OT: Pay off debt or save for retirement?

[PharmDstudent]

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After visiting with my grandfather a couple of months ago, I'm starting to believe that a zero-debt lifestyle is the way to go, which might be pretty difficult to achieve with my pricey student loans. According to him, money is only worth 10% of what it was worth whenever he started working and raising his family! And he was living well while working for an oil company...

It makes me think, what's the point in "saving for retirement" if your money is only going to be worth a small fraction of what it was worth whenever you earned it? Wouldn't it make more sense to pay off all of your debt as soon as possible and then save the rest? Or is the stock market really worth the hassle to forgo paying off more debt? If inflation will cost you roughly 3-6%, then what is a potential 8% return on investment compared to zero percent interest?

Any thoughts? Do you have any financial plans at this point in your career?

 

[jasonkido]

I've paid down all my loans and am now just saving up money to pay down a house with either a huge down payment or paying off the whole thing if I can afford it. I have been thinking about putting money in 401k once my workplace allows me too since they require I work for at least a year until I can start using it. Outside of that I have no idea what I really want to do as far as retirement.

The economy is such a huge variable right now. I've seen recently on the news that the price of gold is increasing due to people panicking about the economy and stocking up on gold. I am afraid to do anything with the stock market and have no idea if I should have at least one type of investment or should I just keep saving. Every time I think about the subject of money it gives me a headache.

 

[Old Timer]

First of all, since 1929 stocks have outperformed every other type of investment over a 25 year period. Next as long as your employer matches your contribution, it's hard to turn down free money. So my employer matches the first 5%. I get a matching 5%. If you make 120K per year, it's like throwing away 6K. Waste not want not. Inflation is not anywhere near 6% per year.

Next, debt is not bad. No debt and no six figure income. Interest rates are low. If I were your financial adviser. And I suggest you get one. I would:

1) Put the max into my 401K to get the employer match.
2) Build of a savings account that has 6 months of net income in case of unemployment, disability or other emergency.
3) Get short and long term disability insurance.
4) Start paying off your loans with the highest interest rate first.
5) Live well, but within your means.
6) Invest any left over into the vehicle of your choosing.

 

[type b pharmD]

your grandfather's money may be worth 10% of what it was worth when he was young, but he probably has 10x more of it now, a fact failed to mention in the original post.


saving money = lose to inflation
investing = beat inflation

i've always been told the following with regards to loans vs investment.

if your rate of return is better than your loan interest rate, then invest. if your loan interest rate is higher than your potential investment return, pay off the loan. Inflation doesnt matter when comparing the two, as inflation eats equally into investment profits as it does in giving you a bonus vs the value of your loan. for clarity, you could subtract inflation from each of them to see your net cost or gain.

Old Timer's strategy seems right on the money though, as always.

 

[BMBiology]

This is what I am doing:

(1) student loans: I have paid back virtually all of my student loans. The interest rate was between 2.5-6.8% which is high for today's rate.
(2) max out on 401 k match
(3) saving up for a house in 2013

After you have paid back your student loans, you have a lot of flexibilities. My goal is to live comfortably but I am not going to buy really expensive things. This would help me save up for a bigger down payment for a house. I am going to build up my credit in the meantime.

 

[PumpkinSmasher]

1) Put the max into my 401K to get the employer match.
2) Build of a savings account that has 6 months of net income in case of unemployment, disability or other emergency.
3) Get short and long term disability insurance.
4) Start paying off your loans with the highest interest rate first.
5) Live well, but within your means.
6) Invest any left over into the vehicle of your choosing.

👍 Pretty much what I am planning to do, except my car is paid off and running strong, so more money to put toward a commercial/residential investment property or business venture.

 

[CUninja]

First of all, since 1929 stocks have outperformed every other type of investment over a 25 year period. Next as long as your employer matches your contribution, it's hard to turn down free money. So my employer matches the first 5%. I get a matching 5%. If you make 120K per year, it's like throwing away 6K. Waste not want not. Inflation is not anywhere near 6% per year.

Next, debt is not bad. No debt and no six figure income. Interest rates are low. If I were your financial adviser. And I suggest you get one. I would:

1) Put the max into my 401K to get the employer match.
2) Build of a savings account that has 6 months of net income in case of unemployment, disability or other emergency.
3) Get short and long term disability insurance.
4) Start paying off your loans with the highest interest rate first.
5) Live well, but within your means.
6) Invest any left over into the vehicle of your choosing.

