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The Federal Reserve Bank of Chicago recently commissioned a study to find out if it is better to prepay your mortgage or increase your investment in your retirement account. They found overwhelmingly that 95% of Americans are not making a good financial decision by prepaying their mortgage and that they would increase their net worth significantly if they were to invest their additional cash flow rather than reduce their mortgage debt.

Conclusion, debt reduction is not wealth strategy, it’s a cash flow strategy. Wealth creation happens by making sound decisions about where money is invested. The truly affluent would never dream of prepaying a mortgage or owning a home free and clear. In their view, capital tied up in an asset, such as home equity, that is not earning a rate of return, is not prudent.