A Risk-Free, High-Yield, Guaranteed Investment

Posted on January 22, 2013 by Mary Hunt in Home & Family 38 Comments

Now and then someone asks me for this kind of investment advice: How can I get started investing in stocks and mutual funds that are risk-free and have guaranteed high rates of return?

Of course that makes me laugh hysterically, not only because there isn’t such a thing, but more because someone thinks I am an investment advisor. I am simply not qualified to advise anyone on traditional Wall Street, stock market investing.

Some rights reserved by StockMonkeys.com

My investment advice is quite unconventional, but it makes so much sense you are going to be amazed.

First, let’s agree that the reason anyone wants to invest is to increase their net worth by making their money grow. There are two ways to do that. You can increase your assets or decrease your liabilities.

If you have debt, your net worth will increase at the very same rate if you increase your assets or decrease your liabilities. Let’s say you receive a $1,000 bonus with which you buy shares in a mutual fund. Your net worth increases by $1,000. If instead you repay $1,000 of debt, your net worth still increases by $1,000.

Risk-free. Using the example above, let’s say you bought ABC stock instead of paying off $1,000 of debt. Next month the stock drops by 50 percent. Now your stock is worth $500. But if you pay off debt with that $1,000 and ABC stock tanks, it does not affect your net worth at all. That $1,000 “investment” in your debt increased your net worth without any risk.

High-rate of return. Investing in your debt pays you interest equal to the amount of the interest you were paying on the debt. Really!

Go back to the $1,000 debt you paid off in the previous example. If it was a credit card balance at 18 percent interest, you were paying $15 in interest each month or $180 annually on that debt if you were making only minimum payments each month. Once you pay it off, you get to keep that $15 each month. That is your 18 percent return on the $1,000 you invested in your debt. That kind of return on investment is unheard of these days.

No minimums. If you have an extra dollar, you can invest it in your debt. Not true of investing in the stock market. It’s not unusual for a mutual fund to require an initial purchase of $1,000 or more.

It makes so much sense if you have any money to invest, to invest it in your unsecured debt until it is gone! Then what? Should you invest in your secured debts? That’s a question only you can answer. It is a conservative approach, but every benefit of investing in your unsecured debt holds true for your mortgage. Every dollar you invest in your mortgage puts you that much closer to owning your home free and clear. Once paid, it’s yours no matter what happens to the economy or the stock market.

Question: Do you own your home free and clear? How did you accomplish that? Tell us here.

Exclusive Bonus!

Subscribe to email updates today and you’ll receive a link to download my brand new e-book, The Best of Everyday Cheapskate, FREE.

You’ll enjoy excerpts from each of my bestselling e-books to help you get onboard with saving time and money every day!

Posted on January 22, 2013 by Mary Hunt in Home & Family 38 Comments

Sharon

I have grown to understand that you never really own your home free and clear because if you ever get delinquent on the taxes it can be taken from you…right? So even after the mortgage is paid off, you continue to pay government for the “right” to own the home.
- PH
  
  You’re not paying the government for the right to own your home. You’re paying the government taxes on property which society has deemed taxable which in turn helps keep our society running.
  - http://twitter.com/DebtProofLiving Mary Hunt
    
    And even in the highest-taxed states, taxes are much less than the value of the property. I guess it would be like saying you are not really living because without food and water you would be dead. Yes you are dependent on food and water for your life, but you are still fully alive. Or something like that
- http://twitter.com/DebtProofLiving Mary Hunt
  
  Can’t say I totally agree with your terminology. You own the property and the home which gives you the option to sell it at any price you want. No one has to agree or give permission. It is an asset that you own 100%. That you must pay taxes is a fact of life. In most states delinquent taxes (after years) allow the state to sell the property for payment of taxes. But if you as the owner are unable to pay those taxes, it shows you are not in a position to own the property and you need to sell it.
Fruggy

We lived in a smaller house until we paid it off early. Then we added on to make it larger and paid that off early too.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  I love our name, Fruggy. And you financial savvy as well
Beck