This is great advice, thanks for sharing. 👍

 

[xiphoid2010]

Few observation and pointers.

1. Student loan is 6.8% or higher now, non-tax deductible at a full time pharmacist salary. This will equal or beat most diversified investment portfolio after expense ratio. So unless you are confident of getting 7%+ ROI, or going for government job for 10 years using IBR + loan forgiveness, then a sure 6.8% return by paying off loans is a good strategy.

2. Buying a car is never an investment (except collectable cars). Cars are depreciating assets, the more you buy the more you lose. Getting a car that offers minimum cost and upkeep that fulfills you needs (not want) is the optimum strategy.

3. Do Roth IRA while you still can. After putting in enough into 401k to get alll of the company matching, redirect to fill up Roth IRA allowed. Your income should increase as you adnvance in career, so pay tax now in a lower ktax bracket and before the inevitable tax hike would be wise. Also, unlike 401k, you can take out your principle (not investment gain) at any time without penalty, so it can fall back on it even as a part of the emergency fund if needed.

4. If you don't know much about investing, split your investment into low cost index funds or ETFs is fine. Buy a large cap (eg. S&P 500), small cap (Russell 2000), high quality investment grade bond fund (vanguard total bond index), you should be fine. The expense ratio of these index funds should be <0.2%.

Edit to #4. Vanguard has a targeted retirement fund with a low expense ratio of 0.21%. So fore the non-investment savvy or just plain lazy, putting your money into that one alone should do the trick.

Add #5. Don't buy too much house. Rule of thumb, 2-3x your household income, preferably lower end of 2x, so that even if your spouse is out of a job the mortgage and everything else can still be handled on one income. House is not a good investment if you can even call it that. ROI over long term is barely above inflation, and when you factoring in property tax, repair, higher energy bill... So just like the car, go more towards what you need, not what you want.

 

[CUpharmD2013]

Thank you both Old Timer and Xiphoid, great advice!

 

[Old Timer]

There appears to some confusion about:

6) Invest any left over into the vehicle of your choosing.

That would be investment vehicle. Stocks, Bonds, real estate, precious metals, CD's etc...

Not a car.

 

[pezdispenser]

Also, unlike 401k, you can take out your principle (not investment gain) at any time without penalty, so it can fall back on it even as a part of the emergency fund if needed.

This is a good point and is the main reason why I have a Roth IRA. I'm not doing it because I believe I will be in a higher tax bracket when I retire. Most likely, taxable income will be lower in retirement putting you in a lower tax bracket, even if tax rates go up. In retirement, part of your income will be non-taxable from Social Security and the Roth IRA, while your withdrawals from a 401(k) will be taxable. Also your expenses will be less if you pay off your mortgage and are no longer saving for retirement, so you can reduce your total income compared to when you were working.

 

[PharmDstudent]

your grandfather's money may be worth 10% of what it was worth when he was young, but he probably has 10x more of it now, a fact failed to mention in the original post.


saving money = lose to inflation
investing = beat inflation

i've always been told the following with regards to loans vs investment.

if your rate of return is better than your loan interest rate, then invest. if your loan interest rate is higher than your potential investment return, pay off the loan. Inflation doesnt matter when comparing the two, as inflation eats equally into investment profits as it does in giving you a bonus vs the value of your loan. for clarity, you could subtract inflation from each of them to see your net cost or gain.

Most of the money that he has now came from selling property that he had bought within the last decade or so. The house, Cadillac, and marriage from the 1950's are nonexistent...

It's hard for me to see the benefit of investing money (other than company matching) if the return is only +/- 8%. What a hassle to theoretically net 1 or 2% after inflation, and if you're paying the bank 5% for your mortgage, 2-10% for your students loans, and whatever percent for a car that will only depreciate in value!

 

[PharmBound2011]

Most of the money that he has now came from selling property that he had bought within the last decade or so. The house, Cadillac, and marriage from the 1950's are nonexistent...

It's hard for me to see the benefit of investing money (other than company matching) if the return is only +/- 8%. What a hassle to theoretically net 1 or 2% after inflation, and if you're paying the bank 5% for your mortgage, 2-10% for your students loans, and whatever percent for a car that will only depreciate in value!

the fallacy there is assuming that inflation is that high (6-7%). In America, inflation is about 2.5% (it varies year to year from some years as high as 3-4% and some years in the negative i.e- deflation).

