Should You Invest or Pay Off Debt? (VERY Important) 

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.

Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got to talking about investment and money. I started investing with $150k and in the first 2 months, my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and get more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.

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.

There's nothing like having no debt... a lot less stress, and a lot more money in my pocket.

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

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.

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.

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.

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

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.

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.

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.

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.

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.

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.

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.

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!

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.

Your videos are very much appreciated and timely.

Compounding is a key too! If you only invest once, that’s just not enough to do the trick!

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.

This is by far one of the best videos on RU-vid. Thank you for all efforts and for sharing. Please keep all the good work up.

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.

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

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.

I'm doing a hybrid. Paying of my house, saving for another and renting out this one.

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

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...

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.

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!

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

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.

Very very good and useful information about start investing or pay off debt" thank you

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...

This was very informative. Thank u. I learned a lot.

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.

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.

Thanks!

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.

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

Thank you

Great video!

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

Great advice. Subscribed

Do both, but a bulk of your money goes towards debt while 10% in investments.

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.

wayyyy ahead of ya, i havent been paying my student debt for YEARS now lololol

I needed this. 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.

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.

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..

Nice video. Just wondering if the possible capital appreciation of the house has to be factored in?

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.

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?

Great video

Just follow Ramsey's baby steps, simple process to understand.

I understand the math. However the equation doesn’t assume enough risk and the overall emotional benefit of living in a paid for home. I’d rather live with a paid for house with zero risk than a little more in my portfolio that is still subject to market volatility.

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.

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...

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.

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'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

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.

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)

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.

I chose to invest first...a couple of my investments popped, and I was able to use that to pay off all of my debt

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.

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.

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.

Dollar loosing value vs loan payment , thats y banks offer variable rate, and later keep screwing up by increasing rates!

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…

“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...====

New credit cards now offer 20.9 to 30.9 interest rates. How do you pay that off?

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.

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.

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

In general, positive ROI is not guaranteed; but the interest on the debt, pretty much, is.

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

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.

If the interest rate on the debt is below 6% prioritize investing.

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.

Check the interest rate on your credit card(s). It could be as high as 30%.

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)

Debt comes with interest so a 10% growth means nothing until its invested for 10 years. Its always better to get out of debt besides your home and then start to invest

Great advice and all, but what if you can't even save up an emergency fund in the first place?

Man please. I'm paying off debt. Then I have more money to invest.

A big yes ! to doing both. ☝️

So close to 100k!!

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 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.

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.

It's not an either or. You can put 50% toward debt and invest the 50%. Your age also makes a difference. Anyone over 50 should focus more on paying off debt, especially a mortgage, as market returns are not guaranteed over any specific time. Other factors are inflation, which is certain to increase in the next 10 years beyond the previous 30 due to fed printing policies. As for paying off a mortgage, if you still owe $1000/mo property taxes, you need to make plans to move to a low tax state, especially after age 50-55. It also allows you to tap the net worth of your home.

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 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.

The problem with investment in stocks is that you can sell it and then spend it. That not the case if you pay down your mortgage.

Get a 15 year mortgage. To many people keep borrowing against their equity to dig out of other debt. Vicious cycle

If you pay off all debt youll be less stressed ans have more money to invest once its paid off.... its that simple where as if you invest and it tanks your out alot of money and stuck with debt

Before watching video and I will. Never regretted once over past 5 years that paying off debt slowly and over time was a bad idea.

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.

Maybe I'm thinking of another channel but I could swear you made this video. Unless I'm thinking about Next Level Life.