Simple Works

If you don’t like how the government behaves, then you should behave differently than they do.  A good place to start would be, “spend less than you earn,” and “pay down debt”

Debt is a call on the future.  By itself, it adds nothing to that future.  What it bought might, but the debt does not.  Debt limits the future.

Productive debt for most people is uncommon.  If you borrow to earn income or reduce expenses, it is possible that the savings or earnings will pay the debt off.  If so, it is good debt.  If it is not good debt, then it is bad debt.  Too much bad debt is a failing tactic.

Paying down debt is a high yield, riskless investment.  Paying off a house mortgage will save, (same thing as earning,) 3% or more after taxes.  A credit card is much better.  Do that first.  You cannot come close to the same yield in the riskless investment market.

Why riskless?  Risks occur on the asset side not the liability side.  Buying the house or putting the vacation on the credit card was risky.  The financing was a certain cost in the future.  No risk there.   A certainty has no risk.   If there is a risk to financing, it is in that rates might go up but that makes paying down the debt now even better.

Try to influence the government to be more responsible about spending and debt reduction, too.

We live in a complex world of self-interest and mixed messaging.  Do not fall for the common, current approach: Never make anything simple if it is possible to make it complex and beautiful.

Sometimes the simplest investments are the best investments.

Don Shaughnessy is a retired partner in an international accounting firm and is presently with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

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