Before the outbreak of COVID-19, the United States economy was reaching all-time records. The Dow Jones Industrial (DOW) and Standard and Poor’s 500 (S&P 500) reached all-time highs, with American unemployment being the lowest since World War II. However, due to the global economic shutdown to lower the human-to-human transmission of COVID-19, the economy and stock market have entered a depression which includes the largest plunge in the history of the United States stock market.
Unlike previous crashes such as the financial crisis of 2007-2008 and the Wall Street crash of 1929—caused by over speculation by buyers, lenders, and banks—the current crash is not due to greed or unwise investments, and will surely rebound once the economy opens up across the globe. Currently, as of April, the S&P 500 has had its best month since June of 2015 with a 14.4% increase, and with more businesses hopefully opening in the near future as the spread of COVID-19 slows.
Although this is a great opportunity to invest, for most medical students there is one glaring issue. The issue being copious debt, little money available outside of living expenses, and the need for money simply to make ends meet. This recipe makes the opportunity to invest almost impossible.
With the recent release of stimulus checks from the United States government and disbursement of student loans in an era where there is very little opportunity to spend that money outside of necessities, is now a good time to put that money to work for you? The average federal direct loan has an annual interest rate between 5-7%. If the S&P 500 on average goes up 7-8% a year, after taxes and investment fees the return on investment (ROI) does not cover the annual interest accrual on a typical federal loan. While the market rebounds at such a historic pace and the economy begins to reopen, a return in the levels of 20% in indexes such as the DJI and S&P 500, possibly being higher than 100% in the stock of specific companies, is it worth a medical student investing and possibly earning a semester’s living expenses or more?
It is important to note that there are certain legal issues facing a medical student in terms of investing student loans. For any loan through a private lender, it is generally legal to invest that loan how ever you choose, but, for any loan through the government and the Department of Education, it is illegal for funds specifically dedicated to tuition or living expenses to be used for any other purpose. Although I do not know how the Department of Education could find out how you appropriated the funds once they are in your account, it is unethical, illegal, and unbecoming of a physician to misappropriate contractually issued loans.
If you appropriate your loans for living expenses, however, and realize you have additional money disbursed to you, these additional funds can be used at your discretion. The living allowance is where the gray area of student loan use begins, as some students choose to invest student loans in excess of attendance costs in the same way that others choose to use them for unrelated living expenses. It is this case in which you could make a large ROI above the annual loan interest rate in the current stock market environment.
So how should I invest? That is the question every single Wall Street investor, from the squawk on Wall Street to Warren Buffett, asks themselves every day. It is important to be financially educated before entering the investment world. If you have properly allocated your loans, stimulus check, and savings towards your essential expenses, and still have money remaining, investing could provide you with tremendous returns as the global economy reopens, and save you money in the long term.
Investors should be cautious about any and all stock recommendations and should consider the source of any advice on stock selection. Various factors, including personal or corporate ownership, may influence or factor into an expert’s stock analysis or opinion.
All investors are advised to conduct their own independent research into individual stocks before making a purchase decision. In addition, investors are advised that past stock performance is no guarantee of future price appreciation.