TMC is an independent, primarily volunteer organization that relies on ad revenue to cover its operating costs. Please consider whitelisting TMC on your ad blocker or making a Paypal contribution here: paypal.me/SupportTMC

Seeking advice - Long term hold or pay off debt?

Discussion in 'TSLA Investor Discussions' started by GatorEight, Jul 9, 2013.

  1. GatorEight

    GatorEight Member

    Joined:
    Feb 11, 2013
    Messages:
    20
    Location:
    DC/MD
    I'm a young, novice investor, and fortunately my passion for automobiles keeps me in the loop regarding auto-stocks. I don't invest a lot because I'm 26 and I still have a good amount of student loan debt. I made the call to buy Tesla shares at $30, confident the stock would skyrocket. I'm in a bit of a pickle and I have a question for investors or anyone with similar experiences to mine. I've made enough money from TSLA stock (and others) to completely pay off my student loan debt. Should I cash out and pay off the loans, or keep my money in the market long term? I'm afraid if I cash out now, I'll miss out on another 100% in TSLA stock increase over the next few years. However, the longer it takes me to pay off my loans, the more I pay in interest. What would you guys and gals do? Any advice is appreciated. Thanks in advance -

    - Gator
     
  2. Rifleman

    Rifleman Now owns 2 Model S's!!!

    Joined:
    Nov 29, 2011
    Messages:
    936
    Location:
    Harrison Ohio
    The first question is, what interest rate are you paying on your student debt?
     
  3. Jonathan Hewitt

    Joined:
    Feb 19, 2013
    Messages:
    994
    Location:
    South Carolina
    If you listen to Dave Ramsey he says pay off all loans (except mortgage) first, no matter what.

    I would say it depends on the interest rate you're paying and how easy it is for you to make those payments. If the debt each month makes it hard for you to make ends meet then by all means pay off your debt first. If you were to lose a lot of money in TSLA and still be fine month by month and be able to live comfortably with your debt payments then maybe investing in TSLA is a good idea.

    You are probably somewhere in the middle, aka you should sell some but keep some, too. TSLA is a risky stock, there is potential for awesome gains but also the potential for large losses.
     
  4. ElSupreme

    ElSupreme Model S 03182

    Joined:
    Jan 13, 2012
    Messages:
    4,279
    Location:
    Atlanta, GA
    And if you have held the stock for 12 months to, most likely, get a better tax rate on your profit.

    And what your current financial situation is. A lot of people on this site are very anti-debt (which most times is very good) but sometimes having/using debt can be the correct form of action.

    I don't regret paying off my student loans as quickly as possible. I have friends who are still paying the minimum payment every month, I would hate to be them. But I have a car loan, and a mortgage. Because I got very low rates, and I felt the timing (for my house) was worth taking on debt, and that paying a small amount extra on my vehicle over 5 years, was worth keeping a large amount of cash in my bank account.

    Basically you need to sum up your risk. If TSLA crashed tomorrow would you be hurting really bad in the near term. If this is the case you need to sell. If TSLA could take a nose dive, and you keep paying your student loans, and living expenses. Then you need to weigh whether you want to bet on a sure thing (paying off student loans), or risk a little on TSLA climbing further (or staying pat or losing value, and paying for the interest on your student loans).
     
  5. 32no

    32no Member

    Joined:
    Jun 26, 2013
    Messages:
    302
    Location:
    US
    You would be better off paying the loans just like some people here are paying for their Model S. You can try to buy stock on margin and use the profits from the margin buying (Because the general trend of TSLA is up) to pay your loan payments with interest. That way, you still hold your shares, and you are making money to pay off your loans. As long as you buy at relatively low points and sell relatively high points you will probably be able to make payments.
     
  6. toastypasta

    toastypasta Member

    Joined:
    May 8, 2013
    Messages:
    158
    Location:
    New York, New York, United States
    Pay off that debt as soon as possible.
     
  7. ElSupreme

    ElSupreme Model S 03182

    Joined:
    Jan 13, 2012
    Messages:
    4,279
    Location:
    Atlanta, GA
    And if TSLA goes down, you are on the hook for the money.

    This is betting with borrowed money. Your student loan rates/terms might be better.
     
  8. Richard_B

    Richard_B Member

    Joined:
    Jun 23, 2013
    Messages:
    20
    Location:
    Ottawa, ON
    #8 Richard_B, Jul 9, 2013
    Last edited: Jul 9, 2013
    Always pay off debt first. Always remember: the longer you finance debt the less you're actually paying back the debt and the more you're just paying in interest (i.e. giving your money to some rich banker so he can get richer). In some cases a $100,000 loan can cost you just as much in interest if spread out over too many years. Set up an automatic withdrawal on your bank account so that a regular small amount will go into some kind of safe (and boring) savings vehicle (mostly low-interest gov't bonds and what we here in Canada call GICs [Guaranteed Investment Cerfiticates]). Lousy interest rates but you will never have less than you started with and you will probably keep up with inflation. That's for your 401k. Whatever is left over after normal spending should go to pay down the debt. At your stage of life you shouldn't be thinking about stocks: never put any more money into stocks than you are willing to put in the toilet and flush away (i.e. less than beer money). Wait until later.
    That's my 2 cents' worth.

