Author Topic: which path is the best?  (Read 3287 times)

goodrookie

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which path is the best?
« on: January 17, 2015, 02:49:39 PM »
Stocks (expected ~20%) vs. owning home (?yield these days) vs. paying off student loans (~8-9%)?

MDM

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Re: which path is the best?
« Reply #1 on: January 17, 2015, 03:04:06 PM »
What leads you to believe that stocks will provide a 20% return?

Housing prices have short term (i.e., several year) fluctuations but long term (i.e., decades) don't increase much more than inflation.

Those are some high rates for student loans.  Check out https://www.sofi.com/?

goodrookie

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Re: which path is the best?
« Reply #2 on: January 17, 2015, 03:13:05 PM »
Stocks themselves won't do it but stocks+options can get you there. But the big question is whether to focus on paying off student loans first or begin investing in Wall Street now or start with buying a home (since renting is essentially throwing money away)?

FastStache

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Re: which path is the best?
« Reply #3 on: January 17, 2015, 03:18:05 PM »
Stocks (expected ~20%) vs. owning home (?yield these days) vs. paying off student loans (~8-9%)?

If you can expect to make 20% then stocks all the way. But, that's not probably going to turn out how you think it is.

So real advice, would be attack that high interest rate on the student loan through consolidation/paying it off and reevaluating

Retired To Win

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Re: which path is the best?
« Reply #4 on: January 17, 2015, 04:53:00 PM »
Stocks (expected ~20%) vs. owning home (?yield these days) vs. paying off student loans (~8-9%)?

The only sure thing out of the 3 choices you've presented is the 8-9% "return" you would get by paying off your student loans.  If, in fact, that is the interest rate you are paying on those loans, then ABSOLUTELY throw all your spare money at that until the loans are gone.  Eight to nine percent guaranteed is HUGE.

innerscorecard

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Re: which path is the best?
« Reply #5 on: January 17, 2015, 11:13:29 PM »
If you think you will definitely get 20% in stocks or options, you will definitely get slaughtered, eventually.

goodrookie

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Re: which path is the best?
« Reply #6 on: January 18, 2015, 05:07:09 AM »
@Retired To Win: Went to Med school. Hence, bulk of my loans are in Gradplus which is essentially 4.6% + US Treasury base. I am assuming 8-9% as the worst case scenario because inflation likely will increase in the next 5-6 years. Thanks a gov't program, I postponed the payments but am still accumulating interests. So, the big question for me is should I put monthly payments toward these loans or toward stocks.

@innerscorecard: what is a more reasonable goal for stocks? SPY yield itself was 13-14% in 2014.   

What's the "yield" of a real estate (I am thinking 1-2 bedroom condos in northeast, in substitution for renting)?

Dodge

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Re: which path is the best?
« Reply #7 on: January 18, 2015, 08:32:07 AM »
If you expect 20% from stocks + options, I recommend staying away from stocks + options altogether, because it's almost a statistical certainty that you're going to lose it all.

Renting is not "throwing money away".  You're either renting space (an apartment), or you're renting money (mortgage).  I've run the numbers for many people in the north east, and they always come out way ahead by renting and investing the difference.

Put it all towards the student loans.

Indexer

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Re: which path is the best?
« Reply #8 on: January 18, 2015, 08:47:19 AM »
Stocks themselves won't do it but stocks+options can get you there. But the big question is whether to focus on paying off student loans first or begin investing in Wall Street now or start with buying a home (since renting is essentially throwing money away)?


Stocks + options could theoretically get you there.  It could also get you a number in the negative arena.  Even highly seasoned investors with finance degrees, CFAs, CFPs, who work on Wall Street, etc.  avoid options, especially speculative options trading.  If you want to do some covered calls have fun, but assuming you will get 20% long term in stocks + options is highly unrealistic.  Even the hedge fund managers who get paid millions/billions to pull off what you are talking about fail the vast majority of the time.  To use medical analogies:  if investing in index funds was taking someones temperature getting 20% returns annually with options would be experimental brain surgery to remove tumors from around the [insert part of brain I don't even know about].  It's borderline impossible and shouldn't even be attempted without decades of schooling and experience.  Start with a simple portfolio of index funds, learn a whole lot more, maybe try some covered calls, and then look at options trading.... (and if you still think you can average 20% returns... keep learning till you decide you can't.)

"what is a more reasonable goal for stocks? SPY yield itself was 13-14% in 2014."

And it was up over 30% in 2013.  Doesn't mean anything.  Looking back LONG term that is not the case.  The Vanguard 500 index(tracks S&P 500) has averaged about 11% returns going back to 76, and only roughly 7.5% returns going back 10 years.  Given current valuations going forward I would keep a 'safe assumption' of 6% annually, hope for 8%, and pray for 10%.  If it averages more than 10% we all get to throw super even earlier retirement parties!!! 
Vanguard 500 index: https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#tab=1a


"What's the "yield" of a real estate (I am thinking 1-2 bedroom condos in northeast, in substitution for renting)?"

The value of the building itself goes up with the cost of inflation for building a new one(labor+supplies).  The 'location' is what appreciates.  If you are lucky this could average 20% a year.  If you are unlucky it could be negative.  So on average housing prices grow slightly faster than inflation because the building itself is growing at about the rate of inflation, and location(land) is a limited resource so on 'average' it is appreciating faster than inflation.  When I purchase property I assume it will grow with inflation.  Its a 'use asset'.  You live in it.  It saves you from having to pay rent, and it forces you to save(through principal payments) but I don't go in expecting a ton of long term appreciation.  Doing that is what got us into the housing bubble.

On that note it sounds like paying off those student loans is your best bet.
« Last Edit: January 18, 2015, 09:00:21 AM by Indexer »