 Good day, fellow investors! Should you pay off debt or should you invest in stocks or real estate? This is a question I recently got from a subscriber and I think it's extremely important for a big majority of my audience so I want to discuss it. I want to give you three crucial things, three factors that will help you answer the question whether you should pay off debt or invest in stocks. It goes about yields, it is about timing and debt and it is about human psychology, your own psychology and how will you react in case, in case, in case. So, let's start with the three topics but let me show you first what I got from the subscriber. So, I got an email from Dan that says he has 10,000 in index funds and another 11,000 aside in cash. He can take the 11,000 to pay off his debt that will save him 4,400 in interest over the next four years. So, that is a 10,11% interest rate plus the principal repayment and he asked me the question whether he should invest with my platform and whether I can achieve better returns that the 11%, no downside, certain upside return that he can get by paying his loan. 11% interest rate on the debt if you have student debt, credit card debt, you might be in that situation so it's extremely important to approach this carefully, compare things like those should be compared and then see whether you should pay off debt or invest. 11% is pretty high so I'll tell you immediately pay off the 11% debt and then the money that you're saving on repaying the debt and the principal, debt can be invested month by month and so you slowly accumulate what you do. But let's see how you should go about answering this question. The first thing is yield. Compare the yields, compare the rate of after tax interest you're paying on your debt and then the after tax rate of return you expect to earn from your investment. So, the first thing is when you pay off debt, if it has a 10% interest rate on it, 7%, that's a certain guarantee with no downside. You pay off your debt so you get a 7%, 10%, 11% in the intense case return and the downside is zero because you gain on that. If there is a variable interest rate with interest rates going up, you might even see the costs of that that go higher and higher. So, compare that to stocks. Stocks are extremely overvalued now because of low interest rates in the past and there can be a downturn in the stock market of 50%. That's very easy and you see what's going on in the stock market now. So, it's very dangerous to invest now in the stock market if you don't know what you're doing. I have no personal debt except for the mortgage but that's something else because it has a 2% fixed interest rate for 28 years. So, that's something that really doesn't affect my investing and therefore I can invest. 2% is a big difference from 7%, 10%, 11%. So, that's something to keep in mind. On the after tax, my mortgage has a 3.5 interest rate but then I got to get tax benefits and it's effective 2%. So, that's the benefit and that's why I'm looking for a 2% mortgage rate. If I pay it, then I don't get the tax benefits and I am behind from that. So, I hope I will get from the cash from the long-term investment. I'm sure I will get more than 2%. 11% on a 4-year investment term like Dan is asking, I cannot guarantee that. I hope to have returns more than 10% but I don't know whether those returns will be in the next year, 2, 3, 5, 10 years. Over the long term, I'm aiming for that. So, for Dan my suggestion is pay off the debt, have lower monthly payments and then invest those monthly payments without debt for your investment. Then start slowly building a portfolio. Betting on, I'm going to invest so that to have a higher yield than the debt, that's something very risky because it involves timing when it comes to investing, market timing and debt timing and that's something impossible to do because it's a double whammy. So, if debt costs go higher, which often happens in recession and you invested in stocks and stocks go down in recession, you have more debt and you have less and less money. If you lose your job, then your debt stays there, you have to sell the stocks to eat, you are in panic because what if stocks go in the lower and then you have a big, big problem in your life. So, if you have high interest debt, please pay it off and make everything easier and invest the small savings from the paid off debt into stocks because when you are investing small monthly amounts into stocks, then if stocks crash you are happy because the new monthly amount allows you to buy more and this leads to the first pillar of this question of this topic, psychology. When you have no debt, when you have no pressure for timing, your mind is free to invest. Everybody else will be rushing to sell their stocks, panicking because they have their debt, they are hanging on their debt. When that happens, you will be calmly, okay I have a few hundred bucks extra, let me buy the stock, let me buy this what is cheap, let me buy this what is cheap and when you're buying what is cheap, like I'm waiting for value, looking for value around the world, then 10, 15, 20% are not unusual returns. By doing it now when most things are expensive, then it is really, really risky and you should always compare the risk and reward when you're investing. Also on the timing Warren Buffett says invest in stocks only the money that you don't need. Why is Warren Buffett such a great investor? Because he separated his personal life from his investment, he doesn't need the money, he gave away 99% of his wealth, so he really separated, okay if something becomes of that money, he is happy about compounding capital, he gave it away and that's what made him a great investor. If he had to think oh my god I have to make 20% on stocks because I have to repay my credit card or something like that, then Warren Buffett wouldn't be Warren Buffett. So to conclude on investing, what I do, I'm happy when stocks go down because as an investor I want to buy more and more assets. If you have to pay that and if you own stocks, you will not be happy when stocks go down, you will panic when stocks go down. So that's differentiating between speculating, if you have that, you are speculating, if you repay the debt you are becoming an investor and then you see, I don't know, Apple fall 20% and then you say okay look, Apple is cheaper, my dividend is higher, my expected long-term return is higher because I bought it as a cheaper price. Next month you save again on the debt payment because you have repaid it and next month Apple goes another 20, 30, 40% lower, you buy more, you buy more and you start building a portfolio over time, you start building wealth over time and that's how you become a great investor, not a speculator. And that's my message to all of you out there that have that, repaid the debt and then with the savings become an investor that invests on a monthly basis like I'm doing on my stock market research platform. I add a thousand to my portfolio every month, see what's cheap when it becomes cheap, keep the cash there and I'm an investor and I'm very, very happy if stocks continue to go down, down, down and down because over the long term that increases my long-term return. So to summarize, compare the yields on the debt and the interest rates, the interest rates on the debt and the yields on the potential investment, compare the risk and reward, see about whether it is the right timing to risk investing in stocks on real estate, especially if you're leveraged, what happens if you lose your job, then if the interest rate on your debt is pretty high, repaid and then start investing small amounts of money into a well diversified portfolio and start building a portfolio of value over time by buying those things that are cheap. As I said, I have a mortgage of 28 years with an effective interest rate of 2%, I have no intention to pay that off because 2% interest, 2% inflation practically is free money, so the real estate I own, I am getting it for free from my insurance mortgage provider. So that's something to keep in mind, have good debt, not bad debt. Thank you for watching, hope you enjoyed this video, please subscribe if you like this kind of approach to investing and to personal finances. Thank you and I'll see you in the next video.