Starting in investing

[AKPsiMD84]

I have a choice of taking up some extra money from Stafford loans (both kinds) to invest. How much would be good to begin with?

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[etf]

it's usually a bad idea for most people to borrow money to invest. it's usually an even worse idea to borrow student loan money, since i think the MPN you sign says that you aren't allowed to invest it or something. it's definitely a bad idea if you are just starting out.

 

[mgdsh]

it's usually a bad idea for most people to borrow money to invest. it's usually an even worse idea to borrow student loan money, since i think the MPN you sign says that you aren't allowed to invest it or something. it's definitely a bad idea if you are just starting out.

Agreed. if you wanna take out $$ from student loans to invest, then make sure its no more than $100 or enough to cover a couple good books so you can sit back and learn for when you do have money.

 

[igotshoe]

I have a choice of taking up some extra money from Stafford loans (both kinds) to invest. How much would be good to begin with?

take it and put it in a roth ira investing in an index mutual fund or etf. only do this if you are positive you can pay off the debt.

 

[AKPsiMD84]

what about something more liquid?

 

[etf]

what about something more liquid?

how about a money market fund?

 

[LADoc00]

I agree, this is a bad idea.

 

[Tenesma]

put that extra money into a CD and hold onto it in case you need it - bad habit to start w/ loans to make investments...

 

[The White Coat Investor]

What is the rate of the loan? If it is over 4% I wouldn't even consider using it to invest on margin. If you can somehow get loans under 4% AND are eligible to fund a Roth IRA (meaning you have real income), then you might consider buying something basic in the Roth IRA and forgetting about it. Something like a Vanguard Target Retirement Fund or their new All World Index Fund.

People who are trying to "get into investing" almost always lose their shirt. Spend some time learning.

 

[lord_jeebus]

Note that it is only legal to put earned income into a Roth, not loan money

Considering that Staffords are 6.8% now (right?), there's no way you're finding an investment with a reliable return at that level. If you have money left over, borrow less - or put some in a CD so you have cash on hand for an emergency.

 

[link2swim06]

You guys got it all wrong this works, IF, you already have money saved up for schooling.

For example lets say you have $ 50,000 saved for med school and you do not use it to pay for school. Instead you taking out loans for school and wait until med school ends to start paying off loans. During med school you invest that $50,000 in a well diversified global mutual fund and on average you make ~9%. After 4 years you now have about $ 65,000 which you can use to make a big dent into the loans. However, if you just payed until you ran out of money then took a loan you would be $15,000 poorer at the end of medical school.

 

[link2swim06]

I have a choice of taking up some extra money from Stafford loans (both kinds) to invest. How much would be good to begin with?

You should be ok if you invest in a well diversified mutual fund. I have been using the one below and I like it because its very steady over a years time.

http://finance.google.com/finance?q=MCLOX

However, I would advice to wait till this winter to get in because according to my CPA presidential years are typically bad years for wall street. If this interests you do a search there are several online trading websites that give you free trades with certain balances.

 

[The White Coat Investor]

You should be ok if you invest in a well diversified mutual fund. I have been using the one below and I like it because its very steady over a years time.

http://finance.google.com/finance?q=MCLOX

However, I would advice to wait till this winter to get in because according to my CPA presidential years are typically bad years for wall street. If this interests you do a search there are several online trading websites that give you free trades with certain balances.

I'm not sure what you mean by "steady" over the last year, but if a decline from $20/share to $17.5/share (12.5% decline) is "steady" to you I think we have different definitions. You can't blame them though, it is hard for them to make money for you when they're so busy making it for themselves that they charge literally five times what Vanguard does. There's a small load too. Did your CPA mention that?

Be careful taking financial advice based on the presidential cycle or any other market timing mechanism. In fact, according to the theory you're supposed to get in now and get out this winter. But the theory is wrong anyway.

Here's a site that debunks that myth pretty well:

http://www.investopedia.com/terms/p/presidentialelectioncycle.asp

 

[The White Coat Investor]

You guys got it all wrong this works, IF, you already have money saved up for schooling.

For example lets say you have $ 50,000 saved for med school and you do not use it to pay for school. Instead you taking out loans for school and wait until med school ends to start paying off loans. During med school you invest that $50,000 in a well diversified global mutual fund and on average you make ~9%. After 4 years you now have about $ 65,000 which you can use to make a big dent into the loans. However, if you just payed until you ran out of money then took a loan you would be $15,000 poorer at the end of medical school.

#1) That 9% isn't guaranteed, especially over a period as short as four years. Instead of a 9%/year gain, you could be looking at 10%/year losses.

2) You forgot to add in the interest that $50K earns until it is all spent. At 5% (which wouldn't be too hard to get out of nice, safe CDs) you're talking about 7K more.
=-FV(5%,4,-12500,50000)= $6,898.75

3) You save the loan fees too, which are not insubstantial.

