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Debt vs investing in brokerage
Posted on 5/5/25 at 8:19 pm
Posted on 5/5/25 at 8:19 pm
Assuming you've maxed available tax advantaged accounts, what interest rate would you pay down debt versus invest?
I recently took out 3.74% auto loan instead of selling. Mortgage 3.75% and a securities backed line of credit variable at SOFR +1.55% (5.9%).
I currently pay minimums and just let interest accrue on SBLOC. I was paying down SBLOC with minimal dividends spit off from index funds but I stopped when rate dipped back below 6% or so. Now I'm thinking 6.5% is my new threshold to consider paying it down instead of reinvesting dividends. I'd probably get more aggressive and even sell shares to pay off if rate ever exceeds 8%.
As long as rates are below 7% or so, I'd rather borrow for large expenses to stay fully invested and avoid realizing capital gains (prefer to harvest in zero bracket or pass to heirs w stepped.up basis)
I recently took out 3.74% auto loan instead of selling. Mortgage 3.75% and a securities backed line of credit variable at SOFR +1.55% (5.9%).
I currently pay minimums and just let interest accrue on SBLOC. I was paying down SBLOC with minimal dividends spit off from index funds but I stopped when rate dipped back below 6% or so. Now I'm thinking 6.5% is my new threshold to consider paying it down instead of reinvesting dividends. I'd probably get more aggressive and even sell shares to pay off if rate ever exceeds 8%.
As long as rates are below 7% or so, I'd rather borrow for large expenses to stay fully invested and avoid realizing capital gains (prefer to harvest in zero bracket or pass to heirs w stepped.up basis)
3
Posted on 5/5/25 at 8:29 pm to TorchtheFlyingTiger
I personally use 4.5%
What exceeds money market. Mathematically it’s probably should be closer to historical S&P Return.
What exceeds money market. Mathematically it’s probably should be closer to historical S&P Return.
Posted on 5/5/25 at 9:23 pm to TorchtheFlyingTiger
I think my threshold is about 5%. That’s a risk free rate of return that is almost guaranteed to be above the rate of inflation so there is “real” return and there is no sequence of returns risk.
Posted on 5/5/25 at 10:03 pm to TorchtheFlyingTiger
In some cases, there are also tax considerations. I am living off of my IRA's. If I take out a lump sum to pay off a large debt, I drive myself into a higher tax bracket and additionally I have to pay higher health insurance premiums.
It changes the math, significantly.
It changes the math, significantly.
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