If you can find a solid, relatively-low risk 8% return, you would only net approx. 5% (adjusted for inflation), although if you didnt invest in that 8% return at all, you would net -2.5% (due to inflation), so there will always comparatively be an 8% advantage in investing vs. not.

But I agree, it is almost always smarter to pay off student/other loans before saving for retirement as it is a guaranteed 5-7% "investment" in the money you'll save.

 

[PharmDstudent]

the fallacy there is assuming that inflation is that high (6-7%). In America, inflation is about 2.5% (it varies year to year from some years as high as 3-4% and some years in the negative i.e- deflation).

If you can find a solid, relatively-low risk 8% return, you would only net approx. 5% (adjusted for inflation), although if you didnt invest in that 8% return at all, you would net -2.5% (due to inflation), so there will always comparatively be an 8% advantage in investing vs. not.

But I agree, it is almost always smarter to pay off student/other loans before saving for retirement as it is a guaranteed 5-7% "investment" in the money you'll save.

Why did you only bold half of my sentence?

 

[gotdrugs]

the fallacy there is assuming that inflation is that high (6-7%). In America, inflation is about 2.5% (it varies year to year from some years as high as 3-4% and some years in the negative i.e- deflation).

If you can find a solid, relatively-low risk 8% return, you would only net approx. 5% (adjusted for inflation), although if you didnt invest in that 8% return at all, you would net -2.5% (due to inflation), so there will always comparatively be an 8% advantage in investing vs. not.

But I agree, it is almost always smarter to pay off student/other loans before saving for retirement as it is a guaranteed 5-7% "investment" in the money you'll save.

1) Define a solid, relative-low risk 8% return that you could depend on the last 10 years running, that you could somewhat "guarantee" to keep that pace over the next 10 to 30 years.

2) If this is in a non-tax-deffered account, keep in mind the taxes on your 8% really make it a 5-6% return depending on your tax rate. so adjusted for inflation it's really a 2.5% to 3% return.

At the end of the day, it comes down to individual's goals, comfort levels (regarding investing risk, peace of mind of paying of loans, etc), and a variety of other factors.

You can't give a one-size fits all answer. (this doesn't apply just to your post or that you are stating that, just throwing it out there without having to create a new reply)

 

[PharmDstudent]

An inflation rate of 3-6% is underestimated if you go back and look at the mid 70's to 80's - Inflation table

And how about deflation? With deflation, your money is worth more but so is your debt, because the value of money isn't being inflated.

 

[psychoandy]

I found a CD my parents had from 1989...over 10% interest per year...

It seems like you think if you invest money, inflation will eat away at your profits. But lets evaluate your options:
100% straight cash in non interest bank account/mattress - loses value due to inflation
index fund - probably keep up with inflation

Given these 2 options its pretty clear what I'd pick. obviously in a high rate environment you would want to pay off loans first (unless they were fixed at a low rate). But if you have no loans in an inflationary time, you'd be an idiot not to invest in something.

Currently I am paying more on my 6.8% loans, paying minimum on my variable rate 3% loans, and investing the rest. I can easily make 6% on altria stock just on dividend yield...why would I pay off a loan at 3%?

 

[pezdispenser]

It makes me think, what's the point in "saving for retirement" if your money is only going to be worth a small fraction of what it was worth whenever you earned it?

If you invested in something that returned more than the rate of inflation and let it compound, the money will be a lot more than when you earned it. For example, say you invest $10,000 when you are 25 and leave it in an investment which earns 8% per year for 40 years, it will compound to $217,245 when you are 65. Assuming 3% inflation, that's worth $66,598 in today's dollars. And that's only what you saved during 1 year. In your next year when you are 26, you should invest another $10,300 (hopefully your salaried increased 3% with inflation so you can save 3% more too), and so on. When you are 65, the balance will be just under $4 million, or $1.2 million in today's dollars. That's after you put in $754,012 of your own money and the remaining $3.2 million comes from the investment earnings. A very famous person may or may not have said "compounding is the most powerful force in the universe"...

Wouldn't it make more sense to pay off all of your debt as soon as possible and then save the rest? Or is the stock market really worth the hassle to forgo paying off more debt? If inflation will cost you roughly 3-6%, then what is a potential 8% return on investment compared to zero percent interest?

