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Discussion in 'Finance and Investment' started by BallCheese69, Jul 28, 2015.
If this was just a question of mathematics, the answer would be to take the guaranteed return and just pay your loans off earlier. The additional reward of investing in the market likely isn't worth the additional risk.
But you are also entering the realm of investor psychology here, and if you can get in the habit of saving when you are young, putting money towards IRAs and 401k's and even taxable index funds, it will become automatic and you will be thanking yourself 20 years later.
I vote for psychology on this one. If your loan is in okay shape, then get in the habit of saving and investing now.
in terms of mathematics, it depends on your loan repayment terms. keep in mind your interest rate is still fairly low. you are likely better off contributing to the roth and taking advantage of compound interest. once you start making attending salary, your student loans will be very easy to pay off.
I think the math clearly goes to the Roth. This will go in at a relatively low tax rate, and come out without tax consequences when hopefully you're at a higher marginal tax rate. Loans can be refinanced to great rates (which you should as soon as you can), and most importantly have a finite term. The Roth can be set aside and left to go until retirement or passing on to heirs, there are few situations where the math isnt overwhelmingly in favor of long term compounding. 30-50 years of just average compounding can have an unbelievable effect on the principle.
Thank you so much, this was exactly what I was looking for.
How old are you guys? If you're both 25, I agree with the others that you should focus on funding the Roth IRAs so that you can take advantage of all those years of compounding interest. If you're both 45 (born in 1969?), starting a Roth now isn't going to be as much of a boost to your final net worth compared to how much you'll hopefully be putting away once you're both attendings, and in that case, I'd focus on getting rid of the debt.
Since no one else has mentioned it, I will also caution you that it's essential that you invest in broad market, LOW COST mutual funds (not actively managed) if you want to give your money a real chance to grow. A lot of us like Vanguard around here; I have my taxable account with them. I also like Schwab; they have my Roth IRA, and I invest with them using their ETFs. There are other good low-cost options too.
Tricky question. It depends on your investment ability. If you can pump out 10%+ annual return on a regular basis, I would use the money for the ROTH. However, paying down your debt basically guarantees you a 5-7% return. Personally, I vote for you to pay down your debt bc I think we're heading into a bear market in the next 12 months.