Talk:Paying down loans versus investing

From Bogleheads

I'm not really all that happy with the page as it currently stands -- it seems overly biased against early loan repayment. I'm going to do some work on it to try to add balance but I may overcorrect. --Sommerfeld 01:53, 11 November 2009 (UTC)

Take a look at the "What Links Here" (sidebar toolbox) to see if it helps to put things in context. --LadyGeek 02:47, 11 November 2009 (UTC)

Why should I make a comparison to bonds? Especially for a 401(k). You don't know when you will stop working, so the maturity date is unknown. 401(k) contributions can vary every year, especially if you change employers. Same for IRAs.

For taxable accounts, a comparison to "No-risk" municipal bonds is suggested. Recent indications are that is not such a safe course of action.

The "no-risk" municipal bonds are actually no-risk only if they are held to maturity (and match the payment schedule of the loan).Grabiner 02:49, 12 November 2009 (UTC)

Is the suggestion to actually invest in bonds? The writing is not clear. I was OK following everything up to the point of the bond comparison. Nothing in the Bogleheads' Guide to Investing or the Four Pillars of Investing mentions this approach. If I missed the point here, it's because I am confused on the intent. --LadyGeek 00:57, 12 November 2009 (UTC)

My intention wasn't to suggest investing in bonds, but to suggest that investing in bonds is a fair comparison. That is, if you can earn a higher guaranteed return by buying a bond than by paying down a loan, then it is better to buy the bond than to pay off the loan; you might still choose to invest in something else instead. On the other hand, if you can earn a higher guaranteed return by paying down the loan, it is better to pay down the loan, as you cannot earn a higher return on your investments except by increasing risk, and you have already chosen not to increase your risk with your investment strategy. Grabiner 02:49, 12 November 2009 (UTC)