Prepay Loans or Invest in Stocks
Every loan owner have this question once in their life whether to prepay their loan amount with the cash they have or should they invest in stocks. Now let's take a Home loan because that's the loan people take with the maximum amount.
So if someone has taken a loan of 50 Lakhs for 8.5% interest and the tenure is 20 years, he has to pay around Rs 43K every month as an EMI. Now if he has some money saved up or if he got a bonus, he can think of either prepaying the loan or invest that extra amount in the stock market. When he prepay the loan, he will save guaranteed 8.5% on interest. But if he invest in the stock market he can get more than 10% returns.
Now why I am saying can because market has certain risks and it will not always give more than 10% returns. So it's upto the individual whether he wants to prepay or invest. If his risk appetite is not much, he is investing most of the money in FD, for him thr best is to get rid of the debt and be stress free. But if he is ok with the risks associated with the stock market and has a time horizon of 5 to 7 years then most likely he can get more than 10% returns.
So it's not that we should always l9ok for numbers to see if we have to prepay or invest. Not everything fits for everyone. So if you want to get rid of the debt as soon as possible then prepay as much as possible. And if you want to create wealth as soon as possible. Then aggressively invest and continue with the EMI. Please watch yhe video and let me know your thoughts on the same.
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I agree that it makes much sense to try and get the most from your money. I think there also need to be a balance between being stable (able to pay needed expenses) and what is extra money for investing, trading, etc.
I usually take 10-20% of my income and disperse it among several investments and income producing/speculation. and what about HBD at 15% APY?
Hey, I get why you're torn between prepaying your loan and investing in stocks! Paying off that loan is like getting a guaranteed 8.5% return, but investing in stocks could give you more than 10% returns... if the market cooperates 😅.
It depends on your financial goals and risk tolerance. If you're risk-averse, prepaying the loan makes sense. You'll sleep better knowing you're debt free. But if you're willing to take on risk and have a longer time horizon, investing in stocks could be the way to go. Just don't put all your eggs in one basket. Consider your overall financial situation too. Do you have an emergency fund? Are you struggling with EMI payments? If so, prepaying the loan might be better. But if you're financially stable, investing in stocks could grow your wealth over time.
HBD or other fixed-income investments might be worth exploring too 🤔. Great post, and I love the discussion! 🙏🏻😍