Millennials, have you ever wondered how much money you may have if you invested in the stock market monthly versus paying on your car loan?
Its a great question to ponder. Most Millennials, and all Americans for that matter, feel as if a monthly car payment is a recurring monthly payment that is a part of life. Its no different than shelter (house/rental), food, and utilities. While that may be true to an extent because you do need a car to get around (for nearly all US cities at least), however, the class of car is way over done by everyone. Instead, we should be buying a used car that we can pay cash for, or at worst, buy a much cheaper car with an affordable payment that you can payoff in less than two years. Then drive that car for another 10 years payment free…and invest that money!
According to Edmunds.com, the average new car payment is $479 per month. That is more than enough to max out a Roth IRA! $479/month equals $5,748/year. In 2016 the maximum contribution an individual may invest into a Roth IRA is $5,500.
So what if you invested in the stock market each month versus paying for a car (a depreciating asset)? Well, the stock market has historically returned 9% annually. What does that look like if you invested over a period of time and allowed your investment to compound?
If you invested $479 monthly with a 9% return over 5 years, your investment would now equal $34,401. Of that final amount, you would have contributed $28,740, but your compounded returns would have been another $5,661. Pretty good return on your investment over a 5 year period. You certainly would not get that back from a car!
If you kept up with your monthly contribution of $479, after 10 years your investment would be worth $87,331. After 11 years you would have just over $100,000!
Think twice before purchasing your next car. And ask yourself, “what if I invested in the stock market versus throwing that payment towards a car each month.” I think you have your answer now…