Debt and Investment: Two Sides of the Same Coin

by Ryan Yates

choicesDebt and investment are not often talked about in the same sentence.

After all, when someone is ridden with debt, it’s hard to think about investment. All your extra money needs to go towards servicing that debt, leaving nothing left over for investment.

There are some exceptions where certain investments balance well with certain low-interest debt, but these are in the minority. People with debt have to put a lot of attention and energy into getting rid of their debt, otherwise it’ll never happen. Investments are something to think about much later, if at all.

 

But debt and investment are actually two sides of the same coin. Think of your net worth as a line graph, with Zero on the horizontal axis. When you’re in debt, you’ve got negative net worth. Each debt account you have, whether through a credit card or a loan of some kind, is represented in the amount of negative net worth beneath the Zero line on that graph.

This negative net worth grows at specific rates each year, determined by the Annual APR attached to each credit card, loan, or other debt. You can do a little math and figure out just how much and how fast your debt grows each year. Sometimes it’s a little scary to think about.

Without getting too caught up in that kind of thinking, let’s talk about how this is similar to investment. When you really think about it, one person’s debt is another person’s investment. If you’re paying 13.9% annually on that credit card, you’re paying the company and its shareholders. If you’re paying 4.59% on your mortgage, you’re paying the bank and its investors. So how do you go from being the paying to being the one paid?

 

The answer is: little by little. Debt doesn’t pay itself off overnight. It’s important for debt to be paid off fully before investment begins in earnest. This is because, just like debt, an understanding of your own personal investments is based on how much money you’ll bring in every year.

Lots of investments strive to bring in 8% a year. You see that number a lot when we talk about retirement investments. These are investments that are supposed to be not so risky, and they aren’t, but they don’t have huge returns either.

 

Other forms of investment have greater chances of turning up big returns, but they are usually more risky than conservative retirement investment. This is by design, and is relevant to an entirely different kind of investor. ETX Capital represents a fast-paced speculations market built around the value behaviors of lots of different financial options and indices. Unlike investment brokerage platforms that actually sell you shares, ETX customers are saved the expense and instead bet directly on the values of options that they do not actually own.

It’s a great way to get into investment with not very much money, while developing the skills that will go on to greater investment heights as your personal capital is turned from debt to investment.

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