Kelby said:
@Frankie
FTSE all-world had just over 9% for two decades. And S&P 500 has long-term returns around 10%.
But we’re talking about returns from the last 28 years.
Kelby said:
@Frankie
FTSE all-world had just over 9% for two decades. And S&P 500 has long-term returns around 10%.
But we’re talking about returns from the last 28 years.
True, but using all available years gives a clearer idea for future returns.
@Kelby
It’s just based on the specific comment about the last 28 years.
Frankie said:
@Kelby
It’s just based on the specific comment about the last 28 years.
Anyway, 28-year returns have been around 8.7%, but historical averages give a more balanced view.
@Kelby
Got it!
@Payton
If you paid it off, you don’t need to hope for returns beating that 7% loan rate.
Archer said:
@Payton
If you paid it off, you don’t need to hope for returns beating that 7% loan rate.
If you borrowed at 10% and invested at 10%, your position remains net zero, inflation aside.
@Kelby
The cash you use to pay the debt is worth less each year.
Archer said:
@Kelby
The cash you use to pay the debt is worth less each year.
Student loans are inflation-adjusted, so that keeps it in balance.
@Payton
If you’ve been in the market for a while, you’re probably coming out ahead with that approach.
@Payton
Saving for a home often beats student loan payments in value.
Getting a guaranteed 7.3% return by paying off a loan isn’t a bad thing. Sure, you could’ve invested, but nothing’s guaranteed there.
Only issue would be if you needed the cash for something like a home, but you already have that covered. Now that the debt’s gone, you’ll have extra cash each month to save or maybe even overpay your mortgage if you want.
@Ari
I’d just focus on the fact that you won’t have that loan hanging over you now.
Leighton said:
@Ari
I’d just focus on the fact that you won’t have that loan hanging over you now.
Right, and since they already have a place to live, it’s not like the money was wasted.
How does it feel not to have that loan payment weighing you down? Now you can put that monthly amount toward other things.
Vanya said:
How does it feel not to have that loan payment weighing you down? Now you can put that monthly amount toward other things.
Putting the extra money toward your mortgage could help too. I love throwing a bit more into my mortgage payments whenever I can.
@Jordan
Some banks have handy tools to show how much you’d save with extra payments.
@Jordan
We do regular overpayments and seeing the numbers go down is so satisfying!
The 7.3% interest rate is today’s rate, but it’ll likely drop with inflation going down over time.
For long-term loans, like student loans, this matters. Future mortgage rates are usually lower than student loan rates, and investment returns tend to average higher. Looking at the current high rate and assuming it’ll stay that way may lead to some poor financial choices.
@Corey
The RPI formula changes to CPIH in 2030, which should lower it a bit.