Our Controversial Advice for the Coming Inflation

Andy Snyder|October 27, 2021

A Note From Andy: Tomorrow is the big day! We’re launching something huge… something we’ve never done before. It’s so special that tomorrow morning’s Digest is going to look a bit different. You’re going to love it.

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One of the most influential men in America just issued a dire warning.

“Hyperinflation is going to change everything,” Jack Dorsey wrote on Twitter, the social media giant that he created. “It’s happening.”

Dorsey isn’t only a social media founder. He’s also the man behind Square (SQ), the $116 billion payment processor that has seen its value rise fourfold over the last 18 months.

Perhaps Dorsey’s position gives him a good view. Perhaps he is right. Hyperinflation could wipe us out.

Or maybe the Bitcoin owner and soon-to-be miner is just talking his book, hoping to push a few more buyers into the record-breaking crypto market.

Either way, he’s likely at least a little right.

That’s certainly where the odds are – and what common sense would dictate.

Fortunately, going back to our old days in the wilderness, being even a little right most often leads to survival.

Crash Imminent

Remember, when a plane’s wings fall off and it plunges from the sky… everybody dies.

That’s hyperinflation. You can tighten your seatbelt, put your tray table up and brace for impact. But it won’t do much good. It will just make finding your body easier for the cleanup crew.

When a plane nose-dives into the ground, nobody survives.

But if a tire pops on takeoff, or if the plane hits a flock of birds at 2,000 feet, making the right moves can be the difference between life and death.

That’s where we are these days.

The economy has a bad vibration, and alarms are going off.

The folks who prepare now will survive with a mere scratch and a story to tell. Others might not be able to get out fast enough.

So what are you supposed to do? How do you survive the inflationary accident that lies ahead?

There are lots of things to do… certainly too many to cover in this column. So we’ll tell our tale the same way we’ve told it before – with the very best advice that paints the brightest and most vivid picture.

Don’t Pay

Since interest rates first went to zero more than a decade ago, we’ve been begging readers to toss aside the traditional advice.

Don’t pay off your mortgage, we’ve said. Put that money where it will be treated better… like in stocks.

It’s a controversial idea. A lot of folks don’t want to hear it. But it hits at the simplest and most important rule in investing.

Put your money where it is treated best. 

In other words, if you can gain 3% with one asset and 14% with an equally risky asset… go with the higher payout.

It sounds like common sense, right?

If so, why are so many mainstream investment gurus begging folks to pay down their mortgages?

It’s lousy advice.

The average mortgage rate is just north of 3%. Meanwhile, the average annual return on stocks since 2009 has been 14%.

We could stop there. We shouldn’t need to say anything more. The math is obvious. But we’ll fill in a few more colors.

Here’s the problem. Paying off your mortgage is not necessarily bad. It’s just that it should be at the bottom of the priority list for many investors, especially active investors who are looking for something more than just security.

If you’re looking for true, life-altering wealth, your mortgage – and the leverage it provides – is actually one of your most important financial tools… especially when the rate you pay is well below the rate of inflation.

Worthless Wealth

It’s the idea of building equity that trips up so many investors.

It’s a natural desire to want to use your excess money to pay down your mortgage principal and build equity.

But the truth is, you’re wasting an opportunity to put that money into an asset with much higher appreciation potential and, this is the important part, much more liquidity…

Instead of putting an extra hundred dollars toward your mortgage each month, you should use that cash to maximize your 401(k), hopefully getting a healthy employer match to boot. Or you could put that money in an IRA and take advantage of the long-term appreciation of stocks.

Or you could use the extra cash to, like we have, buy more property and build an income stream.

Put simply, the cash you use to pay down your mortgage can very likely work much harder for you somewhere else.

That’s never been truer than it is right now… when interest rates are low and inflation is surging.

Points Worth Pondering

Here are the three main reasons you’re better off not paying down your mortgage.

1. Home equity is highly illiquid. Sure, it feels great to cut out that monthly mortgage payment, but your equity is doing virtually nothing for you. It’s like depositing money into an account that doesn’t pay interest and that you don’t have access to. Remember, you can’t tap that money until you sell your house or take out a loan – either of which will cost you money.

2. The value of your home will rise (or fall) regardless of your mortgage. The equity in your home does little to build any real wealth. No, it’s the long-term appreciation of your property that makes homeownership worth the hassle.

But what most folks don’t realize is that no matter how much you owe, your home’s value will rise and fall at the same pace. The appreciation potential of your home doesn’t change if you pay off your mortgage.

For example, if you have $200,000 worth of equity and the value of your home rises by $20,000, your return on equity is 10%. But if you have just $50,000 in equity (and are putting your cash to better use elsewhere), the same appreciation would boost your return on equity to 40%.

That’s nice.

3. Your payments will be less tomorrow than they are today. Imagine if inflation stays at the current rate for just the next two or three years. Stocks will surge to even higher highs, a dollar will buy even less and incomes (even Social Security payouts) will continue to rise. A $1,000 monthly payment may make things tight today… but give the Fed some time, and that may soon be the price for a loaf of bread.

Let the bank take that huge inflationary hit… not you.

We haven’t always needed to shout quite so loud about not paying down your mortgage. But with the Fed printing trillions in a matter of months and inflation pressure leading to dire warnings from some of the top minds in money, the effects of wrongly chasing home equity and paying down a mortgage too soon have been magnified.

For the majority of active investors, it doesn’t make sense to be in a rush to pay down mortgages. In fact, in many cases, it’s downright crazy – the result of emotional investing.

Put that money to work somewhere else.

It will almost certainly treat you a whole lot better. Folks who took our advice a decade ago are sitting quite pretty these days.

Wait until you see what the next 10 years hold.

Dorsey will have lots to tweet about.