Skip to main content
No. of Recommendations: 5
Over any 30 year period, the stock market historically has average around 10%. So by paying down the mortgage, you save 4% and give up 10% Does that make sense to anyone?

Risk-adjusted returns can vary wildly, regardless of absolute stock market returns. Individual stock performance also can vary wildly depending upon exactly which stock one picks.

Depending upon the size and liquidity of one's savings, paying off long-term low fixed rate debt in a rising rate environment may not make sense. However, avoiding adjustable or high interest rate debt is almost always one of the easiest ways to conserve capital in a rising rate environment.

The risk-free rate of return (for one either in retirement or extremely risk-averse) is considerably less than the 10% historical stock market average you have suggested. Likewise, individual stock performance can vary wildly and may never reach the average 10% market return rate. That's what makes individual stock picking such a research-intensive challenge.

Most people of any risk tolerance level would be better off if they followed Bogle's and Buffett's advice to just use index funds if they wish to achieve an average or above-average return on stocks.

I am pretty sure that anyone with a high interest debt obligation (for instance an 18% to 30% credit card balance) or an adjustable rate mortgage loan with no rate caps would be well-served by paying down debt.

Different strokes for different folks, ya know.

Print the post  


This is a Politics Free Board
Politically charged posts are not permitted on the Metar Board. If you make a political post, and it is alerted, the post will be removed. Thanks!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.