Dear readers, recently I watched a financial documentary which asked viewers the question on whether if someone has $500,000 in spare cash, should the individual use it to pay off his housing mortgage or to use this amount for investment?
According to the documentary, the recommendation is to save the cash for investment as one is able to grow the $500,000 to a million dollars or more based on a 6% per annum long-term investment rate that can be achieved from long-term investment. The monies gained from this investment will far surpass the additional interests paid of the mortgage over the same period.
While the above rationale seems sound, I must highlight readers that 6% per annum or for that matter, long term investment rates are always based on the past returns or trend. The past may not be the best proxy for future investment growth. 6% per annum interest may not be achievable in the longer term but what is certain is the fixed mortgage interest rates that will chip off our savings over time.
In the face of uncertainties, I will recommend using the $500,000 to pay off the mortgage first, assuming that one has still ample liquidity around and save on the interest rates. Then use and work on the remaining liquidity for investment purposes.