Student loan payoff VS investing ..
Question: This is addressed to the person asking about taking out loans to invest:
If you do this, make the amount you borrow and invest VERY small. Remember there have been several ten year period in this century alone where the return on stocks has been 0%. Choose an amount that will not negatively affect your lifestyle should the worst happen. Many of the folks on this net have not experienced a true bear market and think they are something that will never happen again. Do not fall into this trap.
The long-term return on stocks is 9-10%. The return for five-year periods, however, varies all over the place from negative to 20% or more/year. Do not count on a positive return! Think of the downside, not just the upside.
Answer: This is addressed to the person who was contemplating doubling his/her student loan pay off to invest on wall street.
27K at 8.5%, and at a monthly payment of $265, you are talking atleast 10-15 years to pay off this loan. 10 years is a decent amount of time to come out of the stock market with reasonable gains, 10-15% even if you entered the market at the peak of a bull market. If you can get the same 8.5% on your student loan even if you doubled the payoff time, I would be inclined to think that you would come out ahead if you invested in the market. Of course remember, there is no sure thing in the market.
If you understand the risks of the market, it may be worthwhile investing for the next 10 years in the market. I personally am very optimistic about outcomes in life, but I have been wrong many times. In this case I think you would stand to benefit by just sticking your money atleast in a mutual fund for 10 years.
Hope this helps. Comments welcome.
Related Posts
Filed under: School Loan
Leave a Comment
XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>
TrackBack URL | RSS feed for comments on this post.