How To Guarantee An 8% Return

This article really has little to do with dividend paying stocks, but it does have to do with risk management and how I guaranteed myself an 8% return risk-free. 

The Nuts and Bolts

The real truth here is that there is no magical formula and I am not pitching a complex investment program that claims outlandish results that will have you bathing in money in no time flat. However, I am going to show you my my simple logic that lead to getting this guaranteed 8% return.

The “Secret”

The secret is that 8% was the rate of interest on my student loans. What does that have to do with investing? Well, by completely paying off my student loan debt, I effectively guaranteed myself and 8% return on my money without any risk, not accounting for any tax consequences.

How does this help you?

If you are wondering where to invest that little year-end bonus or that extra little bit of cash each month, consider paying down some of your higher interest debt. Other than your mortgage (USA), most other debt is not tax deductible.

If you have debt with an interest rate in excess of 8%, you should seriously consider that risk free 8% return very valuable. Not to mention the peace of mind that lowering your financial obligations to others brings.

Can you guarantee yourself an 8% return on investment?

7 comments

  1. Municipal bonds, while often tax advantaged, do carry more risk and in turn should offer a higher return.
    Thanks for the comment Noah,
    Tyler

  2. Adventures,
    You are correct. Debt payment is a guaranteed return on investment. However, the object is not to get inot those situations in the first place if at all possible.

  3. Tyler

    What you said here is a truism, and hence less useful for its being a trusim. The only debts which should be kept are those used for investments that generate higher returns than the interest cost (after tax effects are considered).

    Leo

  4. I think this is quite relevant in this debt ridden society, where people, the vast majority of us in North America should be focusing on debt reduction before asset allocation. You know, the time you are a teenager working for that minimum wage job at McDonalds or some other outfit is the time when most are in the black. From college on, until old age, most of us are in one form of debt or another. Starting with student loans, then mortgage debt, its funny how it was back in the minimum wage days that the assets outweight the liabilities for the most of us. I really appreciate an expansion on this topic as it would be a very relevant read.

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