We own our home free and clear. We used an equity enhancement program that took 1/2 of a payment out of our account every two weeks thus making a total of 13 full payments a year. We paid a small fee of a few dollars a month for this service. I know we could have done it ourselves but automation kept us focused and it was worth the fee. When we got a raise I increased the amount of the payment. I sent in money from tax refunds. After seven years we sold some stock and paid the small balance off. This is the third house we have owned we almost paid off our first house early before being transferred just by adding exra principal to the payment each month. We didn’t eat out much, drank ice tea rather than soda, and never had cable still don’t. We just have tracfones. Many people think having a mortgage saves taxes – you are just paying the bank rather than the government and you save very little in taxes. I would rather pay a bit in tax than a lot to the bank.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  Beck … right on, my friend!
Cathie

Took your advise years ago and made a extra principal payment each month. Now we are retired and so very happy that we have the house paid for and we put aside each month for the insurance and taxes. Thanks Mary for all your information that really helps us in life.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  Retired and so very happy … sounds like a book title to me!!
SusieQinPA

My husband and I take a hybrid approach: Each month, we automatically invest in stock and bond mutual funds AND we add extra principal to our mortgage.

Thanks to this approach, we now own our second home (an investment property that went “underwater” during the recession) free and clear and are working diligently to pay off our primary residence before my husband reaches full retirement age. We actively track our net worth (using Mint.com) and it is indeed rewarding to see our mortgage principal drop each month. Mary is absolutely right about the guaranteed positive impact on that!
- http://twitter.com/DebtProofLiving Mary Hunt
  
  Thanks for the affirmation and confirmation. Yes … I adore Mint.com. The visual reminder of one’s net worth is a powerful weapon against going into debt.
Colleen

About 4 years ago, I read your book and we began following your advice to set up a Contingency Fund, a Freedom Account, and pay down debt. (It was amazing how much more money we seemed to have, even though our income had not increased!) Then, about two years ago, my husband and I began putting every extra penny onto our mortgage and other debt. For two years, he went without decent shoes. For two years, we did not buy many of what I had previously considered necessities (but items I subsequently learned we really could do without), and we even did without one of our vehicles by not replacing it when it “retired.” However, 3 months ago, we paid off our mortgage in full, and then finished 2012 debt-free, with 6 month’s worth of essential income in the bank. Now we can concentrate on saving toward retirement. I cannot adequately express our gratitude to Mary Hunt, nor express the feeling of owning our home free and clear, and never having to worry about a roof over our heads again. Every sacrifice and every bit of scrimping and saving has been worth it–trust me. And trust Mary–what a blessing she has been to us and so many others!
- http://twitter.com/DebtProofLiving Mary Hunt
  
  Oh boy oh boy … you’ve just encouraged me more than you will ever know. I am so proud of you and your husband, Colleen. You are the poster kids for Debt-Proof Living. You get it! And you are reaping the benefits. You will never regret this journey. What an example you are to me and all others who will read this …
Jeannie Kinney

I sold my home (only netted $4k) and bought a lesser priced condo because I decided to become a teacher and took a $10K salary reduction. I put myself through college at age 40 and I was a single parent with one child receiving $30 per week in child support. I paid for the health insurance (ex-husband was self-employed with no benefits). We rarely eat out, I use a Straight Talk phone for $50 per month, I continued my self-employment work of alterations, stopped using my credit card, shopped at Aldi’s, stopped my gym membership and worked out at home. I pay cash for Christmas and birthday gifts. The biggest change for me was when I stopped telling myself I deserved something because I had worked so hard (we all work hard). I was grateful for what I had and didn’t feel I was missing something I thought I wanted. I drive a 14-year-old Lexus that is in excellent condition that I bought used when it was already 10 years old because it had 52K miles on it. It’s a combination of alot of things but I don’t feel entitled and I think that is something we Americans can all learn. Being debt-free is the greatest freedom you can enjoy! You rock Mary Hunt! Thank you for all of the great advice you give to us faithful readers.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  I am so proud of you Jeannie, and humbled to have had an impact on your life. I want to tell your story to the world. LISTEN TO JEANNIE!
Jan Jones

