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Boss302
Joined: 15 Sep 2014
Last visit: 20 Oct 2020
Posts: 12
Given Kudos: 5
Location: United States (TX)
Schools: Rice PT'18 (A) Kelley (M$)
Products:
28 Jan 2020, 10:26
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What is everyone’s take on taking out a loan with a 20 yr period (about $200/month) vs. paying for the MBA all in cash? I initially wanted to pay all cash, but with a possibility of a recession, I would like to hold the cash in case a few good investments become available.
Has anyone thought about this situation or what you guys might do?
Posted from my mobile device
Has anyone thought about this situation or what you guys might do?
Posted from my mobile device
Pretty good question! Goes way beyond the scholarship.
I know a number of folks who subscribe to your theory (they are sitting on big chunks of cash and hating the DOW hitting 29K). I talked to a financial advisor and they told me to hold back some cash too - it seems everyone is holding back the cash, which I feel this next recession will be different because so many people are expecting things to hit the fan and so many are holding back the cash. A couple of my friends and I pulled money out of stock market back in 2018 when it was 24,000. Was not so smart
Some are still waiting to get back in.
And the interest rates are so low still so it is easy to borrow to have cash on your hands. I wonder if that will be the downfall - too many people holding out and then giving up and plunging (that's kind of what happened in the dot.com bust when peole could not believe stock could grow so high and it still kept growing so fear of missing out set in).
In terms of your situation, do you have access to other sources of funding if you need emergency funds? E.g. can you get an easy personal loan without paying 19% to credit cards? I would make sure you don't surrender all of your cash and you have an emergency fund. Your loan does not sound significant enough to make a big difference in the grand scheme of things since it likely will take years for it to double. Last time around it took 5-6 years for the stock market to double and while that's impressive that would trigger 5-6 years of moderate interest you would be paying on your student loan. I think it would be somewhat muted result, and would only play out if the investment returns are sudden and fast which is not possible to count on...
Bottom line: I would borrow if your emergency fund is compromised or low. I would borrow if I were into finance and loved investing and developing a strategy then sure but normally I would not recommend it just to have cash in case the market drops. Lots of other people do and they won't let the investments go super low with their deep pockets.
Disclaimer: don't listen to my financial advice - I usually get it completely wrong
P.S. The super weird part is that the most growth seems to have occured between 2016 and 2018 and then the difficulty of timing the market... it will be hard to pull off but it could be fun if you can borrow cheaply.
I know a number of folks who subscribe to your theory (they are sitting on big chunks of cash and hating the DOW hitting 29K). I talked to a financial advisor and they told me to hold back some cash too - it seems everyone is holding back the cash, which I feel this next recession will be different because so many people are expecting things to hit the fan and so many are holding back the cash. A couple of my friends and I pulled money out of stock market back in 2018 when it was 24,000. Was not so smart
Some are still waiting to get back in. And the interest rates are so low still so it is easy to borrow to have cash on your hands. I wonder if that will be the downfall - too many people holding out and then giving up and plunging (that's kind of what happened in the dot.com bust when peole could not believe stock could grow so high and it still kept growing so fear of missing out set in).
In terms of your situation, do you have access to other sources of funding if you need emergency funds? E.g. can you get an easy personal loan without paying 19% to credit cards? I would make sure you don't surrender all of your cash and you have an emergency fund. Your loan does not sound significant enough to make a big difference in the grand scheme of things since it likely will take years for it to double. Last time around it took 5-6 years for the stock market to double and while that's impressive that would trigger 5-6 years of moderate interest you would be paying on your student loan. I think it would be somewhat muted result, and would only play out if the investment returns are sudden and fast which is not possible to count on...
Bottom line: I would borrow if your emergency fund is compromised or low. I would borrow if I were into finance and loved investing and developing a strategy then sure but normally I would not recommend it just to have cash in case the market drops. Lots of other people do and they won't let the investments go super low with their deep pockets.
Disclaimer: don't listen to my financial advice - I usually get it completely wrong
P.S. The super weird part is that the most growth seems to have occured between 2016 and 2018 and then the difficulty of timing the market... it will be hard to pull off but it could be fun if you can borrow cheaply.
Boss302
Joined: 15 Sep 2014
Last visit: 20 Oct 2020
Posts: 12
Own Kudos:
Given Kudos: 5
Location: United States (TX)
Schools: Rice PT'18 (A) Kelley (M$)
Products:
28 Jan 2020, 18:34
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bb
BB, thanks so much for taking the time to reply!
I personally get wrecked every time I try and time the market. I have decided to consider going for a monthly dividend ETF portfolio and do it as a long term strategy so I don't have to worry too much about valuations. I am more invested in the real estate market (rental properties) and picked a few decent ones in 2016/2017 as a long term hold. Some friends of mine got incredibly lucky during 2008 and picked up 150-200k homes on 60k cash and now have like 20 rentals all paid off (I am slightly green). This is why I would want to hold a significant chunk of change to be able to swoop in on 1 or 2 additional homes and have about 10 to fund a comfortable retirement. I have considered the snowball method, but I think there's a very liberating feeling when debts are paid and its just a cash collection process $).
I do have enough for emergencies, etc even if I pay cash for the MBA. The total comes out to $64k at Kelley and I am not betting on too much of a salary increase (in oil&gas which pays more than most industries already) post grad until I move up into senior management roles. Still...no guarantees.
The reasons for considering the loan is as you have mentioned with the nominal doubling of the interest rate. I think even financing it over 20 years at 7% is considered a deal since dollars at that point will seem like chump change financed today. I don't have any consumer debt and a $64k loan would be constant thorn in the side. I can get personal financing if needed, or do cash out refi worst case, but that might not hold too well if in recession.
P.S. same way with personal advice...I knew I should have bought Bitcoin at inception! Then sold it since I have no clue its future lol.
This one brought a smile. 
