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I have always hated the recommendation that people should avoid paying off debt and instead leverage that money in interest paying investments. Sure, on paper
by _heimdall 3y ago
I have always hated the recommendation that people should avoid paying off debt and instead leverage that money in interest paying investments.
Sure, on paper you seem better off when you keep a mortgage at 5% and have investments paying 9%, but you're locked in place. That 4% in potential gains means you aren't nearly as flexible when it comes to a job and income, selling your house may be untenable or impossible if markets fall meaningfully, and ultimately you are living in a house that the bank owns while someone took your money and replaced it with IOUs.
- ornornor 3y agoYou can always liquidate the investment, pay the house off, sell it, buy elsewhere. If you’ve invested in volatile titles that can be a problem. But if it’s a bond, it’s quite stable and doable.
- Ekaros 3y agoSituations where a bond pays more than your own debt is either anomalous or carries a risk. The risk is where premium comes from.
- _heimdall 3y agoHow often do you have access to bonds that pay higher than a mortgage though? Bonds are much less risky than mortgages, I'd only expect them to pay higher in rare instances when rates changed dramatically and you happened to be in the market at the right time.
- ornornor 3y agoI don’t have personal experience with this, I was referring to GP who said that’s what they did.