4) 9% after costs and taxes isn't 9%.

 

[link2swim06]

#1) That 9% isn't guaranteed, especially over a period as short as four years. Instead of a 9%/year gain, you could be looking at 10%/year losses.

2) You forgot to add in the interest that $50K earns until it is all spent. At 5% (which wouldn't be too hard to get out of nice, safe CDs) you're talking about 7K more.
=-FV(5%,4,-12500,50000)= $6,898.75

3) You save the loan fees too, which are not insubstantial.

4) 9% after costs and taxes isn't 9%.

1) The mutual fund did go down from 20 to 17.5 $/share BUT I hope you realize that this mutual fund splits every year in November. Therefore it is not fair to say it went down from $20

2) Trailing total returns
1 day -0.29%
1 week -1.04%
4 week -2.70%
3 month -8.68%
YTD -7.30%
1 year 2.25%
3 year annualized 8.86%
5 year annualized 12.04%


3) He invested in B shares which carry a small back-end load

4) Morning Star rates this as a moderate risk mutual fund.

5) The number I came up with was from http://www.moneychimp.com/calculator/compound_interest_calculator.htm

I USED 6% in the calculator above so taxes would be ~accounted for

6) Loan fees don't even come close to the money you would make

7) As you stated diversifying to a CD could help reduce risk
However this mutual fund invests alot in Asia therefore its hard for me to believe you will see a long term loss

 

[link2swim06]

I'm not sure what you mean by "steady" over the last year, but if a decline from $20/share to $17.5/share (12.5% decline) is "steady" to you I think we have different definitions. You can't blame them though, it is hard for them to make money for you when they're so busy making it for themselves that they charge literally five times what Vanguard does. There's a small load too. Did your CPA mention that?

Be careful taking financial advice based on the presidential cycle or any other market timing mechanism. In fact, according to the theory you're supposed to get in now and get out this winter. But the theory is wrong anyway.

Here's a site that debunks that myth pretty well:

http://www.investopedia.com/terms/p/presidentialelectioncycle.asp

As far as the presidential cycle I know its a theory but market trends are so complex its really almost impossible "prove or disprove anything." As far as getting in the winter, I forgot to say the end of the winter. Basically, following market trend the stock prices often seem to fall in the first few months of the calendar year. Also not to worry, no my CPA is not taking all my money, I no longer use a CPA, I invest w/ Zecco now (gotta love the free 10 trades a month).

 

[The White Coat Investor]

Good luck link, sincerely. May all your picks work out as well as Blackrock has over the last 5 years.

 

[radslooking]

good way to lose money risk free. you make 2.5% on money markets right now and you are borrowing at 6.8% plus origination fees for a stafford. genius.

If you took out 50,000 in stafford loans at 6.8% what is the interest then if you pay them off on day 1 of your residency?

Anyhow, if you can pay right away with minimal fees, then i suppose you could invest it and see what happens. i doubt you're going to come out much on it though, and you have the potential to get really nailed. doesn't seem worth the risk.

 

[JeffChou]

If you took out 50,000 in stafford loans at 6.8% what is the interest then if you pay them off on day 1 of your residency?

Anyhow, if you can pay right away with minimal fees, then i suppose you could invest it and see what happens. i doubt you're going to come out much on it though, and you have the potential to get really nailed. doesn't seem worth the risk.

Subsidized Stafford loans are need based and have variable interest rates according to a predetermined schedule. Most stafford loans are likely to be unsubsidized and accrue interest at 6.8% (graduate unsubsidized rate constant through to 2013) from day one.

Source: http://www.staffordloan.com/stafford-loan-info/graduate-stafford-loan.php

 

[radslooking]

medical students do have access to the entire 8500 subsidized stafford per year irregardless of parental and student income. other health programs i do not know.

i guess if you are not risk-averse, using subsidized staffords to invest might make sense. using unsubsidized staffords does not.

I don't mean to be a douche, but it's "irrespective" or "regardless". Might save you the trouble of some dickhole correcting you in unseemly fashion later.

 

[holidoc]

I would consider doing some intensive financial and scientific research into a drug / device play. No need to put 50,000 on the table. There are many promising equities out there for less than 5.00 / share. These stocks are cheap, and usually have a specific drug or device technology that is usually acquired by a large pharma / device company, therefore, taking that 5.00 stock to 15.00. Many times, these "acquirable" stocks are closer to 2.00, but all it takes is an acquisition rumor or FDA Advisory Panel announcement to cause massive upside movement. In this scenario, a 1,000 investment could really pay-off. Do your homework and look at 3,6,and 12 month charts to assess your entry point. I find that this free website (tradeRXchange.com) is helpful. The site contributors are young entrepreneurial MD's. Good Luck!