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The other day I saw an ad for a mattress store that offered financing, so you can "sleep in peace" on your brand-spanking-new $7,000 mattress set. (Talk about irony!)
Having personal debt is the American way. It makes the impossible possible. It's seen as benign or even good.
It's not.
Personal consumer debt is one of the most dangerous financial products ever created.
Federal Reserve data show that Americans owe $11.74 trillion as of 2014. Some $882.6 billion of that is credit card debt, $1.13 trillion is student loans, and another $8.14 trillion is mortgages. An estimated 119.3 million indebted households carry an average of $15,257 each, or more than double the $7,117 carried (and paid off monthly) by non-indebted households.
The way I see things, debt is nothing more than "plastic prosperity" that makes you feel like you have more spending power. It's a myth that's been sold to the American public methodically and systematically for 30 years. And it wrecks lives.
Getting out of debt (or avoiding it entirely) is an absolute imperative when it comes to building Total Wealth.
But as an investor, there is one instance where you should consider taking on debt.
There's one instance where debt can even be profitable.
First Thing's First – Get Personal Debt out of Your Life
Before I can show you the one way you can use personal debt to your advantage, it's really important to step back for the bigger picture.
Washington believes personal debt is absolutely essential to the economy, noting repeatedly that both industrial output and employment would suffer if consumer credit diminished. What else would you expect them to say?
But Washington's got it wrong.
Rising credit usage is a sign that more families have to borrow to make ends meet. It's not a sign of returning consumer confidence, but proof positive that everything's getting more expensive.
Critics – and debt proponents – screech that overall debt levels are dropping and that this is a sign that the economy is getting stronger. They're right on one count… overall indebtedness has fallen from $19,000 per household at the height of the financial crisis to $15,611 as of January.
About the Author
Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.
To be honest I think you should borrow money right now and invest in Gold or another resource. They will rise greatly.
It was advised not long ago by Money Map to invest in the ETF: Sprott Gold Miners
symbol (SGDM). Since I did that, in less than one month it is up .054%, not bad when gold itself has been so shaky.
For the sake of discussion, lets say I have $1000 left on my mortgage and $1000 cash in my hand.
If I follow your advice to "Pay off your mortgage as fast as you can.", I pay off my mortgage and end up with $0. A year later, I still have $0.
If, instead I invest that $1000 in the market, a year later, I made $95 with my investment, I use it with my original $1000 to pay off the mortgage and the $39.70 of accrued interest, and I am left with $45.30 of "free" money.
(Using the %3.97 average mortgage interest rate and %9.5 average market return that you quote above.)
So for every $1000 that I invest instead of using to pay back my mortgage, I end up with about $45 more in my pocket after one year. An that isn't even taking into account the tax deductibility of the interest on the mortgage.