{"id":8148,"date":"2019-11-11T22:12:15","date_gmt":"2019-11-12T06:12:15","guid":{"rendered":"https:\/\/www.lee.org\/blog\/?p=8148"},"modified":"2019-11-22T15:51:20","modified_gmt":"2019-11-22T23:51:20","slug":"should-i-pay-off-student-loans-or-put-the-money-in-the-stock-market","status":"publish","type":"post","link":"https:\/\/www.lee.org\/blog\/2019\/11\/11\/should-i-pay-off-student-loans-or-put-the-money-in-the-stock-market\/","title":{"rendered":"Should I Pay Off Student Loans or Put The Money In the Stock Market?"},"content":{"rendered":"

Hypothetically, if you had three student loans totaling about $100,000 at different interest rates… say $3%, 5%, and 6%, would you push to pay them off or invest the “extra” money in the stock market?<\/p>\n

My first thought was that the stock market generally pays 7% interest so I should pay down the 6% loan and put all the rest of the money into the stock market, but now I’m second-guessing myself. Thoughts?<\/p>\n

Of course, first priority is to make a rainy day fund and pay into any matching 401(k) programs.<\/p>\n

…<\/p>\n

I found some answers for myself….<\/p>\n

\"\"<\/a>Look at this cool chart<\/a> (via<\/a>) (local copy<\/a>). This chart shows how the S&P 500 index performed over the past hundred years. There is a “20 year” diagonal line, I highlighted it in red in the image to the right. Read the numbers on that line. For investments put in from 1930 until today, the S&P 500 has made pretty reliable 7% interest (as low as 4%, as high as 14%) per year. If you can wait 30+ years (highlighted in yellow in the image to the right), it’s a VERY reliable 7-9% interest rate, you can see that by looking at the far right side of the chart. Looking at the 10 year diagonal, the interest rates are more variable, -4% to 14%.<\/p>\n

I’ve got about 20 years to retirement. With a 20 year window, the S&P 500 should always beat a 4% loan. Everything else is a crap-shoot. For example, with a 10 year window, $100,000 could balloon into $370,000 (that’s 14%, compounded yearly) woo hoo! That’s a nice nest-egg to retire on! \u00a0 Or, it could eviscerate $100,000 into $66,000 (4% loss, compounded yearly). [sad trombone] enough to get me into a chichi cardboard-box retirement community.<\/p>\n

So what to do?<\/p>\n

Since I’ve got 20 years left, invest in the stock market (claiming my 4 – 14%), making sure to diversify enough to match the S&P 500. But in 5 years, it’ll be time to switch to the safer (3 – 6%) investing of paying down student loans instead of continuing to invest in a riskier 10 year plan that pays (-4% – 14%).<\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

Hypothetically, if you had three student loans totaling about $100,000 at different interest rates… say $3%, 5%, and 6%, would you push to pay them off or invest the “extra” money in the stock market? My first thought was that the stock market generally pays 7% interest so I should pay down the 6% loan […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-8148","post","type-post","status-publish","format-standard","hentry","category-general"],"_links":{"self":[{"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/posts\/8148","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/comments?post=8148"}],"version-history":[{"count":1,"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/posts\/8148\/revisions"}],"predecessor-version":[{"id":8160,"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/posts\/8148\/revisions\/8160"}],"wp:attachment":[{"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/media?parent=8148"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/categories?post=8148"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.lee.org\/blog\/wp-json\/wp\/v2\/tags?post=8148"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}