Thanks for the info. At my residency program there is no 401K/403B match. I personally don't know anyone that gets a 12% return, obviously some do, but I think I can safely say the average is much less. Besides, every resident I have talked to who has invested money over the last year has had a net loss (once again small sample size). So my question come back to "Will $10-15,000 invested over the next three years (residency) in a Roth-IRA make much of a defference if I retire in 30 years?"
And if so then what makes it better than paying off high interest loans (no risk whatsoever)?
While I agree that the average is not typically 12%, it is certainly attainable. In addition, I only used this number because that is what the book used and I am too lazy to do the math.
Invested wisely, I would not consider 12% (by no means) an outlandish return on a good mutual fund.
I am staring at the Morningstar Funds 500 right now (Which I highly recommend buying) and most funds are producing >10% returns over 5-10 years.
As an example take T Rowe Price Mid Growth Fund. This is probably a low-moderate risk mutual fund. The 5, 10 and 15 year average total returns % are 18.74, 11.56, and 14.75 (as of 2007). So, if you invested 10K in this fund in 1992, it would be worth 78K in 2007. This also takes into account the large market dip that occured after 9/11 (the total return in 2002 was -21.22%), but the other years well made up for this.
Hell, even 10K invested in the S+P 500 in 1996 would be worth about 27K in 2007. This translates out to about a 10.5% return.
Now, I know a lot of people would point to a down market, but realize that Mutual Funds are
long-term investments (Should be at least 10 years) and they are much safer than individual stocks because you are spreading the risk of many stocks. Likewise, Index funds are even safer because these are basically pooling several mutual funds (Although the returns won't be as high)
IMO, in taking the difference between paying off loans now versus investing, one needs to consider their earning potential and the interest rate. If you have loans that are less than 6-7% and you know you will pay off your loans within 10 years of finishing residency (perfectly reasonable for an Anesthesia Grad), it makes sense to invest in the Roth, while you are still eligible. As said above, the Roth in a post-tax investment, which is huge since you will most likely be retiring in a higher tax bracket that what you will be investing into today.
Just my opinion. Take it for what it's worth