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Financial Security vs. Financial Growth

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Avino
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Financial Security vs. Financial Growth  Reply with quote  

I know there have been many posts on this age old question, do you pay down your debt or invest? And the answer is usually somewhere in between, you pay off very high interest debt and keep low interest debt so you can invest.

Even so, I find myself tempted to just pay off all my debt first and then invest. The reason for this is quite simple. If I keep some of my debt and invest, and then during the next couple of years the value of my investments go down, I still have my debt AND much less money than what i started with. However, if I pay off all my debt, and then invest, if the value of those investments go down, I wont be as troubled because I am debt free.

On the flip side if I pay off all my debt and find that I would have had much more money (which may be the case) had I invested and not paid off all my debt that will in hindsight also bug me.

So what it boils down to is Security (no debt) vs. Financial Growth. But another thing to consider is my age, I am 26, so if I pay off all my debt now, I still have plenty of time to keep investing debt free. I started my 401k when I was 18, and have rental income from one of the units in my two family home so I have already been investing, but now I have the oppertunity to become completely debt free. And that security seems to me to be worth more than any future returns in investments.

~A.

Also blogging @ avinos2cents.blogspot.com
Post Fri Aug 01, 2008 9:34 pm
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Shaun Paul
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I agree with your facts. but i believe more on financial growth as compare to financial security.
Post Tue Nov 15, 2011 9:47 am
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coaster
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Re: Financial Security vs. Financial Growth  Reply with quote  

quote:
Originally posted by Avino
and then during the next couple of years the value of my investments go down, I still have my debt AND much less money than what i started with. However, if I pay off all my debt, and then invest, if the value of those investments go down, I wont be as troubled because I am debt free..

Hi Andres, nice to see your thoughtful post about investing vs. debt. Can I throw a couple things into the mix that I hope might alter your decision processes a bit?

1) quoted above - a very common error equating "money-in-pocket" (ie think spending cash) with "asset market value." Remember that the market value of your assets is what they're worth only if you sell them at that market value.. If you don't sell them, then they don't convert to "money". So, if the market value of your assets goes down, you don't have any less money than you did before. What you have are assets that the market has placed a lower value on. The worth the market places on something goes up and down, and over time mostly up. So the only way you have less money is if you sell the asset at a lower price than you paid for it. Throw that concept into your mix: you lose actual money only when you sell.

If you don't sell, you haven't suffered any loss.

2) also quoted above - the monetary value of emotion: "I won't be as troubled...." So consider this in your thought process mix: what is the value to you of being free of troubled thoughts? How much is it costing you in real money to alleviate those thoughts? I suggest researching the time value of money. That is, what the net effect is over time of not having those funds invested so that you don't have to worry about them. That's really money, even thought it's future money, not money-in-pocket. Now, maybe it's worth that much to you. But, I'm thinking that you're going to decide that you're paying way too much. Especially because.....your thoughts are in your head...you put them there; you can take them out. So I suggest that it's going to cost you much less if you just ...

stop thinking those thoughts.


...and the cost of that, Andres, is entirely ....

FREE!!

Best wishes, good luck, and say hello to a few clouds for me. Very Happy

~Tim~
Post Wed Nov 16, 2011 7:22 am
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coaster
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mod's note & explanation  Reply with quote  

Please do not reply to very old threads; such posts can be deleted.

I'm afraid I broke my rule because of the perfect opportunity to hit on a couple of my favorite topics. "Please do as I say, not as I do." Cool

~Tim~
Post Wed Nov 16, 2011 7:26 am
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