Pay Off Car Loan with $20K or Invest the $20K?




Here is a common "should I pay off my debt or invest the money" question. This particular question is interesting because the reader incorporates "feelings" into his query. Investing and Feelings rarely mix.

"I'm curious for your opinion here. I'm selling some of my company stock to diversify a bit. Likely throwing most of it at my other mutual fund investments. 

I am also considering paying off my car.

I owe $20K and have 2.1% interest. 

I could easily pay it off but feel I can make a better return with the $20K in investments. 

I know it ultimately comes down to what I feel comfortable doing but I would like to hear from you too" .   -  Barry T.

My opinion:

Barry, while you feel you can make a better return with you money, it does not mean you will. You might not make any return on your investment, you may lose money.

The point is that when you invest, you do not know what will happen. "Feelings" do not count.

"Feelings" when it comes to investing are dangerous thoughts to have. It's for the same reason above -  you do not know what will happen. We all know what we would like to have happen, but it doesn't work that way. Feelings do not help you.

The only returns you can count on are from FDIC Insured Banking Instruments like a savings or checking account or a CD. The other safe returns come from buying US Treasury Notes. All of these are not enough interest paying to offset your debt and the rise of inflation.

My opinion is to pay off the car. You delete the debt on a depreciating asset. That's a guarantee! Use the monthly payments you would of paid to the credit company for saving.

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