| -- | November 16, 2017 Pay Down Your Mortgage  The latest issue of Street Freak came out on Tuesday. Street Freak is a bit of an aggressive stock-picking newsletter, where we come up with a new idea every month. I try to keep the ideas a secret—if you want them, you have to subscribe! But I’m going to let you in on this month’s idea for free. Are you ready? Here it is: Pay down your mortgage. Yes, that’s a bit unorthodox for a financial newsletter. But people spend too much time thinking about the next get-rich-quick idea and not enough time thinking about their overall financial well-being. I’m willing to bet that in addition to having a successful portfolio, many investors reading this also have a lot of debt. Going into what might be a downturn, I’m uncomfortable having a lot of financial leverage. If you think the market is going to go down, then you should stop thinking about buying inverse VIX ETNs and start thinking about how to deleverage in a smart fashion. Better Risk-Reward Paying down your mortgage is part of that. It is part of an overall exercise in balance sheet repair, which includes— - Building a cash position
- Paying off debt:
- Margin debt
- Credit card debt
- Car loans
- Mortgage debt
Financial leverage cuts both ways. It can help you on the way up, and it can hurt you on the way down. Funny thing about paying down debt—technically, you are “making” whatever the interest rate on your loan is. If you are paying down a 4% mortgage, you are actually earning a 4% return (on a pre-tax basis). Given that high-yield ETFs yield about 5% these days (and are circling the drain), it seems like a much better risk-reward. Also, I would not get too caught up in thinking about your mortgage interest deduction. Chances are, it is going away anyway in the tax reform bill, and besides, that is a terrible reason to have debt. There is nothing quite like the peace of mind of having a house that is paid for, or nearly so. Trust me, I’ve been there.1 As for credit card debt… there is no reason to have credit card debt unless you are experiencing temporary financial stress, in which case a stock pick from a newsletter is not going to help you. And I would not worry too much about your credit score suffering because you do not have any debt. That’s the wrong reason to take out debt. Freedom Bernie Sanders likes to talk about how the US isn’t really a free country because people don’t have freedom from financial stress. Well, financial stress is just a part of life in a free market economy. But take a page out of the Bernie Sanders playbook and… eliminate your financial stress! All this money going out the door in monthly payments—you can make it stop. There is no freedom in the world quite like freedom from debt. If you don’t do this, and we get the downturn I think we are going to get, your balance sheet is going to deteriorate as the asset side of the ledger gets smaller. So the goal here is to deleverage when you can, not when you have to. Forced deleveraging (i.e., margin calls) is never any fun. I am half-descended from flinty New Englanders. You have never met a cheap b****** like a Connecticutian, so part of this is in my DNA. New England is the land of the good credit scores. Don’t worry, I’m taking my own advice. The goal is to get the house paid off in 2-3 years. When I look in the mortgage amortization spreadsheet I built and add up all the interest I’ve paid since I bought the house in 2015, it just makes me mad. I told the loan officer when I got the mortgage that I was going to prepay the hell out of it. He didn’t seem to mind. Not his problem. The heuristic on paying down your mortgage is that you shouldn’t do it when interest rates rise. To use an extreme example, if interest rates rose to 10% and your mortgage was 4%, you would be better off keeping the money in a savings account than paying down your mortgage. But one thing that is not factored into that calculation: less debt is always better than more debt. My guess is that when the market turns, we are going to be hearing about a lot of hidden leverage that we never even knew was there. It is like that old Warren Buffett quote: “You only find out who is swimming naked when the tide goes out.” One final thing. Early bird registration for Mauldin Economics’ Strategic Investment Conference opens today. If you’re planning on going, now is the time to get your ticket—because you can get it at a discount of more than 20%. Last year was terrific (Matt Ridley was a personal favorite) and SIC 2018 will be too. Get your ticket here.
