The Two Best Investments You Can Make Right Now

All of your investments could be meaningless unless you make these other two investments first...

Mar 29, 2014 at 3:00PM

There are two investments you can make that will do more good for your financial well-being than any stock, bond, mutual fund, precious metal, or real estate.

In fact, you shouldn't invest a dime in any of these things until these two areas of your finances are completely taken care of. I'm talking about making sure that your credit cards are under control and that you have more than adequate health insurance for you and your family. If not, your other investments could be losers before you even buy them.

Credit cards can wipe out your gains and then some
While it's common knowledge high credit card balances can mess up your credit score and make it tougher to borrow money in the future, many people don't think of credit cards in one very obvious way: as the opposite of a solid investment.

Credit Cards

Think of it this way. The average annual return of the S&P 500 over the past century is right around 10%. Even if you are a very successful investor, the best consistent returns you could reasonably hope for would be around 15%. On a $10,000 investment, returns like this translate to $1,500 per year.

On the other hand, credit cards can charge much higher interest rates. Standard interest rates can be as high as 29.99%, and this can climb even higher if you miss a payment. However, let's assume you have a more "reasonable" interest rate like 24%.

If you are carrying a $10,000 credit card balance, it is costing $2,400 annually in interest alone. So, even if you make 15% returns on your investments, you are actually losing $900 per year by not using your money to simply pay off your high-interest debt. It almost always makes sense to pay off credit card debt before even thinking about investing.

Consumers with the highest credit scores carry a balance on their credit card that represents around 7% of their available credit, on average. Since we all know a great credit score can save you money in the long run, shoot for that amount as a target balance that is acceptable to carry. Just as important as the balance itself, shop around for the best interest rate available. In addition to introductory "teaser" rates, permanent rates of 14% or so are not impossible to find.

Invest in your own good health
Would you ever put your entire portfolio at risk by buying something risky, say a small biotech company, or even a bunch of risky options? Of course not. However, if you don't have decent health insurance, that is exactly what you're doing.

Hospital

If something goes wrong with your health, it could completely wipe out your savings and investments, and even leave you in severe debt. Consider the average appendectomy in the U.S. costs almost $14,000, the average knee-replacement costs more than $25,000, and a heart attack can cost well into the six-figure range. Plus, while you're recuperating, the average hospital stay costs almost $4,300 per day!

Starting to get the point? Health insurance may seem pricy, and it is, but it is nothing compared to the costs that you'll incur if you have health issues. Think of health insurance as an investment, not a burden. Better yet, think of it as insurance for your financial health as well as your physical health.

Then what?
Once your high-interest debt is under control and your health is covered, then and only then should you start thinking about putting money in the market. Once you are at this point in your financial life, solid high dividend companies are a great place to start.

9 rock-solid dividend stocks you can buy today
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it’s true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor’s portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

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Feb 1, 2016 at 4:54PM

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