Cry Me a River, Right?

Recently, a reader wrote to me with a conundrum. He had sold his rental property for $325,000 and was wondering what to do with the money. His wife wanted to pay off their mortgage while he wanted to invest the money. The problem? His wife was “emotional” about debt and highly risk-averse. What follows is my advice to this couple.

Intro

First things first, it is commendable that this couple has achieved financial stability and are thinking about how to invest their hard-earned money. They have been careful about their spending habits and have maxed out their retirement accounts. They now have $309,000 to invest or use to pay off their mortgage.

Investment vs. Paying off a Mortgage

When deciding whether to invest or pay off a mortgage, there are a few factors to consider. First, how much debt do you have? Second, what is your interest rate? Third, what are the potential returns from investing?

In this particular case, the couple has a mortgage with a 3.25% interest rate. This is a low interest rate, and it is possible for the returns from investing to exceed this amount. Additionally, paying off a mortgage can be emotionally satisfying but it is not necessarily the best financial decision.

The returns from investing can be higher, and it is essential to use risk to your advantage. Putting money into the stock market may feel risky to some but taking calculated risks can reap significant returns. However, it is essential to diversify investments, not put everything into one stock or mutual fund.

The Importance of Diversification

Most financial experts recommend diversifying investments as it reduces risk. Putting all your money in one stock or mutual fund can be risky as it puts all your eggs in one basket. It also exposes you to market fluctuations that could result in significant losses.

It is essential to diversify investments across different asset classes such as stocks, bonds, and cash. Different assets react differently to market fluctuations and times of economic uncertainty. As a result, diversification can result in substantial protection against risks and increase returns in the long term.

Related Facts

• Over 90% of millionaires invest in the stock market.
• Diversifying your portfolio has the potential to increase returns.
• Paying off a mortgage may feel satisfying, but it is not necessarily a financially smart decision.

Key Takeaway

In conclusion, investing in the stock market may seem risky, but it is not as it is a way to increase returns in the long term. Diversification reduces risk while increasing potential winnings. Paying off a mortgage may result in emotional satisfaction, but it does not offer an investment return. It is essential to remember always to diversify your investment portfolio and not rely on one stock or mutual fund.

Conclusion

The reader’s wife may be uncomfortable investing in the stock market, but taking calculated risks can result in more significant returns down the line. It is essential for the couple to consider diversification to protect themselves from the risks the stock market may present. Ultimately, it is up to them to decide what to do with their money. However, when it comes to investing in the stock market, it is not as risky as it may seem.