1 One wrinkle: if your house is nearly paid off and you do run into financial trouble, the bank will foreclose on a low LTV mortgage first. But this shouldn’t really be a consideration—just something to keep in the back of your mind. 
Jared Dillian
Editor, The 10th Man
 | Get Thought-Provoking Contrarian Insights from Jared Dillian
Meet Jared Dillian, former Wall Street trader, fearless contrarian, and maybe the most original investment analyst and writer today. His weekly newsletter, The 10th Man, will not just make you a better investor—it's also truly addictive. Get it free in your inbox every Thursday. |
Jared's premium investment service, Street Freak, is available now. Click here for our introductory offer. Jared Dillian, former head of ETF Trading at one of the biggest Wall Street firms and author of the highly acclaimed books, Street Freak: Money and Madness at Lehman Brothers , and All the Evil of This World , shows you how to pick and trade trends, and master your inner instincts. Learn how to use “Angry Analytics” as a leading indicator of budding trends you can profit from… and how to view any market situation through the lens of a trader. Jared’s keen insight into market psychology combined with an edgy, provocative voice make Street Freak an investment advisory like no other. Follow Jared on Twitter at @dailydirtnap. Share Your Thoughts on This Article
 http://www.mauldineconomics.com/members
Use of this content, the Mauldin Economics website, and related sites and applications is provided under the Mauldin Economics Terms & Conditions of Use. Unauthorized Disclosure Prohibited The information provided in this publication is private, privileged, and confidential information, licensed for your sole individual use as a subscriber. Mauldin Economics reserves all rights to the content of this publication and related materials. Forwarding, copying, disseminating, or distributing this report in whole or in part, including substantial quotation of any portion the publication or any release of specific investment recommendations, is strictly prohibited.
Participation in such activity is grounds for immediate termination of all subscriptions of registered subscribers deemed to be involved at Mauldin Economics’ sole discretion, may violate the copyright laws of the United States, and may subject the violator to legal prosecution. Mauldin Economics reserves the right to monitor the use of this publication without disclosure by any electronic means it deems necessary and may change those means without notice at any time. If you have received this publication and are not the intended subscriber, please contact service@mauldineconomics.com. Disclaimers The Mauldin Economics website, Yield Shark, Thoughts from the Frontline, Patrick Cox’s Tech Digest, Outside the Box, Over My Shoulder, World Money Analyst, Street Freak, Just One Trade, Transformational Technology Alert, Rational Bear, The 10th Man, Connecting the Dots, This Week in Geopolitics, Stray Reflections, and Conversations are published by Mauldin Economics, LLC. Information contained in such publications is obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. The information contained in such publications is not intended to constitute individual investment advice and is not designed to meet your personal financial situation. The opinions expressed in such publications are those of the publisher and are subject to change without notice. The information in such publications may become outdated and there is no obligation to update any such information. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments.
John Mauldin, Mauldin Economics, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in these publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.
Mauldin Economics, LLC reserves the right to cancel any subscription at any time, and if it does so it will promptly refund to the subscriber the amount of the subscription payment previously received relating to the remaining subscription period. Cancellation of a subscription may result from any unauthorized use or reproduction or rebroadcast of any Mauldin Economics publication or website, any infringement or misappropriation of Mauldin Economics, LLC’s proprietary rights, or any other reason determined in the sole discretion of Mauldin Economics, LLC. Affiliate Notice Mauldin Economics has affiliate agreements in place that may include fee sharing. If you have a website or newsletter and would like to be considered for inclusion in the Mauldin Economics affiliate program, please go to http://affiliates.ggcpublishing.com/. Likewise, from time to time Mauldin Economics may engage in affiliate programs offered by other companies, though corporate policy firmly dictates that such agreements will have no influence on any product or service recommendations, nor alter the pricing that would otherwise be available in absence of such an agreement. As always, it is important that you do your own due diligence before transacting any business with any firm, for any product or service. © Copyright 2017 Mauldin Economics | -- |