You need to do both. Practicalities will determine whether you do one after the other, or a mix of both at the same time.

Don't forget that more time brings more benefits from compounding, as shown above, so saving for retirement sooner is better. This will also give you more time to ride through market crashes. In the example starting at 25, you are putting away $13,439 when you are 35. If you don't start until you are 35, you will have to put away $24,000 each year (increasing by 3%) to reach the same $4 million. There are also limits to how much you can contribute to a 401(k): $16,500 and IRA: $5,000 to watch out for.

It seems that you have not considered that your income also increases with inflation. This will benefit you to keep a loan longer. Say you have a $100,000 student loan at 6.8% and on the 10 year term the monthly payment is $1,150.80. If you start out with a $100,000 salary, that's 13.8% of your gross monthly income going to the loan. In 10 years with 3% raises your salary will be $134,391 but the loan payment is still $1,150.80 or now 10.3% of your gross.

But actually, you should get your mind off inflation. Investments and cost of living go up, but your salary also goes up and loans go down, so it all balances out in the end.

Others have explained that determining whether to pay off loans or invest depends on the interest rate/investment return and I agree. I would also like to add that rates vary over time so your strategy should also vary accordingly. If loan interest rates are low, like now with 3% 5/1 ARMs I wouldn't be in a rush to pay them off; invest the money instead. If you have 6.8%+ fixed student loans, you should probably try to pay them off. If we hit another inflationary period and rates go over 10%, definitely pay them off, and if you have any money leftover, take advantage of 10% CDs 🙂

 

[1ive2die]

^^ aren't you making a big assumption that salary will keep up with inflation. By all accounts for pharmacists this is not something you can count on.

 

[Dr Wario]

Inflation has absolutely nothing to do with this discussion, it is a completely moot point because it will affect your money regardless of where you put it. The only factor that needs to be determined is rate of return. If you have loans which equal or exceed 5% interest, in most cases, for most people, at this point in time it would be better to pay extra money against the loans. Paying extra money on a loan is exactly akin to a zero risk investment earning a rate of return = interest rate (unless the interest is tax deductible in which case the return is less than the interest rate). Looking at an average investment today, you would have to exceed the return of your loan amount because the vast majority of investment gains are taxable, so to break even with a 5% loan, you would need to earn approx 6% with a low risk investment, an in today's economy (and where it is probably heading in the future) this is difficult for most people.

The one issue with paying most loans off early is that you typically cannot recover the money if needed in an emergency, thus it would be prudent to establish a strong emergency fund before sinking the money. As a small side note, if you have loans that are less than 5%, it becomes a little more tricky to determine if extra money should be placed against it or used to purchase traditional investments. From all of this, I will say that putting money in a zero risk investment helps a person sleep much better at night in light of how uncertain the future will be, and it is hard to put a price on that.

 

[pezdispenser]

^^ aren't you making a big assumption that salary will keep up with inflation. By all accounts for pharmacists this is not something you can count on.

Yes, I did assume 3% raises and 3% inflation, which I basically pulled out of the air, so take it as you wish. But ask Old Timer et al. how much they were making when they first started out...

 

[PharmDstudent]

I found a CD my parents had from 1989...over 10% interest per year...

It seems like you think if you invest money, inflation will eat away at your profits. But lets evaluate your options:
100% straight cash in non interest bank account/mattress - loses value due to inflation
index fund - probably keep up with inflation

Given these 2 options its pretty clear what I'd pick. obviously in a high rate environment you would want to pay off loans first (unless they were fixed at a low rate). But if you have no loans in an inflationary time, you'd be an idiot not to invest in something.

Currently I am paying more on my 6.8% loans, paying minimum on my variable rate 3% loans, and investing the rest. I can easily make 6% on altria stock just on dividend yield...why would I pay off a loan at 3%?

Actually, loans hurt you more during deflation. Keeping loans through inflation would be considered better timing than during deflation. Just like money, debt is less valuable during inflation.

I agree with you. I have a group of loans at 1.87%. Why would I pay them off if they're lower than inflation? Well... because it's debt that never goes away!

Yes, I did assume 3% raises and 3% inflation, which I basically pulled out of the air, so take it as you wish. But ask Old Timer et al. how much they were making when they first started out...

