facebookShould I invest my 30K or should I use it to repay my tuition fee bank loan in one lump sum? - Seedly

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Anonymous

30 Nov 2020

βˆ™

Robo-Advisors

Should I invest my 30K or should I use it to repay my tuition fee bank loan in one lump sum?

I have saved up 30K and am wondering if I should invest this 30K in roboadvisors or should I used it to repay my bank loan and be debt free before I start investing.

Pls advice!

Discussion (7)

What are your thoughts?

Cedric Jamie Soh

Cedric Jamie Soh

30 Nov 2020

Director at Seniorcare.com.sg

I realised no one asked TS what are the bank loan interest rate.

For me, if its low interest, I will invest $30k in stocks or ETF or roboadvisors, and then repay my university tuition fee monthly slowly.

It's probably different from all the answerers here.

I like productive debts. =)

Don't do that, quite dangerous. better to invest with spare money

Gabriel

Gabriel

20 Nov 2020

Undergraduate at National University of Singapore

Hey Anon, first and foremost, congratulations on saving up $30k to clear your tuition fee loan as it's definitely not easy to save up such a huge sum while studying. Moreover, it's quite commendable given that you're paying for your own tuition fees! While I understand that you are excited and are looking forward to beginning your investment journey (probably because your peers are investing too), I would advise keeping this sum of money aside to repay your tuition fee loan in one lump sum before the interest kicks in (repay upon graduation) and before investing. Here are the reasons why -

1) Only invest money that you can afford to lose

Investment returns are not guaranteed and no matter which risk index you decide to go with, there's always a certain level of risk involved, regardless of how low the risk index is. This means that even if you decide to construct a portfolio with 100% bonds (some say it's a safe haven), there is still a risk of making a loss. But of course, if you have unwavering holding power, can stomach the potential volatility and ignore the market noise, then historically, it has been shown that markets go up in the long run.

2) Interest on your tuition fee loan is guaranteed

While your investment returns are not guaranteed, the interest on your tuition fee loan is guaranteed at around 4.75% p.a. Although the bank may temporarily suspend the repayment and interest during this period due to COVID, ultimately, you will still need to repay the tuition fee loan and it's best to clear the loan as soon as possible to reduce the amount of interest paid. The longer you drag the loan, the more interest you'll have to pay, which can, in turn, be used to fund your investments. The monthly interest may seem like a small amount, but it snowballs and adds up to quite a significant amount over time.

3) Set aside an emergency fund before investing

It's also recommended to set aside a sum of money before you begin your investment journey as a market downturn can happen at any point of time, and during the downturn, you definitely wouldn't want to sell your holdings since it could potentially be at a loss. If you do not have an emergency fund set aside and let's say you need a sum of money due to an emergency, you'll have no choice but to tap on your investment holdings and sell it at a loss. In fact, the best time to invest is during a market downturn since it provides an opportunity for you to enter at a lower price or average down your holdings, i.e. higher returns in the long run since markets are upside-biased. Therefore, only invest money that you can afford to lose and do not need in the short term, and having an emergency fund allows you to tap on it instead of touching your investments. Here's a reference from AutoWealth showing the crash in March and market correction in September and October. This just shows that there is no 100% certainty when it comes to investing. Just imagine, what you put in this $30k today and tomorrow, the sell-off that happened in March happens again? You have to wait for many many months to break-even, not to mention your emotions might cause you to make a rash decision, i.e. sell low to "cut loss".

On a side note, the market has been rallied quite a bit over the past few weeks despite news of uncertainty due to the US Presidential elections and also, some people are saying that another market crash will happen but honestly, no one knows so it's best to just stay invested.

Personally, I also took up the tuition fee loan since it's interest-free, but I've set aside the sum of money in Etiqa Elastiq (2.02% p.a) to repay the tuition fee loan in one lump sum upon graduation, before the interest kicks in. That's about $2.4k+ of interest (free money) over a period of 4 years. I'll never touch this sum of money no matter what, even if there is another market crash that presents an opportunity to pump a lump sum amount into the market. All in all, I'd suggest you keep this sum of money in a high-interest account with "guaranteed" interest, such as the Singlife Account or Etiqa GIGANTIQ as it's always better to be safe than sorry.

Hope this helps!​​​

Elijah Lee

Elijah Lee

19 Nov 2020

Independent Financial Advisor at Phillip Securities (Jurong East)

Hi anon,

Investment returns are not guaranteed.

Your timeline to repay is guaranteed, and so is the interest on your loan.

Even if you had $30K invested and made 10%, that is just $3K, which you could earn in a year by taking on side jobs such as tuition.

Probably better to keep the funds safe, pay off your loan, be debt free, and start working on your finances then.

Jiayee

Jiayee

19 Nov 2020

Salaryman at some company

Repay your tuition fee. It's not a cheap debt....

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