Mark Cuban is a billionaire entrepreneur well known for being one of the main “sharks” of the popular show shark tank. Cuban knows a lot about investing, so listening to his advice might be wise if you’re trying to figure out what to do with your money.
Although there are many types of investments, Cuban recommends one in particular to maximize your potential returns. Here’s where Cuban thinks you should put your money.
Here’s what Mark Cuban thinks is the best investment
According to Mark Cuban, “The best investment you can make is pay off your credit cardspaying off all the debts you have.”
Cuban argues that paying off 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 cardthis yield is generally very high.
“Recognize that the 18, 20 or 30% you pay credit card debt going to cost you way more than you could earn elsewhere,” the billionaire said.
Is Cuba right?
Cuban insists on paying off the high-interest debt. When you pay off your debt ahead of schedule by making more than the minimum payment, you get a guaranteed return because of the money you save. 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, offers an average annual return of 10% over the long term. This is widely regarded as a barometer of the performance of the stock Exchange as a whole and as a benchmark against which to measure the performance of other investments. While you could potentially beat that 10% return by investing in individual stocks, that would expose you to more risk, and consistently higher returns are far from guaranteed.
Since you’ll get a high return on investment if you eliminate costly interest charges, this approach can give you the best chance of improving your long-term net worth. Once you’ve finished paying off your high-interest debt, you can redirect the money you were using to make payments into an investment.
What about low-interest debt?
Now, if you have low interest debt, the math may be different. pay one mortgage ahead of schedule, for example, will rarely provide the best possible returns. Since your interest rate on your home loan is probably around 4% or less, you could easily beat the ROI from the start of repayment, even with a relatively safe investment in an S&P 500 fund.
Cuban treats long-term debt like mortgages, suggesting that when you can’t pay it off quickly, it makes sense to lower your rate by refinancing. Making the minimum payments due and getting a refinance loan when you can lower your borrowing costs is often the best way to handle this type of low interest loan.
Ultimately, you should consider your own financial situation when deciding where to direct your money. But listening to Cuban’s advice and focusing on investing your money in paying off high-interest debt is a good approach to take, with plenty of evidence that it will provide you with the best possible returns.
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