I Am Told That The Best Investment Now Is In Yourself
I have heard a couple of reports that there is now an increase in Americans paying off debt for the first time in decades. All of the financial advisors that I have asked have agreed that paying off a debt with an interest rate of X is an equivalent net result of using that money to get an X rate of return from an investment. This rate of return would need to be above about 12% because of investment fees and taxes.
Additionally,what investments are as guaranteed or as safe as paying off a debt or a mortgage? The main risk that I am told is that a person could have to wait longer to be able to sell a house in order to cash out, or home values could drop. But if you are planning on staying in your home, many are paying their 30 year mortgage in as little as 8 years, and are ending up with a preforming asset. Suzie Orman recommends this, and points out how much capital you would have to have tied up in an investment just to pay your mortgage once you are retired. Bases on the better rates of return available a year ago, Suzie says you would have to tie up about $200,000 to make your payments on a $200,000 mortgage.
Besides paying off a debt or a mortgage that is not upside down, I don’t find many safe high yielding investments out there. Paying down a newer 6% mortgage is actually a LOT higher “return” than 6%. Most advisors are not taught about this and would not make a commission if they advocated doing this, although I have met a small minority who do. Also there are no fees or taxes on this kind of “return”. And finally, if the feds put the monitary printing presses into hyper drive and inflation goes rampant, we will have more dollars to pay off the old mortgages as happened starting in the early 70’s. At that time, the averave $18,000 mortgage was almost paid for by inflation, plus the home appreciation rates almost cancelled out the rate of inflation. The main drawback of putting your money into a mortgage is that you can’t get it back out without the fees and or interest charges of selling or refinancing. You can also pull it back out via a low or no fee Home Equity Line, but do have to pay the interest charges, although they are tax deductible on a personal residence.
There is life after Mort-Gage!