Reduce debt or buy into mutual funds?
I’m a bit math-impaired, so here goes. Which is the better financial decision:
- putting 00 towards a ,000 student loan debt growing at 8.5% monthly,
- or using that money to buy into a no-load mutual fund with a 00 minimum investment that would make my weekly retirement contributions (0) grow in the high teens (instead of 0.5% if not invested)? I’m 24.
(I’m Canadian, so I don’t have a 401(k) or an IRA; I pretty much have a questionable federal pension and this tax-exempt investment account – 0.5% interest, maximum ,000 annual contribution.)
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September 13th, 2010 at 10:20 am
Get out of debt first.
Would you get more student loans ($5000) so you could invest in a no-load mutual fund? The gut reaction is no- you wouldn’t go into debt to fund savings or retirement. So get on a plan and get out of debt FAST and then use the money you were paying (or 15% of income) to fund your retirement.
I suggest you read The Total Money Makeover by Dave Ramsey. His book will give you a plan to get out of debt and then to save and get set for retirement, buying a home, etc.
Since you are young- you don’t have to play catch up yet. But get out of debt fast!! So you can have a very healthy retirement fund by the time you want to retire.
September 13th, 2010 at 10:20 am
As long as you can make your payments, I would invest. If you can earn a higher interest rate than you are paying, go for it.
September 13th, 2010 at 10:20 am
Well, I would think that putting your money into mutual fund and letting it grow and you keep paying off your debt would be the wises decision.
There is nothing wrong with putting something up for the future. Maybe by the time your mutal fund reaches its value you can pay off the remaining debt with money still left over.
I to always ask questions about what I would do with my money because there are those out there that you can strip down nakid and place them on a rock and they would still make money.
I’ll be checking back to see what others have advised. Thanks
September 13th, 2010 at 10:20 am
It’s pretty simple math. If you can earn more than 8.5% on your money than, put it into the mutuals.
8.5 is doable if you pick the right fund. Look at the 1, 3, and 5 year growths. If $5K is the only extra money you have, I’d keep making the student loan payments and find a mutual that only has a 2000 minimum requirement for the initial investment.
It’s always good to pay yourself first and invest in your future. And good to pay off the higher interest credit cards first. And keep some extra cash around for emergencies.
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