How to Amass the First $100,000

A common mistake investors often commit is to focus only on the asset side of their balance sheet. The liability side, where the debts are kept, is just as important. A question that we often get is, “Should I pay off my debt or invest?” and the answer is simple: It depends. Even if you have millions of dollars in wealth, if you are fortune enough to have core consolidated tax-deductible Federal Student loans locked in at 5% for the next twenty years, it would probably be a mistake to focus on paying those off due to the cost of capital. After factoring in inflation, the tax savings, and the opportunity cost of investing in attractive assets such as a collection of blue chip stocks, paying this debt off at the expense of investing could result in millions of dollars less wealth over long periods of time.

On the flip side of the Janus coin, it makes absolutely no sense to invest in a regular brokerage account if you are paying 20% on a credit card due to debts you have accumulated in the past. It amazes me to hear people talking about taking vacations, buying Christmas gifts, picking up a new shirt, or going out to dinner when they are swimming in a sea of high cost debt.