Why the wealthy still take debt
Middle CLass values
It is very trendy amongst the middle class that one should aim to pay off all debts as soon as possibly and only then invest.
This is the worlds worst yet seems the most widely believed advice – no matter how rich you are. Let’s say you have a 1 million pound home and only borrow 10% on it. You have 900k equity which appreciates with HPI every year, let’s say on average that’s 3%. What you should instead be doing is borrowing up to 75% of your home. Then using that excess cash to invest in private and public equities and credit yielding up to 10%+ per year.
Even younger people owning nothing can engage in leveraging debt. Let’s say you are 22, just finished university and have a student loan, conventional wisdom would have you try to pay this off – no no no – wrong. If the interest cost per year is low enough (mine was only 3%) the only reason to pay it off is to make affordability look better for a mortgage, otherwise use all your cash and invest in something, a business or yourself perhaps. Effectively you are borrowing at 3% to earn at 10%+
