The Borrow Smart Chronicles - Interest Rates versus Investing Returns

Wow it feel like rates went to the moon, but as Len clearly shows here, over 10 years periods we got really spoiled in the 2010’s era averaged 4.09%… and as whipsaw into the first half of the 2020’s before rates did the ultimate U-turn we still have an average of 4.87%.

Now we sit on the precipice of the first rate cuts. I hope they are slow and steady to allow the market to adjust and consumers to contemplate their staycations versus housing dreams that got put on hold. I’d prefer we don’t get a spike down and a spike back up… instead I’d wish for the rate gods to offer a slow and steady rolling quarterly 25bps cuts over the next couple years!

One question I still get asked, is should I prepay my debt or invest. It depends, and we’ll talk more about that in future newsletters. For a moment look at the chart above and the one below. Notice the cost of mortgage debt has come down from 8.9% and 12.7% and 8.12% decades to where we are now expecting rates to be at 4 or 5%.

In this next chart from Ben Carlson, pick any year and then you can see your return X years below it, for example in 2023 if you started this year and only invested for that year you returned 26%, but if you started investing in 2008, the top of that prior drop you’ve invested in the market for 18 years now and would have earned an average of 10% a year.

One thing that really stands out to me is the returns after 2008, when rates dropped and the money printing started, notice the lack of red annual returns. If you squint at the entire grid the market largely always moves up and average returns tend to be in the 8 - 12% annually unless we have a major top as in 2000, or 2007. We could be due for one soon, but still the longer term trend is up.

When rates are low returns are high and it makes little sense to prepay mortgage debt, but it’s always a good idea to pay off higher credit card debts, or any debt that costs you more than you than what you might reasonable expect to earn as an investor… for me that’s anything over 8.5% as a rule I pay off with free cash flow if I have an outstanding debt, otherwise I’ve found the market treats me well.

a BORROW SMART CONCEPT
The HUB - Growing Your Network

Your network is ‘the’ leading indicator of your future net worth. Think about it - the more people that know who you are and what you can do, the greater the potential referrals volume and therefore the greater potential service you can provide.

We use a system in our FAST program that’s designed to get you talking to your clients about their network and asking them a simple question - ‘on a scale of 1 to 10’ how are they serving your needs… and I always add ‘ and you can’t pick a 7’. (see below on what that’s important)

If you are familiar with the Net Promoter Score concept, it’s pretty simple: 1-6’s are detractors, they are dead weight and not helping you… 7-8 are neutral, passive, they don’t help you and they don’t hurt you. The focus should be on the 9’s and 10’s as they are the best clients, the best partners, etc.

When you are talking to a client about their tax advisor, financial advisors, or insurance advisor, etc. you want to MEET anyone they share with you that is a 9 or a 10 and you want to REPLACE anyone that is an 8 or below. It’s that simple and it gives you a never ending source of networking opportunities.

Did you know the most common number picked at random is 7? It makes you wonder, why? Are we in a simulation? One more reason to leave 7 out of any survey questions but a great reason to bet on 7’s in Vegas.

LIABILITIES and DEBT
What’s Happening?

REAL ESTATE
What’s Happening?

ASSETS and INCOME
What’s Happening?

ON BEING HUMAN
What’s Worth Sharing?

DOPAMEMES
And Other Happy Moments…

Artificial Intelligence
And the Future of Work…

PROMPT TO TRY! (edited from The Daily Prompt) in CHATGPT

“I am looking to create an automation workflow using Zapier that integrates with a Gmail account. The primary goal is to automatically process every incoming email to determine whether it qualifies as a client referral. If an email is identified as such, I want the automation to draft a response based on predefined context regarding how I typically handle such requests so that I can respond immediately. Additionally, I would like the draft response to be logged in a Google Sheet, where the first column captures the date and time of the email, and the second column contains the drafted response that was sent by me. Finally, I want to receive a text notification informing me that there is a draft for a client call back awaiting my review.

Please provide a step-by-step outline of how to set up this automation in Zapier, including any specific triggers, actions, and field mappings necessary for implementation. The response should be structured in a way that clearly delineates each step, including any relevant conditions or filters that should be applied, and ensure that the instructions are easy to follow for someone with basic familiarity with Zapier.”

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