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They don't have to be mutually exclusive. 🤷♂️
That said, I definitely am in the pay down/off debt camp, as that's a sword hanging over your head if you suffer a job loss.
That, and decent cash savings prior to all-in investing (for the same risk reason)
Your gains in the market are not certain, you’re growing debt is. Paying off the debt is lower risk and if that’s something he wants to do I would let him!
However, the above only applies to high interest debt (and 6% would be considered high interest by most people)
How can you guarantee 10%? It’s never guaranteed. Paying down debt is. Also, imagine equities take a dive. That debt is going to worsen the pain
Lending on Decentralized Finance applications
Pro
Average growth of equity markets going forward over the next 30+ years should look closer to 7% as the US is a far more developed, service based economy than it was a few decades ago. At 7% the opportunity cost he’s missing out on is just a 1% difference in growth. For me, I paid mine off feverishly at the expense of my portfolio because it gave me piece of mind and a sense of pride.
Guaranteed 6% pay down is pretty attractive. I would go that route
Pro
If his rates were 3 to 4 invest, higher pay off debt. You shouldn't estimate 10 percent returns. It averages 7 and has been beating that the last decade law of averages doesn't lose over long haul
Rising Star
SC, Including the entire depression decreases the numbers. Huge decline from the peak in mid '29 hurts the average. The numbers post WW2 being higher should have been a clue.
Thanks for all the input guys! Definitely changed my perspective
I guess at the end of the day it’s a difference in risk preference. I believe my main concern is that at his current income level he wouldn’t be able to max out the pre-tax 401k contributions(15-16k whatever it is) or the Roth IRA contributions (6500). Are there tax advantages to paying off the student debt, and do those advantages outweigh the benefits of maxing out retirement contributions?
Pro
You can also make Roth contributions to a 401k
I’m with your boyfriend on this one. 😐
6% interest is high. He should also consider refinancing which might help reduce his monthly payments and invest the difference or keep the same payment amount and get rid of them faster
Its always a tricky balance. Ive opted to do both. Save for retirement and pay off student loans. Given my age- mid 30's, I cant affors to delay saving for retirement any longer
401k is pretax dollars and pays more dividends as you compound interest/gains. By participating you often get employer match - free money. $1 in 401k pre-tax plus employer match plus gains can equal $1.33 versus $0.77 after tax. By starting earlier you gain more compounding which can make the difference in millions over a 40 year career. Plus democrats are making noise of forgiving student debt. If he has to pay off debt, take HC1s recommendation and put money into both. Don’t pay the government and lenders before yourself.
Op, for context in low-interest environments your debt needs to be below 4% before the risk adjusted return of investing pays off.