investing

Should You Invest To Pay Off Debt?

February 21, 2024 | Leave a Comment

Investing while you still have a debt to pay off is a controversial topic amongst debt-free communities. However, many people still find it difficult to climb out of the debt holes they’ve dug. Many have to search for side jobs, part-time gigs, and other ways to pay off what they owe. In some cases, individuals have started to invest to pay off debt. Is this a good way to reach financial freedom?

Investing When You Have Debt

If you follow the teachings of Dave Ramsey or any other debt-freedom-focused financial advice, you know that most don’t recommend you invest at all until all your debts have been paid. This is typically because the quicker you pay off your debt, the sooner you’ll be able to put all of your extra resources into investments, retirement planning, and other financial goals.

In fact, paying off your debts early may be one of the best investments you can make. Paying off your mortgage early, for instance, has a guaranteed return on investment. You’ll save money on interest. However, the same guaranteed return isn’t there when you are investing. In some cases, you may even lose money that you couldn’t really afford to (especially if you are holding debt).

Should You Invest to Pay Off Debt?

I frequent the debt-free subreddit looking for good advice and interesting topics. One Reddit user took to the forum to ask others about their thoughts on using investments to pay off debt. Essentially, they were wondering if they could invest to pay off debt, meaning they wanted to make minimum payments on their debts while using any other money to invest in the stock market. Then, eventually, they’d cash out and pay their debts in full.

Most, if not all, Redditors advised against doing this. Here’s why…

Your investments won’t outpace the interest on your debts. You’ll wind up paying way more interest over time if you are waiting for investments to grow.

Holding debts while you try to invest is counterproductive. Investments can provide good passive income and even help you prep for retirement. Unless you pay your debts though, you’ll still be in the red.

So, all in all, it isn’t advisable to invest to pay off debt. Instead, use all of the “extra” money you have to snowball your debts. Once you’re finally debt-free, then look into investing your money.

Precious Metals Investment, Stocks, and Prices

December 29, 2023 | Leave a Comment

One of the main differences between stocks and precious metals is that stocks are classified as equities. This means that stocks give their holders ownership of a portion of the company that the stock is issued for. Precious metals on the other hand do not provide ownership in a company. Rather, the holder of precious metal own physical product.

Make Money from Precious Metals

Investors in precious metals make money from increases in demand of precious metals. As demand increases for precious metals, their value rises. Similarly, lower supply of precious metals can have a positive influence on their prices.

As companies generate more profit and improve their business standing, the value of their shares can rise. This increase in value gives stockholders the opportunity to sell their stocks or even receive dividends at dates specified by the company.

What do precious metal investments, stocks, and prices have in common? A lot. Precious metals have become more desirable as an investment alternative to stocks, highlighting the shifting winds in investor’s approach to implementing strategies that satisfy their risk appetite.

Many believe that stock market investments are better than investments in precious metals because returns from the stock market can be significantly higher. For the past 19 years, an investment in the stock markets has provided returns of 400% while investments in precious metals have provided lower returns.

Stability of Precious Metals

Precious metals, particularly gold, silver, platinum, and palladium, have served as great alternatives in times of economic downturn where stock markets suffer from negative growth. Over the past 19 years many companies (listed) have come and gone as demand for their stocks reduced and prices plummeted. Precious metals, however are still on the scene.

There are risks associated with precious metals which owners of stocks may not be exposed to. There is no guarantee that precious metals will continue to be the safe haven we have come to know them as.

There are dangers of theft that can arise as a result of ownership of precious metals. Even with a safe, one can easily become a target for theft if word gets out that precious metals are stored at one’s home.

For many years, gold has served as the prime safe haven among precious metals. Banks and households around the world continue to bet on gold, investing unfathomable sums every year. To many, investing in gold is not an option but a necessity. The proof is in the pudding as previous economic downturns have shown.

Why You Don’t Have to Choose Between Investing or Paying Off Debt

November 30, 2023 | Leave a Comment

A lot of people in the debt-free community (especially if they are Dave Ramsey followers) believe you have to choose between investing or paying off debt. This black-and-white thinking could potentially be holding you back from larger financial goals though. You don’t have to choose. You can do both. Here’s how.

Choosing Between Investing or Paying Off Debt

Any time you come into some “extra” money it is difficult to decide where it should be allocated. When your finances are the main focus in your life, like it is for many of us, it is hard to decide whether you should be investing in your future or focused on paying off debt.

The answer to this question will vary from person-to-person and family-to-family. After all, personal finance is personal, right? If you still hold a lot of debt, no you shouldn’t be thinking about making any investments right now. Focus on getting your high-interest debts paid off and then shift your gaze to making investments for the future.

For us, our main focus has been paying off debt. I’ve had people ask, “Why aren’t you investing yet?” I always thought to myself, “Well, because I still hold a lot of debt.” That does not necessarily mean you can’t invest though. In fact, in some cases, your return on your investment may benefit you more than paying off your debts. That is a rather unpopular opinion in debt-free circles online though.

Now, that isn’t to say that you should drop down to minimum payments on all of your debts and throw the extra cash into an investment portfolio. You have to go about it the right way.

How to Invest While Paying Off Debt

So, how do you invest while simultaneously paying off debt?

Investing and paying off debt are both good uses of your money any way you look at it. However, you want to be sure you are making the most of every penny. At the end of the day, paying off your high-interest debts will provide a better return on your money than any investment you will make. Make a list of your debts from highest to lowest interest.

The key is to look at interest rates versus your potential return. If the return you’d be earning is higher than the interest you are paying on your debts, make the investment. For example, if you hold a mortgage loan that has 5% interest but your portfolio return is 10%, the investment may be the better decision for you. Unfortunately, for the most part, investments are not always that straightforward. Something that is performing well this year may not be next year.

Many people use investments this way to come up with the money they need to pay off their debt more quickly as well. If you think you can earn in the stock market in a way that will further your debt freedom goals, do it! But you really need to put thought into the numbers before making that move.