Investing without debt

Photo by NeONBRAND on Unsplash

It’s tempting to add leverage to your investments. To add a big mortgage to your property portfolio, or to use margin on your stocks. Some people find the lure of a personal loan enticing and want to use it build their wealth. I get it, if there is an opportunity available to you, its tempting to want to take it and maximize your returns. A quick win is there, so why not take it?

Well sometimes its good to think about the long term, to take a step back and see the forrest from the trees. What causes investment failures? Debt, and acting too emotionally is a big cause of failure. Making a bet too big for your resources can cause a big problem in your investment life if it goes wrong. People with a lot of leverage often feel the stress and pressure of this extra load, and make poorer decisions as a result.

When your loaded with debt you lack flexibility, you are beholden to someone else, and you are very reliant on your decision being correct. You put yourself in a position where being wrong hurts you badly. There is a saying that goes along the lines of “To finish first you have to first finish”. When your leveraged up you hurt your chances of finishing the race.

Over the course of a long investment life you don’t need outstanding returns to have a great result, you don’t even need leverage. All you need is patience and a long runway. Being free from debt allows you to make better decisions, give you a chance to fight another day if things go wrong, and it means your reliant on anyone else (like banks). You’ll sleep better at night knowing your free from all the problems of debt.