Mark Cuban Says the Best Investment Right Now Isn't a Stock - It's This

When people think about the best investment, they usually picture a winning stock, fund, or piece of real estate. Billionaire entrepreneur Mark Cuban has offered a much less exciting answer: Get expensive debt out of the way first. That advice can matter whether you're preparing to start investing or trying to protect money you've spent decades building. Sometimes the strongest return has nothing to do with the stock market.

Ultimately, Cuban's argument comes down to simple math. In an interview with Money, Cuban said credit-card interest of 18%, 20%, or even 30% can cost far more than an investor could reasonably expect to earn elsewhere. He called paying credit cards off each month — or avoiding revolving card debt altogether — one of the smartest investments someone can make.

Paying off high-interest debt offers a certain return

Suppose you have $5,000 available and a credit card charging 22% interest. Putting that money toward the card effectively saves you interest at that 22% rate, while investing the same $5,000 gives you an uncertain return that could be positive or negative. That's why Cuban has argued that eliminating expensive balances can be safer than trying to pick a winning stock.

That doesn't mean every debt should automatically come before every investment. The case becomes weaker when you're dealing with a low-interest mortgage, auto loan, or other inexpensive debt because the guaranteed savings from early repayment are much smaller. The interest rate, any tax advantages, employer retirement matches, and your overall finances can all change the calculation.

Cuban also wants a large cash cushion

Paying off expensive debt is only part of Cuban's approach. In a Vanity Fair video, he advised saving at least six months of income so a job loss, move, or other unexpected problem doesn't immediately create a financial crisis. Only after establishing that cushion did he suggest putting additional savings into something simple, such as a low-cost S&P 500 fund.

The point isn't that cash will produce spectacular returns. It's there for stability. Keeping emergency money readily available can mean you don't need to borrow at a high rate or sell investments just because an unexpected bill arrives at a bad moment.

The strategy can matter even more near retirement

High-interest debt can become particularly uncomfortable once regular paychecks stop. A credit-card balance still requires monthly payments, but those payments may now compete with housing, food, insurance, travel, and health care expenses for a limited amount of retirement income. Eliminating an expensive balance before retirement can therefore improve cash flow in addition to reducing interest costs.

Cash has another job once you're withdrawing from investments. A market decline early in retirement can be especially damaging if you're forced to sell investments while they're down, a problem known as sequence-of-returns risk. Retirees should consider keeping roughly one year's worth of portfolio-funded expenses in cash after accounting for income such as Social Security, with additional near-term expenses held in relatively conservative investments.

Investing comes after the foundation is stronger

Cuban isn't arguing that people should never own stocks. In his Money interview, he discussed living below your means, saving consistently, and putting money into a low-cost index fund once the basics are under control.

For an everyday investor, that order can be useful. List your debts from highest to lowest interest rate, identify the balances costing you the most, and decide how much accessible cash you need for emergencies. Once those pieces are in place, long-term investing doesn't have to compete with a 20%-plus interest bill every month.

Bottom line

Would earning a possible 8% or 10% in the market really improve your finances if you're simultaneously paying 20% or more on a credit-card balance? That's the question behind Cuban's argument, and it's why the interest rate on your debt matters just as much as the potential return on an investment.

You don't necessarily have to postpone every investment until every dollar of debt disappears, particularly when your borrowing costs are low, or you're eligible for an employer retirement match. But tackling the highest-rate balances, maintaining a cash cushion, and then investing consistently can help you keep more of your money instead of relying on a great stock pick to overcome expensive debt.

This article is for informational purposes only and should not be considered investment advice.

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