we got married almost 17 years ago. at the time, we were spending like crazy. after we stopped doing that, and stopped using credit cards, we were able to save. we did not go out to eat, or go to the malls. we only went shopping when we needed something, not just to look. i took mary’s advice about looking at catalogs- do not order until you have thought about the purchase for several days. usually you will forget about the item. we were able to purchase several foreclosure properties at a really good deal. since we did not have to borrow money for these properties, we are reselling by owner. it is a little difficult at times if we have to repossess, but we are not hurt financially if they do not pay (it does not cause us to lose the property or hurt our credit). over the last 8 years, we started building our home ourselves. we lived in a 2 br trailer and paid cash to build. my husband and i did most of the work ourselves, only hiring out the really technical jobs, such as the wiring, and A/C work. it took 8 years to complete, but we own it free and clear. It is nice not to have a house payment, but that is something we have not had for the last 6 years anyway- we double paid the principal on our previous mortgage until we paid it off early. when we started, my husband was a brick mason, but during the decline of the economy, he had to take on a different job as a pipefitter with lower pay. we were still able to allow me to stay at home and only get a part time job for about 2 years so that i could homeschool my children.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  Living debt-free offers so many more options in life, even if that’s going to work as a pipe fitter with lower pay. I am so proud of you for all you have done and the ways you have demonstrated financial responsibility and maturity.
Dona

When my husband and I were 47 years old, we built a new home. We immediately began paying as much extra as we could in each monthly payment. We knew that paying toward the principal at this early stage of the mortgage was the way to go. We lived in the house for 13 years before we sold it. We both retired at age 60 and sold that house, a big two story with a basement. We were able to buy a condo free and clear with the equity for our house. We love the freedom of not having a mortgage. We’re able to travel and do so many things we couldn’t do if we still had a mortgage payment.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  So, how’s retirement treating you? Sounds like you are enjoying a wonderful life. Did you know that consumer debt is the most stressful of all debts, and that debt is the number-one cause of physical stress which leads to disease and poor health? Just thought I’d toss that in. I’ll bet you are benefiting from good health in all of this as well!
CK

First, when we bought our home we didn’t buy the best house we could afford. We bought only what we felt we needed. Always asking ourselves if it was a want or a need. Then we paid ahead on our mortgage each month. We made a plan in our budget to live more simply so we could have the money to pay ahead. It wasn’t easy but we had made a commitment to each other to live within our budget. Our budget wasn’t a killer but it made us accountable. Some years we only paid an extra $50.00 dollars a month. Other years more. My husband and I are now both 57. We have been debt free for almost 10 years. It is the best. We have raised 4 children and seen them all go to college. We still live simply by our neighbors standards but not by the world’s standards. We have been free to do many things such as mission trips, adopting two teens, etc. that we would not have been able to do if we were burdened by debt. We have never once regretted our decision or do we feel deprived.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  CK … What an awesome story. Thanks for sharing. Can’t wait to hear about the next season of your lives! I have the ultimate inquiring mind, just in case you wondered. And no I am not nosy … inquiring!
vicki

We bought a home that was within our means to pay. After the first year or so, we started making extra payments on the principle of about $125, then upping that over the years as our salaries increased. We took out a 15 year loan. We paid it off in a little over 12 years. We were fortunate to have steady income, and always paying our mortgage on time every month. Two of our children were in college and I was also during this time. We had to be very frugal money managers to make this work. But since 2005 we have been debt free and we praise the Lord for wisdom and health.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  And I’m singing your praises as well
Cindy

