Paying off middle interest rate loan as a bond allocation while young
Hi y'all. I'm in my mid-20s and have an auto loan with interest rate of 5.74% and a balance of just under 7k left on it. In my current asset allocation, I treat this as 33% of my retirement investing as a "negative bond", since I'm earning a guaranteed 5.74% and that will likely outpace any other fixed income asset class. I really do believe in even young people like me having a bond allocation, since this is what I've read in much Bogleheads literature before we had a multi-decadal bull market. I'm not trying to be a multigazillionaire, just retire on time while recognizing that one of the worst mistakes I can make with my portfolio is overestimate my risk tolerance based on recent performance. Also, I have an emergency fund of about 3-4 months in a money market before anyone asks.
However, I feel a bit annoyed with my allocation to paying off this loan for a couple reasons.
- I don't get the rebalancing benefits of having both bonds and stocks when the market tanks, where you would expect (not guaranteed) bonds to lose less than stocks. Then I can rebalance (I do once per year in January) and buy stocks at a discount. Instead, in a market downturn, I just have the same loan balance.
- Equities are still probably a good choice for me to invest in while I'm young. Any fixed income allocation, even one nominally earning 5.74%, will likely be worse in the long term than equities. If I was creating my asset allocation with something like BND, I'd only want it to make up about 10% of my portfolio so I still have the benefit of 1. with slightly less volatility, but still maximize equities.
- I don't have a huge amount to save every month, so I'm not maximizing my Roth space while I'm young by socking away money towards this loan.
Mostly looking for advice and thoughts from others. Thanks!