The post Ask an Advisor: I’m Retiring at the End of This Year and Will Have an Extra $40K to Invest. Please note that Brandon is not a participant in the SmartAdvisor Match platform, and he has been compensated for this article. Got a question you’d like answered? Email and your question may be answered in a future column. As you consider your options, these are the questions you should ask an advisor to ensure you make the right choice.īrandon Renfro, CFP®, is a SmartAsset financial planning columnist and answers reader questions on personal finance and tax topics. It’s important to make sure you find someone you trust to manage your money. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.Ĭonsider a few advisors before settling on one. SmartAsset’s free tool matches you with up to three vetted financial advisors who serve your area, and you can have free introductory calls with your advisor matches to decide which one you feel is right for you. Tips for Finding a Financial Advisorįinding a financial advisor doesn’t have to be hard. As for dividend investing, I’d encourage you to take a critical look at that approach. Also consider your time horizon, risk tolerance and the effects on your budget. (And if you need help finding financial advice, this tool can help match you with potential advisors.) Bottom LineĬompare the interest rate on your auto loan and the return you’d expect on your investments. I just think there’s less to the strategy than what the common story often suggests. Companies must have earnings to pay dividends, which they can stop.ĭividends aren’t bad and I’m not suggesting that you should avoid dividend stocks entirely. When your portfolio is loaded up with dividend stocks you are likely to be far less diversified than you should be.ĭividends aren’t guaranteed. These companies share very similar characteristics with one another. When your portfolio is centered on dividends you hinder your ability to plan your tax liabilities and cash flows.Ĭompanies that pay large dividends are often very similar. They are inefficient both in terms of taxation and cash flow. Spending dividends means reducing forward growth. They are an integral part of a stock’s total return. (And if you need more help with your financial plan, consider working with a financial advisor.)ĭividends aren’t anything extra. Due to the possibility of low or even negative returns in a given year, it may take several years for your investment returns to surpass the money you would save by paying off your debt. On the other hand, investment returns can often be quite volatile. In other words, you know what you’ll be saving. In most cases, the interest you save by paying off debt is fixed and guaranteed. When making this decision it’s also important to keep volatility in mind. Obviously, most vehicle loan rates will fall between those two extremes. For example, if your car loan has a 2% interest rate, your investments may easily generate a higher return, making investing the better choice.īut what if your car loan has a 15% interest rate? You’re likely much better off getting rid of that debt. The lower your interest rate, the more sense it makes to invest the money. Paying Off DebtĬomparing the interest rate on your auto loan to what you expect to earn on your investment is the most common way to approach the question of whether to pay off your debt early or invest the extra money. (And if you need help making important financial decisions, like investing or paying off debt, consider working with a financial advisor.) Investing vs. Next, you’ll want to examine whether dividend investing is the best option for producing retirement income. It’s a classic problem but I’ll point out some things I would consider in your case. The first is the decision of whether to pay off debt or invest. My dividend portfolio will eventually pay off the car loan and the dividends will keep going on, whereas if I pay off the loan, I won’t have the extra dividends going forward. Or, I can use the $40,000 to buy more dividend-paying stocks to add to my portfolio. My only debt is the payoff of one automobile, which is about $40,000. I am trying to decide between two choices on how to best use $40,000 that I anticipate I will have as extra money by the end of the year. I will be retiring at the end of this year. Should I Pay Off My Car Debt or Buy Dividend Stocks? Ask an Advisor: I'm Retiring at the End of This Year and Will Have an Extra $40K to Invest.
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