Investing

Depends on the interest rate. Definitely, the really expensive loans should be taken care of ASAP. Since money now is more valuable than the same amount in the future, paying loans normally in installments is preferred if you can put it in something that gives you an interest rate equal or greater than the loan.

Spike, I'd set up an automatic debit facility that takes out 50% of whatever comes into my pay account, and shunts it off into a special savings account. You can then split the funds in the special account among stocks, bonds, and TD instruments, depending on your risk appetite and investment horizon.

If you're going for stocks, then yeah, I'd say indexed funds are safer than putting it all on a single company. As a general rule (there are exceptions), derivatives > stocks > bonds > deposits, both in terms of volatility and potential returns.

Jam it back in, in the dark.

Originally Posted by Peter

Actually, your calculations are too simplified, since you don't take into account the ACTUAL value of those admittedly huge amounts of money. You als have to take inflation and the market rates. Say that you take a current market rate 5% into your calculation (which is, given the current circumstances a rather generous guess), lets see what the actual value of your savings will be using annuity calculus*.

If you invest for 20 years :

4000 x a20┐0,05 = 49,848 USD

If you invest for 34 years :

4000 x a34┐0,05 = 64,771 USD

So my rough estimate wasn't so far off it seems...

*The more exact formula being A x [1-(1/1+i)³]/i
With A being the amount of money you put aside, i being the rate, and the 3 representing the number of years.

You are saying saving 4,000 per year, for 20 years, at 5% compounded annually, is going to get you $49,848 in total? Does not compute. Even without interest, you will be getting $4,000 x 20 = $80,000.

And in 34 years, $136,000. Your computations are too low, unless you take that figure to mean the total interest earned (which isn't the case at any rate).

The Annuity Table as follows, assuming you set aside the $4,000 AT THE BEGINNING of every period.

Spoiler:

There's nowhere I can't reach.

Oh, you're talking present value, aren't you, assuming inflation is the same as the market rate?

Yes, the value of $357,281.23 in 34 years, compounded 5% annually, is $68,010.20 in today's dollars. In 20 years, it is $52,341.28 in today's dollars, for a difference of 15,668.92. But, you're not investing that many increments of $4,000 in today's dollars - it's spread out through the entire time period.

It is misleading to say, "Oh look, I should just start saving after 14 years instead of now, since the overall difference is just $15,668.92. It's not - the difference is greater - $218,404.22, through the magic of compounding. This is actually worth $41,574.29 in today's dollars. If you choose not to save that $4,000 until you turn 35, well, good luck to you Peter.

This thing is sticky, and I don't like it. I don't appreciate it.