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
A lot of people actually don’t pay down their mortgage if they get those interest rates. You still need to pay the interest on the mortgage but it is much better to invest in the market then in your mortgage. The problem with this is that it does come with some risk. In a market crash you can lose quite a bit of money in a short while. This is also when people are at higher risk of losing their job. So you might end up with a big mortgage, having lost your savings and your job. It is therefore safer to pay down your mortgage so you can handle a market crash with less worries. Or even just a market stagnation.
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