You can't really assume anything in this professional market.
At my company, last year's raise was 1.85%, and this year's raise was less than 1%.
Some local hospital and all state employees haven't had a raise in 2 years...

I'm starting to think that I'm at a dead stop and that I should get out... and not assume that raises will ever be able to keep up with inflation in this profession.

 

[PharmDstudent]

As a small side note, if you have loans that are less than 5%, it becomes a little more tricky to determine if extra money should be placed against it or used to purchase traditional investments.

Exactly! Student loans are usually within range of 5%. 🙁

 

[rph3664]

Pay off your loans as much as you possibly can, but don't pass up any 401(k) matching, because like others have said, it's free money.

 

[WhiteSnows]

How is about pay off your house, and invest in agricultural? At least you can make your own food supply while the world is panicking.

 

[pharmschooler]

How is about pay off your house, and invest in agricultural? At least you can make your own food supply while the world is panicking.

Ag land has skyrocketed in price recently, leading to concerns of a bubble.

http://www.reuters.com/article/2011/07/21/us-usa-agriculture-farmland-idUSTRE76K6M120110721

 

[WhiteSnows]

Ag land has skyrocketed in price recently, leading to concerns of a bubble.

http://www.reuters.com/article/2011/07/21/us-usa-agriculture-farmland-idUSTRE76K6M120110721

I think then the US dollar is collapsed, food and water will have to be bought by gold. Invest in ag is a good option for survival.

 

[pharmschooler]

I think then the US dollar is collapsed, food and water will have to be bought by gold. Invest in ag is a good option for survival.

I'm glad everybody's driving up gold prices with paranoia....but it might be healthier if we all took off the tinfoil hats and just buckled down.

Ag is only a good option for survival if you know what the heck you're doing. Being a farmer is a wonderful way to go broke. No joke.

 

[WhiteSnows]

I'm glad everybody's driving up gold prices with paranoia....but it might be healthier if we all took off the tinfoil hats and just buckled down.

Ag is only a good option for survival if you know what the heck you're doing. Being a farmer is a wonderful way to go broke. No joke.

You will go broke anyway if the US dollar is collapsed. With ag, you can make your own food supply while everyone has no gold to buy foods. You actually become rich by selling foods alone. My grandfather makes his own food supply such as vegetables, salad, hot peppers, fruits... It is wonderful to see how he feeds us meal without buying them in publix.

 

[pharmschooler]

You will go broke anyway if the US dollar is collapsed. With ag, you can make your own food supply while everyone has no gold to buy foods. You actually become rich by selling foods alone. My grandfather makes his own food supply such as vegetables, salad, hot peppers, fruits... It is wonderful to see how he feeds us meal without buying them in publix.

I honestly just can't respond to this as we clearly live on different planets.

Good luck, though.

 

[vash1012]

1) Put the max into my 401K to get the employer match.
2) Build of a savings account that has 6 months of net income in case of unemployment, disability or other emergency.
3) Get short and long term disability insurance.
4) Start paying off your loans with the highest interest rate first.
5) Live well, but within your means.
6) Invest any left over into the vehicle of your choosing.

This is good advice, but I would make a few changes.
1. I absolutely agree with #1. You have to consider interest rates earned as positive interest and interest rates paid as negative interest. Putting money inaa 401k to get the match is guaranteed 50% interest (if thats what they match). Any other returns are not guaranteed out of a 401k so depending on what your company offers you as far as options go in your 401k, you may not want to put any more than needed in here. When you do put your money in a 401k, PICK DIVERSIFIED INDEX FUNDS WITH THE LOWEST EXPENSE RATIOS. Balance based on your risk tolerance and reevaluate it yearly.

2. This number depends on your area and job market. 6 months is suggested for most people, but as a pharmacist if you aren't tied to a certain area you can get a job fairly quickly still despite the doom and gloom stuff. So I use 3 months expenses for my savings goal, which I think is enough right now.

3. There is no point in having short term disability if you have an emergency fund. Thats the point of the emergency fund. Short term disability is expensive and unnecessary.

4. Agreed.

5. Agreed

6. Cars are money sinks. Buy a used car 2-3 years old thats not too expensive and use the saved money to fund a roth IRA if you can get one or save in your 401k for retirement.

 

[Dr Wario]

I agree highly with Vash on point #6, but realize that as a pharmacist you will probably make too much to contribute directly to a roth IRA. A way around this is to contribute into a non-deductible traditional IRA then do a Roth conversion.

