Let's assume the following for the sake of discussion.
1. You have a guaranteed $10k bonus at the end of this year, and a guaranteed $30k bonus at the end of next year.
2. You have a 10k loan at 5%
3. I-Bonds are currently paying 2%
1. Pay off the loan the first year, and then use the $30k next year for $10k in I-Bonds and $20k in another investment.
2. Buy I-Bonds both years, and pay off the loan at the end of the second year, leaving $10k for another investment.
In both options, at the end of year 2, you will have paid off the loan, and $30k left over invested
Mathematically, the higher expected value is to pay the loan first. However, you will then forever lose the opportunity to have that extra $10k in I-Bonds. What if a few years later you wish you had money invested in I-Bonds instead of an alternative investment?
How should one think about this? Simply always maximize the current EV and not worry about opportunity costs?
Now that I am older, one of my heroes in life, Taylor Larimore, has convinced me here at the forum of the wisdom of the 3 fund portfolio and I've acted accordingly. I guess I wasn't inclined to sweat the details and instead followed time tested general rules and it has worked out for me well enough. That's just me as I have longed enjoyed the position of being a passive investor and not sweating the details but that's my nature. Like I said at the beginning, I am looking forward to see where the discussion goes.
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