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
It’s a matter of risk management. Imagine if you took a 25-year interest-only mortgage in 1983, meaning it matured in 2008. There’s a real chance you’d have found yourself wiped out, in a market where you couldn’t even sell your home.
Assuming you’re still putting money towards your savings/investments, you can think of paying down your mortgage as a way of mitigating risk by diversifying your portfolio.
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