -Enda_Glynn
9.Land Rover Discovery Sport Extreme Driving "Beast from the East" Snow Weather Test - N_Walayat
10.SILVER Large Specualtors Net Short Position 15 Year Anniversary - Clive_Maund
Last 7 days
Watch This Group Signal Stock Market Trend Changes - 22nd Mar 18
Stocks are Gapping Beneath the Trendline Support - 22nd Mar 18
Fed Action Casts Shadow on Bullish Case for Stocks - 22nd Mar 18
A Strong Economy and Weak Stock Market is Bullish for Stocks - 22nd Mar 18
Fed Raises US Interest Rates 25bp – Where Are We In The Stock Market Cycle? - 22nd Mar 18
Why Spotify Will Likely Surge During Its IPO - 22nd Mar 18
SY Police Arrest Woman for Blowing Trumpet at Sheffield Tree Felling Protest - 22nd Mar 18
Facebook: The Anti-Social Network Covert Data Gathering - 21st Mar 18
Additional Signs for Gold and Silver Amid Increasing FOMC Tension - 21st Mar 18
Credit Concerns In U.S. Growing As LIBOR OIS Surges to 2009 High - 21st Mar 18
Stock Markets Are Flat-to-lower Before the FOMC - 21st Mar 18
Will Powell’s Actions Pop Stock Market Perfection - 21st Mar 18
Economic Moral Hazards of the International Criminal Court - and Philippines Withdrawal - 21st Mar 18
Larry Kudlow vs. Vladimir Putin on Gold - 21st Mar 18
Trump Builds Economy and War Machine - 21st Mar 18
This Stock Market "Illusion" Can Destroy Once-Vibrant Portfolios - 21st Mar 18
Gold Short-term Pull Back in Progress - 20th Mar 18
Stocks Appear to be Under Pressure - 20th Mar 18
Time To Eliminate Your Wall Street Tax? - 20th Mar 18
The Beast from the East Snow, UK Roads Driving Car Accidents - 20th Mar 18
Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - 19th Mar 18
2018 Reversal Dates for Gold, Silver and Gold Stocks - 19th Mar 18
This Tech Breakthrough Could Save The Electric Car Market - 19th Mar 18
Stocks Set to Open Lower, Should You Buy? - 19th Mar 18
The Wealth Machine That Rising Interest Rates Create Conflict With The National Debt - 19th Mar 18
Affiliate Marketing Tips and Network Recommendations - 19th Mar 18
Do Stocks Bull Market Tops Need Breadth Divergences? - 19th Mar 18
Doritos Instant £500 Win! Why Super Market Shelves are Empty - 19th Mar 18
Bonds, Inflation & the Market Amigos - 19th Mar 18
US Housing Real Estate Market and Banking Pressures Are Building - 19th Mar 18
Stock Market Bulls Last Stand? - 18th Mar 18
Putin Flip-Flops Like A Drunken Whore On Bitcoin Cryptocurrency Legalization - 18th Mar 18
How to Legally Manipulate Interest Rates - 18th Mar 18
Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - 18th Mar 18
Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - 17th Mar 18
Strong Earnings Growth is Bullish for Stocks - 17th Mar 18
The War on the Post Office - 17th Mar 18
GDX Gold Mining Stocks Fundamentals - 16th Mar 18
Nationalism, Not the Russians, got Trump Elected - 16th Mar 18
Has Bitcoin Bought It? - 16th Mar 18
Crude Oil Price – Who Wants the Triangle? - 16th Mar 18
PayPal Cease Trading Crypto Currency Bitcoin Warning Email Sophisticated Fake Scam? - 16th Mar 18
EUR/USD – Something Old, Something New and… Something Blue - 16th Mar 18

Market Oracle FREE Newsletter

Urgent Stock Market Message

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


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

© 2005-2018 - 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

6 Critical Money Making Rules