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SoFi weighs in on investing while in debt

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  • spiritrider
    replied
    Like most things in life it is not necessarily all or nothing. If you are doing like WCI advises "living like a resident" until your loans are paid off. That gives you more options to do more than one thing at a time. Also, there are lost opportunity costs with not utilizing retirement accounts.

    You could allocate some percentage of your discretionary income to student loans (40% - 60%), pre-tax retirement accounts (20% - 30%) and down payment savings (20 - 30%). For example, if your discretionary income is 50% of your take home pay, that is 20% - 30%, 10% - 15% and 10% -15% of take home pay respectively.

    I'm not saying these are your numbers or even the best numbers. I just saying that as long as you are dedicating the most significant portion of your take home pay to discretionary spending, you can do more than one thing.

    On the other hand if you have allowed lifestyle creep and your discretionary income is as small as 20% of your take home pay, you better be dedicating all of that to student loan repayment.

    Leave a comment:


  • hightower
    replied




    Agree with the above, I would be wary of a lender’s advice regarding paying down debt.

    Being a lender is like being a drug dealer.  Drug dealers have three types customers: (i) junkie, (ii) experimenter, and (iii) functioning addict.

    • The junkie overdoses, gets arrested, or loses job thereby eliminating future purchases (borrower defaults).

    • The experimenter tries tries it a few times and never buys again (borrower prepays early).

    • The struggling addict keeps a job while coming back regularly for a “fix” (borrower makes monthly payment for entire term).


    Click to expand...


    Nice analogy

    The functioning addict...I learned from a cop once that drug dealers refer to their customers as "licks."  Same idea, they're the most valuable customer because they keep the income coming in regularly.

    Leave a comment:


  • Donnie
    replied
    Agree with the above, I would be wary of a lender's advice regarding paying down debt.

    Being a lender is like being a drug dealer.  Drug dealers have three types customers: (i) junkie, (ii) experimenter, and (iii) functioning addict.

    • The junkie overdoses, gets arrested, or loses job thereby eliminating future purchases (borrower defaults).

    • The experimenter tries tries it a few times and never buys again (borrower prepays early).

    • The struggling addict keeps a job while coming back regularly for a "fix" (borrower makes monthly payment for entire term).

    Leave a comment:


  • The White Coat Investor
    replied
    Yup, conflicts all the way on that one. Using your numbers:

    # 1 They're in the student loan refinancing business

    # 2 They're in the mortgage business

    # 3 They're in the wealth management business

    That said, I don't know that any of the advice is necessarily wrong for every one. It's not insane to invest while holding 3.5% debt. A house is a completely separate goal from retirement, and sometimes it makes sense to put one ahead of the other. And I don't think money you don't need for 3 years has to be in cash. Not sure I'd put it 100% in stocks, but certainly some bonds and maybe some stocks wouldn't be crazy.

    Leave a comment:


  • DMFA
    started a topic SoFi weighs in on investing while in debt

    SoFi weighs in on investing while in debt

    https://www.sofi.com/resource-center/investing/should-i-invest-if-i-still-have-student-loan-debt-a-planner-weighs-in/?utm_campaign=WEALTH_BalancingDebt_Part1_11132017&utm_source=EXP&utm_medium=EMAIL&cid=17247&mid=262195839

    Some interesting and surprising points being covered here:
    - recommending leverage at a student loan interest rate of 3.5%. Now, SoFi actually stands to profit from letting more interest accrue on the money they're owed, so while this is something I would have an individual consider were I planning their overall finance situation...but I do think that could be a bit of a conflict of interest.

    - this point about doing a house fund before an IRA on top of a matched 401(k): "First, a house is often one of the the only assets on your balance sheet from which you get utility. In other words, it’s the only thing you can use now! Second, in the current housing market, the return on a home is likely higher than the interest rate on your student loan." ...I have issues with considering a primary residence to be an investment asset *and* with expecting a return on it in a housing market. I think home ownership is being put on a bit of a pedestal here. The also call it a "tax benefit," which I also very much dislike since spending money on mortgage interest is still spending money, just spending slightly less money.

    - "If it’s going to take you more than three years to save for a house, consider putting your money in an investing account and give it the best chance of growing. SoFi Wealth is a great option for first time home-buyers who are looking to invest their way toward a down payment." Come on. This is an ad all the way. Three years is too short a time horizon to take that much risk in an equity-heavy portfolio.

    While I do generally agree with this sort of leverage, I think this is way more of a way to get them more interest income and let them manage your funds for money than it is a piece of financial advice and education...but, then again, salesmen masquerade as teachers all the time.
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