Author Topic: Using brokerage/stock gains to pay towards student loans  (Read 703 times)

Spondulix

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Using brokerage/stock gains to pay towards student loans
« on: June 13, 2018, 08:16:39 PM »
I started a Vanguard brokerage account in 2014 with the idea of someday using the interest to make my student loan payments. It's been a few years and I have no idea what to do next. Should I withdraw from my index fund? Sell some stocks? Leave it all be?

Student loan balance: $14k (two loans: 8,600 and 5,400)
1.75% interest on both (very low, I know!)
Payment is $175/month but I'm ahead so technically don't owe til 2022.

Vanguard brokerage account:
$27,500k in VTSAX
$8,500 in stocks - I purchased these for fun and have had mixed performance. All of these are long-term gains/loses

Apple - $3k, paid $1600
Chipotle - $1,400, paid $1,500
Tesla - $1,400, paid $960
Ultimate Software - $2,700, paid $1,500




MDM

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #1 on: June 13, 2018, 08:39:35 PM »
Should I withdraw from my index fund? Sell some stocks? Leave it all be?
At 1.75% (effectively even less if you can deduct the interest on Form 1040), "pay no more than the monthly minimum" seems reasonable.

Spondulix

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #2 on: June 13, 2018, 09:56:01 PM »
@MDM If I go the minimum route, should I withdraw that amount from the brokerage every month? I'm not sure how to calculate what I would gain by leaving it in (because of interest/compounding and not paying tax by withdrawing) vs starting withdrawals now.

MDM

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #3 on: June 13, 2018, 10:38:06 PM »
@MDM If I go the minimum route, should I withdraw that amount from the brokerage every month? I'm not sure how to calculate what I would gain by leaving it in (because of interest/compounding and not paying tax by withdrawing) vs starting withdrawals now.
Can you pay it from cash flow?

In other words, can you set an automatic payment of $175/mo from the checking account into which your paycheck is automatically deposited?

Spondulix

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #4 on: June 13, 2018, 11:07:04 PM »
I'm paying now from cash flow. I know that's the optimal way to do it... but for me this is in part psychological. If I continue paying the minimum the loans won't be paid off til a few months before I retire. It's been almost 20 years of paying already (and I started with almost $100k at a much higher interest rate). The interest write-off on my taxes is under $300/year at this point.

I think what I was mentally attempting to create was a Mini-version of FIRE. If I'm withdrawing from a brokerage but not taking out more than it's earning in interest it's never going to deplete. But, I know that if I take out money now I'm missing out on compounding over time. Maybe I just need to see it quantified how much I would be losing by taking out money (even if it's a small amount every month) vs just letting it sit in the fund for another 10 years... I'm just not sure how to do that.

MDM

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #5 on: June 13, 2018, 11:19:23 PM »
If, instead of paying directly from the checking account, you withdraw from investments and pay, what will you do with the cash flow that had been going to pay the loan?

Spondulix

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #6 on: June 13, 2018, 11:35:12 PM »
If, instead of paying directly from the checking account, you withdraw from investments and pay, what will you do with the cash flow that had been going to pay the loan?

Good question. Emergency fund til it's replenished (we just had an expensive emergency home repair). Then probably Roth IRA or possibly business expenses (something that I could leverage to bring in more business). We pay credit cards off monthly and don't have debt other than mortgage.

When I look at a compounding interest calculator it looks like I can take out $248/month for the next 5 years and that would pay off the loan. I'd only earn $3k a year more by reinvesting the interest so it's really not a huge difference... unless I'm missing something.
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Spondulix

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #7 on: June 13, 2018, 11:50:08 PM »
Whoops my numbers were wrong in the graphic... 37k would include the stocks which who knows what the interest rate will be on those over the next 5 years. That's part of why I was thinking about selling some of that stock off... I don't own enough individual stocks to ensure I'll see the type of return I would with VTSAX or even towards a loan. It was fun to watch them for a while but now it feels more like gambling.

Dicey

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #8 on: June 14, 2018, 11:45:46 AM »
More information needed for best advice. For ex, I thought you were a recent grad, but then you mentioned these loans are almost 20 years old!

How much are you investing besides this example? Could you cash flow double payments or would that take away from other investing?

I agree with some of Pizza Steve's points, but I might take a different approach. You've been in it this long, why not ride it all the way out? You have little to lose. Also, selling the individual stocks is going to trigger taxes...

How far are you from FIRE? I'm not a fan of individual stocks, but maybe you could start a DAF, move these stocks into it and have fun as a post-FIRE philanthropist.

Spondulix

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #9 on: June 14, 2018, 03:17:16 PM »
More information needed for best advice. For ex, I thought you were a recent grad, but then you mentioned these loans are almost 20 years old!

