Mark Cuban, a billionaire, shared his idea of the best investment in a recent MarketWatch interview. His plan involved paying off all of your credit cards and paying off any debt you have.
Cuban had struggled with credit card debt when he was in his 20s and learned the harsh lesson that money saved by not having debt and dealing with interest is much better than any other investment you could make for your money, whether in real estate or the stock market.
It doesn’t matter what interest rate you currently have. If you’ve got a student loan with an interest rate of seven percent, you’re better off paying it off so that you make seven percent. It’s an immediate return and is much safer than picking the right real estate option or a stock. While it seems counterintuitive to pay the debt off because you’re paying more, it means that once the debt is paid, you no longer have it hanging over your head.
However, with credit card debt, interest rates are usually higher. Typical cards charge roughly 15 percent interest, which can cost a lot if you miss payments or pay the minimum balance each month. Most people fall into that same trap, and most households spend almost $1,000 a year in interest.
Cuban recommends doing away with credit cards altogether to avoid the costly interest payments. However, in his interview with Money, he does say you can use credit cards if you pay off the balance each month. It’s important to recognize that the credit card debt you have with an 18, 20, or 30 percent interest rate costs much more than what you could earn other ways. It’s best to lower your debt and remove it altogether, saving you all that money.
Once you’ve paid off your debts, it’s time to focus on investing that money you’ve saved. You can put it in an S&P 500 SPX fund that’s cheap. These Standard & Poor funds can hold the largest companies in the US, which offers more diversity and a lower cost. Plus, they usually deliver long-term results.
The CEO and chairman of Berkshire Hathaway agrees. Warren Buffett says to consistently buy these S&P 500 index funds at low costs. He’s a legendary investor, and he recently told CNBC that it makes the most sense no matter where you are in the investment loop.
Buffett also gives more advice in that you should always stay the course. It’s tough to invest money, especially if you choose the wrong investment. However, you are going to have periods of losses and no returns. It’s normal, and it means that you’re doing your best. As long as you buy something no matter what, you’re on your way to making money. Just think of it like this: you wouldn’t have that money to spend if you still had debt, so you can play with it and try to get a better return on your investment.