    PS Never buy on margin, never short a stock, never borrow to buy a stock. By the time you read about a great stock to buy in the paper or on-line, it's already too late (or a scam). There's no such thing as a free lunch. Be safe. I'll say that again: Be safe. You can play with your money when your kids finish college.
     
  9. sleepyhead

    sleepyhead Active Member

    Joined:
    May 31, 2013
    Messages:
    1,915
    Location:
    Texas
    Hold on to the stock and make minimum payments on your loans if you think that the stock will "go up 100%" in the next few years.

    I am currently paying like 8.5% to borrow on margin and my student loans are like 5.5%. It would not make sense to pay off loans and then play on margin. What does make sense is to NOT pay off the student loans, and then borrow even more money on margin, which is what I am doing right now. This is a great strategy in a bull market, abeit very risky.

    You are young at 27 years old, so you should be taking as much risk as possible now. If you take a lot of risks and make a killing in the market in the next couple of years, then you might be able to retire by the time you are 50 years old instead of 65. If you take a lot of risks now and fail badly, then you might have to work till you are 66 instead of 65.

    This is the best advice that no one else would ever give you. Being risk averse is for old people, don't listen to Dave Ramsey.
     
  10. FreeOfPge

    FreeOfPge Member

    Joined:
    May 12, 2013
    Messages:
    340
    Location:
    CA
    I do not usually like to give too much financial advice, but this needs to be said. No matter what, you are going to second guess yourself and most likely be disappointed one way or the other. The only solution is to sell half and pay off as much debt as possible with that half. If the stock tanks, no biggie, you have less debt. If it continues up, well even better.
     
  11. c041v

    c041v Member

    Joined:
    Jan 7, 2013
    Messages:
    509
    Location:
    Edmonton, AB
    Good advice from all. Pay off debts first, starting with the ones that have the highest interest rates. TSLA may well see some large gains, but it may just as well tank and you'll still have your debt. It may be painful to do, but if nothing else, the satisfaction of being debt free is a priceless feeling. There is also the valuable lesson of making a difficult call based on certain probabilities. The ability to make decisions such as this will undoubtedly pay dividends in later life.

    I remember how happy I was when I sold the last car I owned and never had to see a payment again. It's surprising how much you can save when you aren't servicing debt.
     
  12. GatorEight

    GatorEight Member

    Joined:
    Feb 11, 2013
    Messages:
    20
    Location:
    DC/MD
    Guys I have to say that I am blown away by the feedback here, this is definitely the most active section of the forum! Thank you all for the great advice. I think a few points made it very clear for me. While I understand the value of taking bigger risks at a young age, I believe in the value of a sure thing and the cost of lost opportunity. For me right now, the only sure thing is paying off my loan debt with my earnings and being debt free literally tomorrow. Then every dime I earn going forward I can truly invest in a diversified strategy. It's been a great run so far with TSLA but the risk in losing what I've earned or losing out on more earnings doesn't match the reward of being debt free IMO. So thank you all for the advice and if you have any more points, please don't hesitate to bring them up. Oh, I think I'll hold on to my SCTY stocks just in case they decide to skyrocket too ;)
     
  13. Bardlebee

    Bardlebee Member

    Joined:
    Apr 4, 2012
    Messages:
    599
    Location:
    San Antonio, TX
    I am kind of in the same situation, Gator. I am 27, have a great career right now so I can pay my student loans just fine, though I don't know how your situation is. Basically I put into TSLA at 29 dollars and since then I could pay off my student loans 4 times over. However, in my case my student loan payment is 180 bucks a month. Considering it is my only debt besides my mortgage I am okay with keeping the stock and risking losing it all. Really its about your situation, as someone else noted are you making the payments really easily? In this case I would recommend to keep the stock but pay much more heavily on your student loans. If you aren't getting by well, I would pay off the student loans with the stock. You never want to just get by because in an emergency you would be kind of screwed.

    I think its fine to hold stock at our age if your willing to see it all burn. But I would say only if you are getting by really well, aka, don't have multiple debts you need to pay and you can suffer an emergency cost pretty well. That means having a savings account with some cushion money.

    Again, I am about your age so take this advice with a grain of salt. I have learned to listen to those who have experience and it has served me really well financially and hopefully in the future. :)

    EDIT: As some had already noted, being debt free is a great feeling too. I only have my small school loan and my mortgage, so I am not all there. But not having a car payment... wonderful.
     
  14. Majerus

    Majerus Member

    Joined:
    Jan 21, 2010
    Messages:
    689
    Location:
    Illinois
    I would say keep the student debt if you can manage the payments with ease, and then some. Currently I pay about double what my student loan payments are to avoid some interest and get rid of them quicker. If you are concerned about the stock tanking, think about taking out your initial investment and leave the rest to sit. I am 23 with a mortgage and figure with the potential of Telsa in the future it would be ill advised to pull out of the stock at this point in time.
     
  15. kcveins

    kcveins delivery 2/7

    Joined:
    Jul 24, 2012
    Messages:
    314
    Location:
    Chicagoland
    Just my two bits...

