Monday, November 23, 2015
Dividend Stocks or Nice Car ?
Over the summer I test drove several different cars. Some $10,000 cheaper than others. As you might expect, there's a huge difference in how these cars drive. Kind of surprisingly, the cheaper cars had more features. Things like backup cameras, moon roof, or keyless entry were more often standard in cheaper cars, but additional cost for the higher end cars. Why not just go for the cheaper car ? Put the extra $10,000 into my portfolio, and get 3-4% or $350 per year extra income. Or put the other way, is the nicer car worth an extra $350 per year in missed income. Or yet another way, it is worth working an extra year before retirement. For, I think the joy of driving a nicer car for the next, say, 15 years is worth the extra cost. I get to enjoy my car every day. I'd much rather give up a few dinners out every month.
I'm in the process of buying the car now. I hope to get a 0.9 or 1.9% interest rate. If so, I'll put my car fund into my dividend portfolio immediately. This would count as a pre-paid 'fresh money' injection. My normal $500 would go towards my car payment, but the expected income from my dividends is higher than the interest loss. After I pay off the car in 3 years, I'd continue to set aside money for a new car again, and add fresh capital to my portfolio. I have two zero percent loans, including a car loan for my wife's car, ending in Fall 2016, so the next year will be a bit tighter. But the dividend snowball will continue to grow. If nothing else I'll at least re-invest dividends earned each month.
And no, I'm not buying the car in the photo. It's nice, but out of my budget.