I’ll preface this with the disclaimer I may be missing something obvious but considering these assumptions:
– a person has a mortgage (at say 4.5% today) and they choose to pay that off monthly (not interest only)
– the opportunity cost of this investment would be a conservative 6%/year in ETFs or REITs (of course this is tentative and an average over the long run)
(See for return references: https://www.fool.com/research/reits-vs-stocks/)
Why would a person choose to pay down their mortgage rather than invest in the markets? The pros of greater liquidity in the markets and greater diversification in REITs seem to make it the preferable choice?
For context, I am a 24M considering the best route to financial independence for myself and future family.
Thanks in advance.
In: Economics
Cash management. In my situation, I realized a few years ago that I would be able to pay off my mortgage a little over a year early by adding about 20% to the payments. This will free up a large amount of cash each month, just when my twin daughters will be starting college. If they need help, I will have available cash. If they don’t need help, I’ll be able to invest.
A lot of folks have said this part in different ways, because it’s key to answering the question. The mortgage payments are fixed in amount, frequency, and duration. Ending that obligation gives me the option to invest the cash in equities, to hold it as cash, or to make capital improvements to the house.
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