Detective SnowBucket

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I matriculate in August. I have $7,000 cash. I was planning on using it for tuition/living expenses. The rest I will cover with Direct Unsub Federal Loans, at 6.08%. However, if I were to invest that money, it could be potentially worth more.

The extra 7K I would take out in loans if I invested my cash would turn into 11.8K after 9 yrs (5 yr residency) at 6.08% compounding interest. How doable would it be to invest this money with greater than 6% annual returns and beat the compounding part?

Essentially, can I make this 7k into more than 11.8K in 9 years (with minimal effort) or should I put it directly into tuition. If possible, how should I invest it?
 
Jul 14, 2019
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Lol. So basically you have 0 investing experience and want to beat 6% over 4 years without any effort?

Forget about investing.


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BorntobeDO?

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Reits could beat that amount. But really, it’s pretty silly to take out high interest loans and try to beat them in the market.
 
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Detective SnowBucket

Detective SnowBucket

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Lol. So basically you have 0 investing experience and want to beat 6% over 4 years without any effort?

Forget about investing.


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Not myself, with an investment manager. When I say minimal effort, I mean giving it to a professional.
 
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Detective SnowBucket

Detective SnowBucket

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Reits could beat that amount. But really, it’s pretty silly to take out high interest loans and try to beat them in the market.
wait, you said it could be done then say its not a good idea? Also, I wouldn't be investing the loan money, only my own and hope to increase my invested money faster than accumulated interest on the same base amount. And no way would I be doing the investing myself.
 

BorntobeDO?

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wait, you said it could be done then say its not a good idea? Also, I wouldn't be investing the loan money, only my own and hope to increase my invested money faster than accumulated interest on the same base amount. And no way would I be doing the investing myself.
Saying it could be done is not the same as saying it’s likely. The much safer bet is to take the guaranteed 6% return you will get by not having 7k of loans at that rate. Reits might get 10% on a good year.

if I offer you an investment and say that in the good years you make 4% and the bad years you have to pay money you would probably think that’s not very good when compared to a 6% guaranteed return. That’s the difference between investing in Reits and using that 7k to reduce high interest loans. Any loan you take out is guaranteed to be at 6% for as long as you have it. So I vote for reducing the loans.

The only real counterargument against this is saying that you will have the investments longer than the loans thus decreasing the downside risk of lower than need return to maintain profitability. This could be true, but likely you will continue to make the same kind of decisions you are doing now and will not pay off the loans early resulting in long term compounded interest.

Anyway, the argument is pointless, I am pretty sure that if you are asking this kind of question you will be picking the investment option because it might pencil out over a long enough period of time. However, you would be ignoring the human element of the kinds of choices that you are making. Just know thyself is my advice.
 
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Detective SnowBucket

Detective SnowBucket

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Saying it could be done is not the same as saying it’s likely. The much safer bet is to take the guaranteed 6% return you will get by not having 7k of loans at that rate. Reits might get 10% on a good year.

if I offer you an investment and say that in the good years you make 4% and the bad years you have to pay money you would probably think that’s not very good when compared to a 6% guaranteed return. That’s the difference between investing in Reits and using that 7k to reduce high interest loans. Any loan you take out is guaranteed to be at 6% for as long as you have it. So I vote for reducing the loans.

The only real counterargument against this is saying that you will have the investments longer than the loans thus decreasing the downside risk of lower than need return to maintain profitability. This could be true, but likely you will continue to make the same kind of decisions you are doing now and will not pay off the loans early resulting in long term compounded interest.

Anyway, the argument is pointless, I am pretty sure that if you are asking this kind of question you will be picking the investment option because it might pencil out over a long enough period of time. However, you would be ignoring the human element of the kinds of choices that you are making. Just know thyself is my advice.
No, you're advice sounds good. The guaranteed 6% is a good way to look at it.
 

Mman

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6% loans are high enough (especially with high stock valuations) that you should worry more about borrowing less than trying to beat that return. Even optimistic stock projections have a hard time seeing much more than 5-6% return over the next 10 years. And the idea of giving it "to a professional" is even worse. Those professionals don't get better returns, they just take some of your return and pocket it as their fees.
 

TMP-SMX

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Active managers haven't beaten low cost index fund performance over time so paying a professional eats into your gains from investments. Just pay the loans ASAP if not going for public service loan forgiveness. Take less loans if able or keep it for emergencies. Read White Coat Investor.
 

Fission Chips

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TLDR: I'm dumb and lucky. You probably should reduce your loan burden instead of invest.


I was pretty dumb with my living expense money and threw it all into TSLA in 2016 as a MS-1, with 0 investing experience. I ended up swing trading it for a few years. I 100% do NOT advocate you do this, as I should probably be homeless by now but happened to get extremely lucky. It panned out well for me, but I could have lost all of it too if Elon tanked the company. You could throw it in SPY (has averaged 13.8% per year over the last 10 years) and see how that turns out, but you have to realize that any amount you invest in the market has the potential to become $0... I think SPY dropped almost 40% in the financial crisis of 2008.

If that 7k would otherwise sit in your savings for the next 4-9 years, I'd say go for it. To be honest, the responsible thing would be to reduce your loan burden. I wouldn't do anything differently now, because SPCE is paying for my honeymoon this May and my loan interest this year as I'm up way over 100% since I bought a hefty chunk in December. But hindsight is 20/20, and Virgin Galactic could have also gone bankrupt over the last 3 months. Just make sure you're totally fine with losing the money in the event something happens... i.e. invest your fun money, not your loan money.
 

Epilepsy365

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I matriculate in August. I have $7,000 cash. I was planning on using it for tuition/living expenses. The rest I will cover with Direct Unsub Federal Loans, at 6.08%. However, if I were to invest that money, it could be potentially worth more.

The extra 7K I would take out in loans if I invested my cash would turn into 11.8K after 9 yrs (5 yr residency) at 6.08% compounding interest. How doable would it be to invest this money with greater than 6% annual returns and beat the compounding part?

Essentially, can I make this 7k into more than 11.8K in 9 years (with minimal effort) or should I put it directly into tuition. If possible, how should I invest it?
Buy ETH on a pullback to 220s. You will thank me in a decade when shares are traded at 80-90K
 
Jan 21, 2020
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There's been a few students in the past who have tried to use this strategy before and unfortunately it didn't work out well for them. They would borrow as much money as they can from the government and try to invest the difference. It didn't go well. It would be great to be able to invest the difference, I'm with everyone else that you should just focus on the loans and minimizing what you have to take.

Consider investing when you're a resident and making some money.
 

Mman

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Buy ETH on a pullback to 220s. You will thank me in a decade when shares are traded at 80-90K
since this forum archives forever we can certainly come back in a decade and chuckle. Find it odd you would refer to ethereum as a "share" that can be "traded".
 

Epilepsy365

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since this forum archives forever we can certainly come back in a decade and chuckle. Find it odd you would refer to ethereum as a "share" that can be "traded".
I own ETH and will only trade it once before I ride the next wave up to 80-90K once they implement staking.

Feel free to come back in a decade. But I doubt that you will be here when I’m proven right at that time.
 

Mman

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I own ETH and will only trade it once before I ride the next wave up to 80-90K once they implement staking.

Feel free to come back in a decade. But I doubt that you will be here when I’m proven right at that time.
poster who joined forum 6 months ago questions whether poster who joined 15 years ago will still be around in 10 years.....

Come on man, I've been bumping threads with crappy financial predictions on this forum since you were in grade school. That you literally seem to not quite comprehend the difference between a stock trade and a cryptocurrency conversion is amusing.
 
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