After a great deal of thought and a little bit of fear and insecurity, I decided I’m going to do it. I am going to intentionally not complete one of my 2009 goals. It’s actually much more serious than a one-year-goal. This was a lifetime goal. My first year out of college (2007) I committed to fully contributing to my Roth IRA for the rest of my life. After only two short years, I will have failed at meeting that obligation.
For 2009, a single person, can contribute up to $5,000 in a Roth IRA. To date, I have contributed $3,500, meaning I have another $1,500 that could be contributed. I own three different mutual funds: a large blend, small blend, and international fund. This year, I contributed $2,000 to the large blend, $1,500 to the small blend, and the remaining $1,500 was to be allocated to the international funds.
I have decided against contributing to the international fund this year for two primary reasons. The first being that the international markets scare me right now, although they have been steadily increasing over the last six months I am freaked out by the global recession and how it has affected the world. I also fear that the market will drop again shortly. It has shot up a decent chunk over the last couple months and I feel like I might be buying at the top of an artificial high. Is it stupid that I am basing investment decisions off of fear? Absolutely! No one can predict the future and I would never not invest simply because of what “might” happen.
The second, and primary, reason I am holding off on the contribution this year is because I want to throw the $1,500 at my student loan instead. My student loan interest rate is at 7%, so by using that $1,500 there I am locking in a 7% rate of return on that payment, which isn’t too shabby. Not only does it guarantee a 7% rate of return, but it also reduces my total debt and reducing my total debt makes me smile 🙂 I am really focusing on paying my student loan off in the next year, so this is one method to make that happen a little quicker.
Some will argue that I should not be contributing to my Roth IRA at all while I still have debt, while others will say that I am crazy for not sticking to my Roth IRA goals. But I don’t think that anyone will argue that locking in a 7% interest rate is crazy. What would you do in my situation?