 

[PumpkinSmasher]

3. There is no point in having short term disability if you have an emergency fund. Thats the point of the emergency fund. Short term disability is expensive and unnecessary.

I enjoy the peace of mind of having short term disability even with an emergency fund. For 30 bucks a month it is worth it to me.

 

[akaykay]

I agree highly with Vash on point #6, but realize that as a pharmacist you will probably make too much to contribute directly to a roth IRA. A way around this is to contribute into a non-deductible traditional IRA then do a Roth conversion.

Correct. Best thing to do is to consider also other avenues for investment. I've learned from my undergrad degree in economics/business not to contribute max to a 401K because of it's tax deductions. Instead, consider contributing to a roth IRA, 401K, and life insurance

 

[Old Timer]

Do you people have reading comprehension problems. As I explained later on, I did not mean automobile, I mean investment vehicle. As I said:

There appears to some confusion about:

6 ) Invest any left over into the vehicle of your choosing.

That would be investment vehicle. Stocks, Bonds, real estate, precious metals, CD's etc...

Not a car.

Also, life insurance is only an investment for the agent who sells it. Term life all the way.....

 

[vash1012]

Do you people have reading comprehension problems. As I explained later on, I did not mean automobile, I mean investment vehicle. As I said:

There appears to some confusion about:


That would be investment vehicle. Stocks, Bonds, real estate, precious metals, CD's etc...

Not a car.

Also, life insurance is only an investment for the agent who sells it. Term life all the way.....

My bad, OldTimer, I skimmed most of the thread. That makes much more sense now.

Definitely agree on the whole life insurance. We had a guy who got suckered into one of these in our class, not knowing what it was, and gave the "financial advisor" our phone numbers. He still calls me to this day even though I said no thanks and stopped answering over a year ago.

And, PharmDStudent, you are going to have a tough time even with our salaries maintaining your lifestyle while in retirement without taking some investment risks while you are young. You are grossly underestimating the returns the stock market has returned over the last 80 years, which has been approximately 8% on average. Theres ups and downs, sure, but on average, they have returned 8%. But the # 1 MOST IMPORTANT THING you aren't considering is COMPOUND INTEREST. You earn interest on your gains. This is how $100 dollars a month for 40 years becomes $2,000,000 at retirement. Also, when the stock market plummets, you only lose money if you SELL. If you hold onto stocks long term, the little up and down swings don't matter. A diverse portfolio helps mitigate actually losing all your money (like if you invested 100% of your money in ENRON), and as you age, you shift your money away from risky stocks to bonds and inflation protected securities so a downswing in the economy when you are 64 doesn't delay your retirement. The earlier you start, the more time you have for that interest to start compounding and it could mean a difference of hundreds of thousands of dollars if you start now rather than in a year or two.

The 2008 market crash actually worked in my favor since I started my 401k when the market was just coming out of its lowest point. I gained 24% over the last year, combined with my 50% match, turned into a lot of money.

 

[PharmDstudent]

My bad, OldTimer, I skimmed most of the thread. That makes much more sense now.

Definitely agree on the whole life insurance. We had a guy who got suckered into one of these in our class, not knowing what it was, and gave the "financial advisor" our phone numbers. He still calls me to this day even though I said no thanks and stopped answering over a year ago.

And, PharmDStudent, you are going to have a tough time even with our salaries maintaining your lifestyle while in retirement without taking some investment risks while you are young. You are grossly underestimating the returns the stock market has returned over the last 80 years, which has been approximately 8% on average. Theres ups and downs, sure, but on average, they have returned 8%. But the # 1 MOST IMPORTANT THING you aren't considering is COMPOUND INTEREST. You earn interest on your gains. This is how $100 dollars a month for 40 years becomes $2,000,000 at retirement. Also, when the stock market plummets, you only lose money if you SELL. If you hold onto stocks long term, the little up and down swings don't matter. A diverse portfolio helps mitigate actually losing all your money (like if you invested 100% of your money in ENRON), and as you age, you shift your money away from risky stocks to bonds and inflation protected securities so a downswing in the economy when you are 64 doesn't delay your retirement. The earlier you start, the more time you have for that interest to start compounding and it could mean a difference of hundreds of thousands of dollars if you start now rather than in a year or two.

