10-08-09
Now and then, I get this kind of question: "I have $1,000 to invest.
Which stocks or mutual funds are risk-free with a guaranteed rate of
return?"
That makes me laugh because not only is there no such thing but also
someone thinks I am an investment adviser. I am not qualified to advise
anyone on the stock market. My investment advice is more unconventional.
Why do we have such a desire to invest? So we can read prospectuses
and attend shareholder meetings? No. We want our money to grow. We want
to build wealth. We want to increase our personal net worth.
There are two ways you can do that. You can increase your assets or
decrease your liabilities. Either will boost your net worth, dollar for
dollar. There may be an easier way to grow your net worth than to plunge
yourself into the stock market, where the risk could exceed your comfort
level.
Let's say you receive a $1,000 bonus. With it you buy shares in a
highly rated mutual fund. Your net worth increases by $1,000. Next
month, when that hot investment takes a nose dive and drops by 50
percent (could happen), your net worth decreases by $500.
But you have another choice. You can use that bonus to repay $1,000
of debt. Your net worth still increases by $1,000 because you reduced
your liabilities without any risk. It's a done deal. There is no chance
this "investment" will reverse itself. But wait. There's more.
Investing in your debt pays you interest equal to the amount of
interest you were paying on the debt. Really!
Go back to the $1,000 debt you paid off in the previous example. If
it was a credit card balance at 18 percent and you were making minimum
payments, you were paying $15 in interest each month, or $180 annually.
Once the debt is paid off, you no longer will pay that $180 in interest.
You get to keep it. That is your 18 percent return on the $1,000 you
invested in your debt. Do you know of any other investment that
guarantees an 18 percent return?
There are no minimum requirements to invest in your debt as there are
to invest in other ways. If you have an extra dollar, you can apply it
directly to your debt, increasing your net worth by $1.
It makes so much sense to invest in your unsecured debt until it is
paid completely. Then what? I suggest you start investing in your
secured debts. Every benefit of investing in your unsecured debt holds
true for your secured debt. Your "return on investment" will be less
because mortgage interest is typically lower than interest charged on
credit cards, but it is still an investment approach.
Every dollar you invest in your mortgage puts you that much closer to
owning your home free and clear. Once paid, it's yours. No one can
foreclose on it or take it from you, regardless of what happens to the
economy or the stock market.
Mary Hunt is the founder of www.DebtProofLiving.com and author of 18
books, including her best-selling classic "Debt-Proof Living." You can
e-mail her at mary@everydaycheapskate.com, or write to Everyday
Cheapskate, P.O. Box 2135, Paramount, CA 90723. To find out more about
Mary Hunt and read her past columns, please visit the Creators Syndicate
Web page at www.creators.com.
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