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Would you ever borrow money to invest? That is, would you take out a loan such that you could put more money in the stock market or other investments? Think carefully. You might already be doing it without even realizing it.
And I’m not just talking about people who use leverage to amplify the returns from their rental properties. I’m also talking about people who have mortgages, car loans, credit card debt, etc. but are still stashing money in an investment portfolio. In effect, they’re investing with borrowed money.
To be fair, these investments are often held in tax-advantaged retirement accounts, and mortgage loans likewise offer tax advantages (not to mention historically low rates), so perhaps this makes sense.
It’s also important to keep in mind that contributions to retirement accounts are subject to annual limits, and that many employers match 401(k) contributions. Thus, there are additional factors to consider when deciding whether to invest or pay down debt.
My point? Only that you should occasionally take a step back and look at the big picture. You might find that you’ve been fooling yourself and making investment decisions that you wouldn’t otherwise make.
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