Should you take Mark Cuban’s advice and make this investment?
- Different investments provide different returns.
- You want to maximize the potential returns you earn on your money.
- Mark Cuban believes that paying off your credit cards is the best investment you can make.
Mark Cuban is a billionaire businessman who is well known for being one of the main “sharks” on the popular show Shark Tank. Cuban knows a lot about investing, so listening to his advice might be smart if he’s trying to figure out what to do with his money.
Although there are many different types of investments, Cuban recommends one in particular to maximize your potential earnings. This is where Cuban thinks you should put your money.
This is what Mark Cuban believes is the best investment
According to Mark Cuban, “The best investment you can make is to pay off your credit cards, pay off any debt you have.”
Cuban argues that paying down debt may be the best thing to do with your money because the interest you avoid paying your creditors is equal to the return on investment (ROI) you get. And, in the case of credit cards, that profitability is usually very high.
“Recognize that the 18, 20 or 30 percent you’re paying in credit card debt is going to cost you a lot more than you could earn anywhere else,” the billionaire said.
Is he Cuban right?
Cuban makes a solid point about paying off high-interest debt. When he pays off his debt ahead of schedule by making more than the minimum payment, he gets a guaranteed return on the money he saves. And it’s really hard to beat the returns that come from paying off high-interest debt.
An S&P 500 index fund, for example, provides an average annual investment return of 10% over the long term. This is widely seen as a barometer of the performance of the stock market as a whole and as a benchmark against which to measure the performance of other investments. While you could potentially exceed this 10% return by investing in individual stocks, doing so would expose you to greater risk, and consistently higher returns are far from guaranteed.
Since you’ll get a high ROI if you eliminate costly interest charges, this approach may give you the best chance of improving your net worth in the long run. Once you’ve finished paying off your high-interest debt, you can redirect the money you were using to make payments back into investing.
What about low-interest debt?
Now, if you have lower interest debt, the calculation may be different. Paying off a mortgage ahead of schedule, for example, will rarely provide the best possible returns. Since the interest rate on your home loan is likely to be around 4% or less, you could easily exceed the ROI of prepayment, even with a relatively safe investment in an S&P 500 fund.
Cuban addresses long-term debt, like home loans, suggesting that when you can’t pay them off quickly, it makes sense to lower your rate by refinancing. Making the minimum payments due and securing a refinance loan when you can lower your loan costs is often the best way to deal with this type of low-interest loan.
Ultimately, you need to consider your own unique financial situation when deciding where to direct your dollars. But listening to Cuban’s advice and focusing on putting your money toward paying off high-interest debt is a sound approach, with plenty of evidence that it will give you the best possible returns.
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