Author Topic: First Post: Reading Investment Order and Question About #2 on the Order  (Read 467 times)

irie

  • 5 O'Clock Shadow
  • *
  • Posts: 17
This is my first post here. Happy to have been bitten by the FI bug and starting out with the investment order (such a great resource).

Quote
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.

Quote
Current 10-year Treasury note yield is ~2%.  See           
   http://quotes.wsj.com/bond/BX/TMUBMUSD10Y

When you say ~5% above 10-year note, since the note is at ~2.333%, I should interpret this as meaning that I should pay any debts above 7-7.333%?

This would mean that I should not pay my students loans down (5% interest rate), pay monthly payment for 5-year payoff and move on to steps 3-5?
« Last Edit: July 16, 2017, 06:38:54 PM by irie »

SwordGuy

  • Magnum Stache
  • ******
  • Posts: 3165
  • Location: Fayetteville, NC
    • Flipping Fayetteville
Well, technically, the "rule" means not to pay it down faster than contractually required to do so. :)

And yes, by that advice, if the current treasury note is 2.333%, you would not accelerate debt payments for debts below 7.333%.  Of course, if the note rate went up or down, so would the

I'm not convinced that's the best way to do it, but I think you've understood the author's intent.


irie

  • 5 O'Clock Shadow
  • *
  • Posts: 17
Well, technically, the "rule" means not to pay it down faster than contractually required to do so. :)

And yes, by that advice, if the current treasury note is 2.333%, you would not accelerate debt payments for debts below 7.333%.  Of course, if the note rate went up or down, so would the

I'm not convinced that's the best way to do it, but I think you've understood the author's intent.


Thank you for the reply.

What do you think is the best way to do it? I'm always interested in learning the approach of others.

MDM

  • Walrus Stache
  • *******
  • Posts: 6822
Note also this line: "Differences of a few tenths of a percent are not important when applicable for only a few years (in other words, these are guidelines not rules)."

At 5% SL interest (effectively lower if you can deduct the annual interest), investing in stock will probably provide a better return.  But that isn't guaranteed.  If the debt rate was, say, 10% then it would probably be better to pay the loan.  Somewhere in between it becomes more of a coin flip - and that's just based on historical returns.  Nobody knows what the future holds.

Some people prefer to take the risk of stocks in hopes of getting a higher return, and some prefer the sure but possibly lower return of the loan payment.  In general, neither group understands why the other feels the way they do. ;)

Heroes821

  • Bristles
  • ***
  • Posts: 476
Personally,

I always felt that anything over 5% was worth paying off immediately.  Hell I know I'm probably going to pay off any debts over 3% faster than their term just because I don't want them there.

We talk a lot here about the 4% safe withdrawal rate, and I know this isn't entirely accurate, but I'd rather keep my debt interest lower than my future withdrawal rate.