What to do?

[Mulletfluf]

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I recently received a small influx of cash ($6000), which I would like to put to good use. I have narrowed it down to three choices, but feel free to suggest other options.

1. Pay down the principle on student loans
2. Place in a MMA @ 5.31%
3. Invest in retirement - Target Retirement plan

Of those three, which would be the most wise? Any suggestions would be appreciated. Thanks

 

[IceMan0824]

I recently received a small influx of cash ($6000), which I would like to put to good use. I have narrowed it down to three choices, but feel free to suggest other options.

1. Pay down the principle on student loans
2. Place in a MMA @ 5.31%
3. Invest in retirement - Target Retirement plan

Of those three, which would be the most wise? Any suggestions would be appreciated. Thanks

I think you need to describe your situation. Each of those options are valid solutions given a unique scenario.

 

[bhollowp]

It totally depends on how much savings you already have, how much debt you have, and what year you are in school.

 

[stbxTechie]

I recently received a small influx of cash ($6000), which I would like to put to good use. I have narrowed it down to three choices, but feel free to suggest other options.

1. Pay down the principle on student loans
2. Place in a MMA @ 5.31%
3. Invest in retirement - Target Retirement plan

Of those three, which would be the most wise? Any suggestions would be appreciated. Thanks

Do you have any credit cards or other high-interest non-deductible debt? If so, target that first. Student loans don't generally count, although if you've got any private loans at crappy rates, they might.

Otherwise, like the other guys said, it totally depends on the individual situation.

 

[Mulletfluf]

I am about to begin my second year of medical school. Here's my loan situation:

Federal PLUS Grad Loan $17,300.00
Federal Sub. Stafford Loan $8,500.00
Federal Unsub. Stafford Loan $36,700.00

Other than this I have no outstanding debt. Monthly expenses after rent, etc is around $1100-1300 a month. I do not have a retirement plan, 401k, etc.

 

[mshheaddoc]

I'd save it in a MMA, pay off interest at graduation especially if you aren't going to need any other private loans. You'll need that money for interviews and what not in the future. That's just what I would do though. I'm sure many others would disagree. But I know how expensive things will get in 3/4th years unless you budget right. Especially if you have to move around alot. Having that money accessible will help. I'd start retirement savings in residency for sure.

 

[bhollowp]

Yep, I'd stick it in a MMA or CDs, cuz you will most likely need it in the near future.

 

[Otto Octavius]

invest in retirement. in a roth ira, the interest growing that is not taxed will easily beat unsubsidized loans (even in a bear market, remember that it's what happens over many years that matters). if you've max'ed out your roth, invest it in a regular ira.

 

[mshheaddoc]

invest in retirement. in a roth ira, the interest growing that is not taxed will easily beat unsubsidized loans (even in a bear market, remember that it's what happens over many years that matters). if you've max'ed out your roth, invest it in a regular ira.

Can't do an IRA if you don't have "income" if the student has income that isn't work study (actually - maybe you still can with work study but I'm wondering how that would work).

 

[UserNameNeeded]

Where can you get 5.31% on a MMA for a $6,000 balance?

 

[The White Coat Investor]

Where can you get 5.31% on a MMA for a $6,000 balance?

Vanguard Prime MMF currently has an SEC yield of 5.11% which is an APY of something like 5.25%. I'd put your money there. According to the USA Today I read yesterday it is the nation's highest yielding MMF currently. You can't do a Roth because you have no income and it won't make much of a dent in your loans. Use it as your emergency fund so you don't have to use consumer debt in the future (like your next car)

www.vanguard.com

 

[IceMan0824]

Where can you get 5.31% on a MMA for a $6,000 balance?

GMAC has a MMA for 5.3% APY.

 

[IceMan0824]

Vanguard Prime MMF currently has an SEC yield of 5.11% which is an APY of something like 5.25%. I'd put your money there. According to the USA Today I read yesterday it is the nation's highest yielding MMF currently. You can't do a Roth because you have no income and it won't make much of a dent in your loans. Use it as your emergency fund so you don't have to use consumer debt in the future (like your next car)

www.vanguard.com

Because the Money Market Fund (MMF) is not FDIC insured, and the OP will/should need the money, I would invest in a Money Market Account (MMA) instead since there's not much of a difference in the yield of both accounts we posted up.

 

[The White Coat Investor]

Because the Money Market Fund (MMF) is not FDIC insured, and the OP will/should need the money, I would invest in a Money Market Account (MMA) instead since there's not much of a difference in the yield of both accounts we posted up.

Are you seriously saying the OP should be concerned about the safety of a money market fund, much less one of the biggest ones in the country? I can't believe the faith some people have in the FDIC. If Vanguard's MMF breaks the buck there will be sufficient economic turmoil that the FDIC will likely be insolvent.

There's nothing wrong with GMAC, but if you follow the online banks that offer high yield savings accounts over time you'll notice that their yields rise and fall according to the needs of the bank, rather than the prevailing market environment like a good money market fund does. I prefer to have my money in a fund which was rated the best MMF over the last 20 years than have to be constantly watching the banks to see whose yield is the best this month.

 

[PharmacyAdvisor]

I would try to make that 6k into 7K then 9k then 12k and so on. You get the picture.

Try to buy inexpensive things found at your local thrift store or yard sale and try to sell it for a higher price somewhere on the net like fleabay or craigslist.

The other option is to put everything on 1 hand of blackjack at your local indian casino

 

[UserNameNeeded]

Thanks for that link to the GMAC bank!

PharmacyAdvisor, is that you in the photo under your member name?

 

[IceMan0824]

Are you seriously saying the OP should be concerned about the safety of a money market fund, much less one of the biggest ones in the country? I can't believe the faith some people have in the FDIC. If Vanguard's MMF breaks the buck there will be sufficient economic turmoil that the FDIC will likely be insolvent.

There's nothing wrong with GMAC, but if you follow the online banks that offer high yield savings accounts over time you'll notice that their yields rise and fall according to the needs of the bank, rather than the prevailing market environment like a good money market fund does. I prefer to have my money in a fund which was rated the best MMF over the last 20 years than have to be constantly watching the banks to see whose yield is the best this month.

While I do agree with you, I did need to point out to the OP to beware of MMF accounts. Now, while I do not expect Vanguard to be financially bankrupt tomorrow, there are numerous accredited investor currently out there who put equal trust in corporate managed hedge funds, only to watch a significant loss in the fund's value (while I realize the the comparison is a bit stretched, I do believe it works)

If I was going to stash my money away for the short term, I'm going to chose the the US federal government over a company. You might not, but I don't foresee the US government defaulting in quite a while, and if it ever does, well, let's just say my money stash is the least of my problem.

So, when both Vanguard and GMAC are offering (at least in the short term) similar yields, I'll rather keep my emergency fund with GMAC. I'll use Vanguard for their index funds instead.

 

[Keg]

Wait - you have money sitting at 6.8% interest (unsub stafford) and you want to invest any money you have sitting around at 5.xx%? You're losing 1.5%, at least, per annum on that - pay down those unsubsidized loans!

 

[stbxTechie]

Wait - you have money sitting at 6.8% interest (unsub stafford) and you want to invest any money you have sitting around at 5.xx%? You're losing 1.5%, at least, per annum on that - pay down those unsubsidized loans!

That makes more sense to me - the only exception might be some kind of retirement account where either tax defferal (regular IRA/401k) or tax-free growth (Roth IRA/Roth 401k) would make up a difference.

Given that Doctors' incomes post-residency very often are over the Roth IRA phase-out limits, it might be well worth getting windfall income into a Roth IRA now and let it grow tax-free.