<p>I am 2/C midshipman who is looking to take out the loan with USAA. As of now Navy Fed has offered 32,000 at 1.25%. USAA apparently is planning to offer 38,000 at 1.8%.</p>
<p>I plan to put 5,000 into my IRA and another 5,000 come January. Apart from that I'd invest the rest majority of it into mutual funds and the left over in stocks. </p>
<p>I am seeking any financial advice on whether this is a good decision. I'm really good with constructive criticism and also very flexible with what I can end up doing with my loan.</p>
<p>Only if you would invest it in a CD or Treasury that paid more than the interest on the loan with both interests and time frames being fixed would I even consider it.
There is much talk of deflation (or disinflation) among the financial analysts. Deflation makes taking a loan for almost anything questionable.</p>
<p>Please recall how banks make money; they take in deposits paying interest on those deposits to attract customers. Then they loan that money out at higher rates. The difference is what builds those tall buildings and buys the bankers their yachts.</p>
<p>I sent you a pm with my financial advisor’s info. I’ve been with him since I was in your spot 10 years ago getting my loan. </p>
<p>Whatever you do, dont blow it on a car like everybody else does. Your Ensignmobile will be beat up,worthless, and stupid looking when you’re a LT.</p>
<p>I would not borrow money to place into any type of non-retirement savings plan since the gains will normally be taxed. Keep your cash flow such that when you are eligible to take advantage of the TSP, that you can do so to the maximum.</p>
<p>Song - Normally I’d agree with you on that point, but at that interest rate it’s impossible to turn it down. It’s the lowest interest rate you’ll ever get on a loan in your life, might as well make it work for you. </p>
<p>Also I’m not a big fan of TSP. Sure it reduces your taxable income, but military members pay less taxes anyway because of tax free special pays and housing allowance making up about a third of our pay. I’d have to sock away some serious money into the TSP to even get into the next lower tax bracket. That said, 2011 will probably be a different story since taxes are going up.</p>
<p>For the TSP, it is not so much the lowering of the tax rate, but the tax deferred growth of a qualified retirement plan. Any officer will probably be flirting with the 25% tax bracket, or greater, their entire career. To pull this amount of the gain out of their savings plan each year for taxes seriously hampers the compounding growth of the entire savings plan.</p>
<p>True, but you also have to factor in retirement age. TSP you’re still stuck with 59 1/2 without penalties. For someone retiring in the O5/O6 range, that’s a long time to wait to access your money without a penalty. </p>
<p>Now if they roll out the Roth TSP for military, I’m all for maxing that out.</p>
<p>Most qualified retirement plans have provisions for early penalty-free withdrawal based on certain life event needs. If there is a true need, a way can usually be found. Meanwhile, until this happens those deferred taxes are continuining to compound annually.</p>
<p>IMHO, there’s only two things worth borrowing for: home and education. (Again, I wish I had heeded my own advice.)</p>
<p>Borrowing money to put back into an investment is counter to every bit of financial advice I’ve ever heard. What happens when your investment goes down in value? (Don’t believe it can happen? Ask any of us what our 401K balance is now compared to 3 years ago.) </p>
<p>No doubt you could make a lot of money now by borrowing at that rate and investing in some company stock? But which company? The bank will still want their money when that company is kaput.</p>
<p>osdad - I agree, but like I said before that interest rate is the lowest you’ll ever get in your life. You can shove it all in a high yield savings account and still make money off of it and there’s no reason not to take the loan. </p>
<p>Same goes with advanced pay from the Navy - essentially a 1 year loan against your pay for one month’s salary at 0%. I take this every time I PCS because it’s an interest free loan and I stick it in my high yield savings account. Sometimes I actually need it, like when the economy craps itself and my wife cant find a stable job until 6 months into a tour.</p>
<p>Loans are part of life. Well-managed loans are a VERY important part of life. Poorly-managed debt is a BAD part of life.</p>
<p>Take the loan. You WILL need some things upon graduation. You may need to buy household items, you may need furniture, you may need, in fact, a TV. Now, don’t go crazy, but this is all part of getting set up for life and this money–at close to zero–is much better than charginga credit card at 18+ percent.</p>
<p>Now, sh/ you blow it on a 30k mustang? Probably not. Do you NEED a seedoo? Probably not. There is no need to spend the entire amount. Use it wisely and it will be a huge benefit to you.
Use it poorly and it will be a burden.</p>
<p>BUt, it is nearly FREE money and there is no reason to pass it up. Heck, even if you don’t use any of it, it makes for a cheap insuranc policy against future–higher cost–debt.</p>
<p>USAA just offered $35,000 at 0.5%. Whooohooo!</p>
<p>I definitely don’t plan on buying a car to have it sit around for 2 years at the academy. Most weekends are eaten up by football games or other events of the such so it makes no sense for it to depreciate in value. As I mentioned before, I think i’m going to be looking closely at long-term growth mutual funds.</p>
<p>I appreciate all the input everyone has given me thus far.</p>
<p>It’s not a big deal now, but just remeember that when your income increases and taxes become a factor that you will be taxed on the gains to the extend of the last dollar you made. </p>
<p>My advice remains to not to let the repayment of this loan interfer with maxing out your TSA. At 10% return, a tax deferred TSA investment will be worth twice as much in 20 years as your mutual fund investment.</p>
the problem is, like home equity loans of pre 2009, if it’s AVAILABLE, most people SPEND IT. It’s only insurance if you leave it in the bank, or low-volatility investments (not stocks), and don’t spend in on non-emergency lifestyle items.</p>