How much are you investing besides this example? Could you cash flow double payments or would that take away from other investing?

I agree with some of Pizza Steve's points, but I might take a different approach. You've been in it this long, why not ride it all the way out? You have little to lose. Also, selling the individual stocks is going to trigger taxes...

How far are you from FIRE? I'm not a fan of individual stocks, but maybe you could start a DAF, move these stocks into it and have fun as a post-FIRE philanthropist.
I graduated 2004 (so I guess 15 years paying... started taking loans out 20 years ago). My first job out of school I was making $12/hr but was intent on knocking out $20k of private loans that were at 8-9% interest. I got those paid off within a couple years (major hustling with side work) but the rest of these loans have been a $200/month thorn in my side ever since. Logically it totally makes sense to ride it out and $200/month isn't a lot in the scheme of my income (with side business I'll probably be at 90k this year).

From 2014-2016 (when I first got into MMM) I was at least 50% savings rate (maybe even more). That's why I bought the stocks - I just wanted something fun to keep me motivated and $4k wasn't a lot relative to the total. I maxed out my 401k, Roth IRA for me and DH, filled emergency fund, and put $10k+ into the brokerage those years. I had a baby late 2016 and since then things have been tight. I work part-time now (with periods of full-time during the year) and my husband is out of work/Mr Mom. So we're sort of living FIRE right now in that we're combined working like 20-30 hours a week (and love our work) and doing fine other than cash flow being tight. But ultimately I want to do more wealth building before we go FIRE for real.

What's a DAF? Haven't seen that term before.
« Last Edit: June 14, 2018, 03:43:30 PM by Spondulix »

Spondulix

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #10 on: June 14, 2018, 03:40:43 PM »
Rational.  Reward good behavior.  Youve saved and killing a loan will feel great, it rewards the savings and investing behavior which is good.

The tone of your post seems to say that your overall risk tolerance is changing a little and that you want to take some risk off the table by rebalancing the portfolio.  This is fine.  Reducing your loans funding stocks leverage, a bit, will accomplish this and is fine.

Yeah this nails it. I'm asking myself, is $4k (in lost interest) a lot to "spend" just to make me feel better? At the same time, all the interest I've earned is basically free money so it's not my blood, sweat, and tears going into these loans anymore.

I'm leaning towards selling off some of the stocks (I hadn't considered rolling to ETF. Might look into that.). They were never a serious part of my portfolio. When I was putting $30k/year into index funds (between brokerage and retirement accounts) buying $1-2k of stocks kept me motivated (because of the research. I analyzed their financials, which I enjoy and find interesting as a business owner). I don't have time to do that anymore, though. The index funds aren't sexy but they perform exactly how I expect and I don't have to do anything.

Dicey

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Re: Using brokerage/stock gains to pay towards student loans
« Reply #11 on: June 14, 2018, 10:11:26 PM »
More information needed for best advice. For ex, I thought you were a recent grad, but then you mentioned these loans are almost 20 years old!

How much are you investing besides this example? Could you cash flow double payments or would that take away from other investing?

I agree with some of Pizza Steve's points, but I might take a different approach. You've been in it this long, why not ride it all the way out? You have little to lose. Also, selling the individual stocks is going to trigger taxes...

How far are you from FIRE? I'm not a fan of individual stocks, but maybe you could start a DAF, move these stocks into it and have fun as a post-FIRE philanthropist.
I graduated 2004 (so I guess 15 years paying... started taking loans out 20 years ago). My first job out of school I was making $12/hr but was intent on knocking out $20k of private loans that were at 8-9% interest. I got those paid off within a couple years (major hustling with side work) but the rest of these loans have been a $200/month thorn in my side ever since. Logically it totally makes sense to ride it out and $200/month isn't a lot in the scheme of my income (with side business I'll probably be at 90k this year).

From 2014-2016 (when I first got into MMM) I was at least 50% savings rate (maybe even more). That's why I bought the stocks - I just wanted something fun to keep me motivated and $4k wasn't a lot relative to the total. I maxed out my 401k, Roth IRA for me and DH, filled emergency fund, and put $10k+ into the brokerage those years. I had a baby late 2016 and since then things have been tight. I work part-time now (with periods of full-time during the year) and my husband is out of work/Mr Mom. So we're sort of living FIRE right now in that we're combined working like 20-30 hours a week (and love our work) and doing fine other than cash flow being tight. But ultimately I want to do more wealth building before we go FIRE for real.

What's a DAF? Haven't seen that term before.
There was a flurry of postings on the topic in late December, 2017. I can't find it at the moment, but this older one is useful.
https://forum.mrmoneymustache.com/welcome-to-the-forum/donor-advised-funds-and-private-foundations/