The 2008 market crash actually worked in my favor since I started my 401k when the market was just coming out of its lowest point. I gained 24% over the last year, combined with my 50% match, turned into a lot of money.

I've decided that I'm going to carry awesome life insurance. If I die, then there will be something substantial left to pass on, which is all I really care about I suppose.

I think you're "high" on the stock market. My retail boss lost $250,000 in the stock market in 2008...

 

[Momus]

Let me guess, he was one of the dumb assess who did not hold when it crashed to 1/2 and cashed out...

There is only 6.5% chance to lose money in DIVERSIFIED stocks if you hold for 5 years, and the chance gets lower and lower if you expand the time horizon.

 

[psychoandy]

Actually, loans hurt you more during deflation. Keeping loans through inflation would be considered better timing than during deflation. Just like money, debt is less valuable during inflation.

I agree, to an extent. If it's a fixed income rate, inflation is great for your loans. If it's variable and indexed to prime or LIBOR it won't be peachy keen fun time during inflation.

Let me guess, he was one of the dumb assess who did not hold when it crashed to 1/2 and cashed out...

lolz. i never trust people when they say they lost x amount of money, because almost always it's on paper. that or maybe said person wasn't diversified and bought all financial stocks like BAC over the past 10 years. i don't care how much someone can average down, that stock won't be nearing it's original basis anytime soon.

 

[joetrisman]

Let me guess, he was one of the dumb assess who did not hold when it crashed to 1/2 and cashed out...

I saw many people do this. Made me sad.

 

[vash1012]

I've decided that I'm going to carry awesome life insurance. If I die, then there will be something substantial left to pass on, which is all I really care about I suppose.

I think you're "high" on the stock market. My retail boss lost $250,000 in the stock market in 2008...

See the above responses about the "losing" $250,000 in the stock market. He/She either "lost" value which they have likely regained + interest now or they have a basic misunderstanding of how to invest. You buy low sell high, not buy high (2006-2008), sell low (end of 2008). Again, you only lose if you sell.
And what does life insurance do for you in retirement? You have to consider that you will probably be living for 15-25 years with 0 income while the value of the dollar continues to inflate. This is why you must invest in something to have a healthy retirement. Your expenses like food and health care rise and the value of your savings decrease. If you take nothing else from this thread you started, PLEASE PLEASE PLEASE don't get a whole life insurance policy. These things are basically expensive term life insurance that they bundle with a stock investment plan with an overly complicated, extremely expensive free structure. The salesman will try to show you guaranteed returns and talk about forced savings blah blah. Please don't waste your money. Its practically a scam.

 

[xiphoid2010]

Let me guess, he was one of the dumb assess who did not hold when it crashed to 1/2 and cashed out...

There is only 6.5% chance to lose money in DIVERSIFIED stocks if you hold for 5 years, and the chance gets lower and lower if you expand the time horizon.

Not necessarily. If he was over exposed in the financial sector, it would have been smart to sell and cut your losses before things basically became worthless. Holding is not always a smart idea.

A good example. The tech bubble of 2001. Say your portfolio mirrored Nasdaq. If you had held onto it, 10 years later, you would still be down 50%. If you sold it at 50% loss and reinvested it in s&p 500 or Dow jones, you would largely made back your money.

You have to look at the drop and figure out whether it's a temporary correction or is due to a real change in the value of the company.

 

[PharmaTope]

ill be honest

PAY OFF THE STUDENT LOANS

1.) they cannot be discharged in bankruptcy so they follow you forever

2.) when you have NO DEBT, it is like having **** YOU MONEY. you dont like the way **** is going at your job? **** IT, you walk, you dont sit there miserable bc you need the money so bad.

having no debt is the most freeing experience ever. it lets you explore other interests without any hesitation. think about it. lets say you just wanna leave, go to europe work some junk jobs and view europe, you can do that. but if you got debt, it will increase and put a strangle hold on you

 

[Momus]

Not necessarily. If he was over exposed in the financial sector...

I said DIVERSIFIED... the general rule is to never put in more than 10% of your money to specific sector unless you have a crystal ball to see the future...

In fact buying S&P 500 ETF alone is not enough to diversify but it's a good start for beginner... sometimes some sector get overpriced in S&P 500 creating a bubble, to counter this, buy in each sector instead and rebalance every year to reduce risk even further...