    I was in your position in the mid 90s and opted to pay down some (1/3) of my debt while staying invested in DELL, CSCO, MSFT etc. I was lucky enough to pay off all my debt by the early 00s with frugal living, etc and was able to not freak out even during the dot com bust era (even though I lost 50%). By staying invested over the last 20 years, I have been able to do reasonably well. The power of compounding interest is vastly underappreciated...
     
  16. Jonathan Hewitt

    Joined:
    Feb 19, 2013
    Messages:
    994
    Location:
    South Carolina
    I'm also 27 and have been struggling with a somewhat similar issue. I invested $30,000 in TSLA in a combination of stock and options earlier this year and it is now $130,000+, enough money that when combined with my other liquid assets I could pay off all my debts and my mortgage. Doing such a thing crossed my mind (I listen to Dave Ramsey) but the only reason I invested in TSLA in the first place was I wanted a Model S or Model X, like really bad, and I figured that if the car was as awesome as I thought it was then the stock would eventually show that.

    So here's where it relates...my wife said it's time to get one, but why sell off all my holdings when I believe there's so much more room to go? As a compromise my current plan is to sell off enough so that when I trade in my current car my car payment won't change by getting a Model S. That way if I lose my shirt in TSLA from here on out (unlikely but possible IMO) I am only stuck with a car payment that I was having to afford anyway. If TSLA goes up, great, I still have a lot of money in TSLA, I just won't get as rich. On another notes, the smartest thing is to never get a Model S as it is an expensive unneeded purchase but that's a different story.
     
  17. rolosrevenge

    rolosrevenge Dr. EVS

    Joined:
    Feb 7, 2009
    Messages:
    1,851
    Location:
    Right behind you...
    I'd pay off all of the debts. While in debt, nothing you have is truly yours. I've never been in debt (though I will for my house once I buy one) and it is a very liberating feeling. I would advise anyone who has any debt other than mortgage to sell their shares and pay off the debts. Technically all your shares are your creditors anyways, this way you can get rid of them once and for all, take what you were paying in debt payments, and invest it back into the same companies you sold. You'll be better off in the long run.
     
  18. DaveT

    DaveT Searcher of green pastures

    Joined:
    Nov 15, 2012
    Messages:
    2,564
    Location:
    San Diego
    High leverage in certain circumstances can be very, very lucrative. But high leverage in the wrong circumstances can be financially devastating.

    For example, if you took out 10 mortgages for houses in the Inland Empire (CA) in 2002 and then sold the houses in 2006, you'd make a lot of money. Your leverage would be highly rewarded.

    However, if you took out 10 mortgages for houses in the Inland Empire (CA) in 2006 and the market crashed in 2007, then all your houses will have lost 60% of the value and you'd be underwater on everything. You'd lose all you the money you put down (but still our financial liability is limited to down payment because it's a mortgage).

    Anyway, since you have student loans basically you own TSLA stock because you're leveraged. That's not necessarily a bad thing. A lot of people are leveraged via mortgages on their house. It's not a bad thing as along as the price of the asset goes up and you can afford the payments.

    I think it comes down to your confidence in TSLA as an investment.

    The question is how confident are you that Gen III will be successful?
    1. Super confident
    2. Very confident
    3. Somewhat confident
    4. Not confident

    If you answered #1, then it would be ludicrous to sell your TSLA stock to pay off your student loans. You will regret it. Because you knew the right answer but acted out of fear.

    If you answered #2, then it would make sense keep your TSLA stock and make monthly payments on your student loans.

    If you answered #3 or #4, then I can understand why you want to sell TSLA stock. Though I don't agree with your answer (#3 or #4), I respect your decision to sell.
     
  19. sub

    sub Member

    Joined:
    May 24, 2013
    Messages:
    925
    Location:
    California
    Arguments can be made either way. I'm definitely all about being debt free, but I poured in everything into Tsla that I had allocated to pay off a student loan. However, even if tsla went to zero, it would only delay getting out is debt for 6 months and I've proven to myself I have the discipline to pay things off quickly. I will have the loan paid off Q1 2014 and in the mean time hoping my tsla goes up another 20%. I'm in for the long haul so it doesn't matter really. If your comfortable month to month and losing that money doesn't set you back years, only months, then let it ride. If the opposite is true sell it and buy back in over time.
     
  20. Nicu.Mihalache

    Joined:
    Mar 28, 2013
    Messages:
    213
    Location:
    Paris, France
    I think TSLA is overvalued right now. This coming from a guy who wrote an article about TSLA being a 10x opportunity when it was in the low $20s and then about the potential short squeeze (a second article written in the fall of 2011). I have cashed out almost $200k since April from TSLA calls. I will try to sell the remaining ones by next Tuesday.

    This stock went too far too fast. Volatility is not over. If / when it will start going down, it will go even faster and much lower than most imagine. If you sell now at least a nice % of your stock / calls, there will be numerous occasions to buy back lower - the worst case you only profit less if TSLA is the only stock in history to go in only one direction. But if you keep them all while holding debt, you will be in a world of hurt with nobody else to blame than yourself and your greed.
     

Share This Page