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I'm currently in my graduate studies in Canada. I have around 20k in savings. I will make around 8k more by the end of studies in savings without accumulating any more debt. I currently have 20k in debt from my undergraduate degree from the government loan program OSAP. This debt is interest free as long as I maintain my studies. I am not sure if I will pursue a phd after my graduate studies and so presumably after the next year (14 months) I will have to repay the 20k.

So in essence I have the liquid money to be debt free at this moment, but the debt will not accumulate any interest for another year. It seems like some investments into things like index stocks may provide a small profit over the course of the year with some fraction of my money that will need to be used to pay back the loan in the future.

A couple of my thoughts:

  1. I've heard that the market isn't doing to well at the moment. Although I believe index stocks do well in the long term, is 1 year too short a time where its possible they loose money

  2. The calmness that comes with knowing I hold no debt is very tempting

  3. Perhaps investing the amount I would have saved extra by the end of the studies? The 8k I would have ontop of the 20k

  4. I've considered safe options like GSA bonds but they have rather small return (0.05%/year)

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    What would you do if your $20,000 was only worth $5,000 next year and you had to earn another $15,000? Would that be okay with you? Commented Jun 17, 2022 at 17:04
  • When the market goes down, it's a "don't let your mouth write checks your ass can't cash" moment for a lot of people. A lot of people keep investing more and more money thinking they're getting rich... then they are sorely disappointed... Commented Jun 17, 2022 at 17:06
  • @Thomas they are not saying they "are debt free", they are saying they have the "ability to be debt free". As for why not pay it back now? It's an interest-free loan, there is no advantage in paying it back earlier.
    – Stobor
    Commented Jun 18, 2022 at 14:56
  • How confident are you in receiving the 8k over the next year? What if something happens to your current income streams? Commented Jun 18, 2022 at 22:15
  • ...or you could just invest it. If you put it in an index tracking ETF the most likely outcome is that you'll be better off than putting it in a term deposit, to the tune of around 10% for something like the S&P500 based on historic performance. At current volatilities there is a 40ish% chance you'll come out in the red. You just have to decide whether that's worth it.
    – quant
    Commented Jun 20, 2022 at 7:13

3 Answers 3

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Is it a good time or good idea to invest money that I will need to repay in a year time that is not currently accumulating interest?

No. It's (almost) never a good time to risk money you will need 1 year from now.

I would recommend putting the money in a guaranteed high interest savings account. Right now some high yield savings accounts in Canada are over 2%. That's approximately $400 of income. You can get almost double that with a GIC, which is probably the way I'd go in your position.

If you want to take on some risk to try to improve your gains, consider doing that with some of the additional $8k as it comes in.

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  • Thank you for this. Ill have to shop around for different banks i think. My current bank has a HISA of 0.5%... And just a tiny bit more in terms of GIC. But these seem to be the nice risk adverse options.
    – akozi
    Commented Jun 18, 2022 at 12:37
  • I may have to make another post asking for bank choice advice in canada buti think this will do at the moment. Thank you!
    – akozi
    Commented Jun 18, 2022 at 12:38
  • This may also be called a "term investment" for a nominated number of days, and is low-risk.
    – Criggie
    Commented Jun 18, 2022 at 13:31
  • "guaranteed high interest savings account" sound a bit like "cheap high-quality car" :) Commented Jun 19, 2022 at 21:55
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    @akozi money.stackexchange.com/help/dont-ask Commented Jun 20, 2022 at 15:00
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I've heard that the market isn't doing to well at the moment. Although I believe index stocks do well in the long term, is 1 year too short a time where its possible they lose money

So far 2022 has been a brutal year for stocks in general. Index funds have also been down this year. There is no guarantee that in a year that stock prices will have gone up. You could vary well have a smaller investment in a year.

So no don't invest in stocks if you need the money in the next few years.

I've considered safe options like GSA bonds but they have rather small return (0.05%/year)

Government bonds are an option. You need to compare that with what you can get from your bank, to see if the effort of switching makes economic sense.

Perhaps investing the amount I would have saved extra by the end of the studies? The 8k I would have ontop of the 20k

Depends on what you want to do with the 8K soon after graduation. If you will need to move to where your new job is, then the earlier advice to not invest money you need to spend in a few years applies.

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  • Thank you! Good to know i had the right fear that i may loose money in the current market. You comment and the user comment on the original post made me realize that nearly any loss of money is not something i could deal with. So i think i will go with the very risk adverse options TTT mentioned with GIC and HISA.
    – akozi
    Commented Jun 18, 2022 at 12:40
  • Cheers and thanks for the advice.
    – akozi
    Commented Jun 18, 2022 at 12:40
  • >>So far 2022 has been a brutal year for stocks in general. Except for the Norwegian stock index lol, Thats up about 1% this year. Which compared to the -25% of the S&P500 is great
    – SirHawrk
    Commented Jun 20, 2022 at 7:43
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Is it a good idea to invest money that I will need to repay ... ?

Strictly speaking, the answer to that is always no. If you need to repay all of it, then you wouldn't invest it with risk of loss. As others point out, you can instead get about 2% from a 1-year bond.

But if you can add a little more money that you don't need to repay, you can use hedges to ensure you can repay the rest. For example: If you had $150 to invest and you need to repay $135 of it in a year, at current prices you could buy a share of IBM for $135, and a 1-year at-the-money put for $15. The put guarantees you that you can sell your share for $135 in a year, so your maximum loss is $15. Of course the hedge costs you something, thus lowering your overall expected return.

Is it a good time ... ?

Not for conventional investments. Volatility is relatively high right now in corporate stocks, according to measures like the CBOE Volatility Index. The market thinks that you have relatively low odds (compared to other times in history) of keeping the value of your investment stable over one year. Also, you'll pay more for a hedge (like that IBM put) than you usually would.

However, high inflation makes this a relatively good time to trade dollars for stable inflation-proof wealth, such as real estate or commodities. If inflation remains at 8%, theoretically the wealth is worth 8% more dollars a year from now. However, the demand for the commodities can still fluctuate and you can still lose plenty of money this way, so it's still not much of an option if you need to repay.

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