Unit 1 · Level 3 · Goals & horizons
When NOT to invest
Investing is powerful, but sometimes it's the wrong tool. Money you need within a couple of years shouldn't ride a market that can drop 20% in a season. And if you carry credit-card debt at 18%, every euro you invest instead of repaying is betting you'll beat 18% guaranteed. Almost nothing beats 18% guaranteed.
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What you get asked
You owe €3,000 on a credit card at 18% interest. Why is paying it off 'the best investment you'll ever make'?
High-interest debt is a guaranteed negative return; killing it is a guaranteed positive one. Stocks average roughly 7-10% a year over long periods, nowhere near a certain 18%.
Money you'll need within about ___ years generally doesn't belong in the stock market.
Markets regularly drop 20-30% and can take years to recover. A short horizon means you might be forced to sell right at the bottom.
Put the classic 'order of operations' for a spare €100/month in sequence
Minimums protect you from penalties, the cushion stops new debt, then the guaranteed 'return' of clearing expensive debt beats the market's maybe.
Marco wants to buy a flat in 18 months and has the deposit saved. A friend says 'put it in stocks meanwhile'. What's the flaw?
In early 2020 the S&P 500 fell about 34% in five weeks. Marco's timeline can't wait out a storm like that. Short-horizon money stays boring on purpose.
Which debt is usually fine to keep while you invest?
The rough test: debt costing more than ~6-8% gets killed first; cheap long-term debt like many mortgages can coexist with investing. Expensive debt first, always. 🐜
The rest of this unit
Before you pick a single fund, decide what the money is FOR and when you'll need it.