We do own our home. We built a new home and had an owed and additional $100,000 on it 13 years ago. We paid the loan off in 5 years. We committed to paying extra on it every month hoping to pay it off in 10 years rather than 15 years. We did it in 5. We ended up putting everything we had extra toward it. We got so excited seeing the balance come down so quickly. It was so worth it. Now we can live more free that the sacrifice was worth it for those few years.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  Love your plan. It surely can be done and you are proof positive.
Francis

We bought with a 15 year loan, then paid extra on it every month. There are other things we didn’t buy because we put the money on the house, but when the house was paid off, there was a huge “raise” in our income. Further, in our retirement years, nothing says security like not having to worry about something as big as rent or a mortgage.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  Exactly right … and I applaud your determination!
Rich

We had decided that we needed to retire and with our current mortgage obligating payments for 15 more years, we opted to sell our home and move out of the area. It happened that we were selling at the high point in home prices and people were bidding against each other for our home. We took the proceeds and bought a home for the cash we realized from the sale. It now costs us around $400 per month including property taxes and utilities. Freedom is wonderful!
- http://twitter.com/DebtProofLiving Mary Hunt
  
  Freedom … nothing like it! Where did you relocate? Well, not your address or anything but the city and state. You made a great decision and exactly how I would have advised you. Listen to Rich, people: You do not want to have a mortgage or rent payment while retired. So your choices are to pay it off before you retire. Or keep working when you are 80 to make those mortgage payments. Or 90.
Dana

Reading all of these stories are really inspirational! We have paid off all non mortgage debt and would love to be completely debt free.
- http://twitter.com/DebtProofLiving Mary Hunt
  
  You can do it! One day, one step at a time. Cling tightly to all of the help and encouragement you’ll find in your DPL Family. You don’t have to make the journey alone!
http://twitter.com/DebtProofLiving Mary Hunt

Yes I am totally chatty today, folks. I guess you can see that this is a topic that is near and dear to my heart. So if you wonder “Who put a quarter in her?!” (haha … a friend of mine used to say that a lot when I’d start chattering away and it always made me laugh), it’s all of today’s commenters with their wonderful stories of encouragement. I’m flyin’ high for sure.
Linda

We had a CD that matured and we decided to use the money to pay the balance due on our home mortgage. It is the most wonderful feeling when you own your home. Don’t believe financial advisers who say that keeping a mortgage at a low interest rate and using your money to invest otherwise is a good decision. I disagree. The peace of mind that comes from being debt free–especially your home– is priceless!
kaetra

Fantastic analogy Mary! Excellent article.
Sunny

I bought my home when I didn’t know enough about buying a home and learned through reading books how to pay it off before thirty years. I refinanced my home after five years and paid it off in six years by paying the principle payments along with regular mortgage payments. It has been a total blessing to have a home free and clear after eleven years. I had one lump sum payment to pay at the end, which I saved up from being frugal and putting all bonusses and any extra income into savings accounts. I didn’t have to sacrifice much, because I bought the house during a time when housing was in a recession. I really am blessed that even though I didn’t know much, God led me to the right resources and continued to bless me with the income and focus to accomplish this goal. I still drive a fourteen year-old car and have frugal ways, which has allowed me to pursue a more difficult goal of being an entrepreneur. I would tell anyone that it is a worthy goal to be debt free and a home owner.
Johnson Family

Thanks Mary for your real and relevant advice over the years! A few years ago you suggested the Wesleyan Investment Foundation (WIF). That is the savings account we still use and used to hide our money (from ourselves) in order to save up to make the one time final payoff on our mortgage last April 2012!!! We had written goals in 2010 with a financial advisor to have our mortgage paid off by the year 2022. With diligence, perseverance, frugality, and obedience it happened sooner than we could have ever imagined. That is how our God works. We give our God all the praise and glory. It is His house. Thank you for being a channel through which He works to share financial knowledge and provide hope. Keep up the amazing work!
Coastie

Should we pay on our mortgage principal before or after we refinance?

A Risk-Free, High-Yield, Guaranteed Investment

Share this: