5 ms·

Any decent index fund? “Risk free” is too high a bar for any investment, compare the expected outcome instead.

• mhb 4y ago
  Paying off the loan is risk-free. Expected value of an index fund is not obviously better. But you knew that.
  • fnfjfk 4y ago
    https://www.investopedia.com/ask/answers/042415/what-average-annual-return-sp-500.asp https://www.investopedia.com/ask/answers/042415/what-average... Sure, if you have exactly zero risk tolerance, pay off a low interest rate loan. But based on history, you will almost certainly lose over the long term of a decade or more.
    • mhb 4y ago
      I don't really disagree, but it's not as obvious as it seems in hindsight. 3.5% (which OP says became 4%) isn't a low interest rate when inflation and other low risk options (e.g., CDs) are <1%. Also, your article says: "Adjusted for inflation, the historical average annual return is only around 8.5%. There is an additional problem posed by the question of whether that inflation-adjusted average is accurate since the adjustment is made using the inflation figures from the Consumer Price Index (CPI), the index which some analysts believe vastly understates the true inflation rate." So maybe the stock index average to use is more like 2x the loan interest.