Is a New Car a Bad Investment?

Nothing is quite like the excitement and feeling of buying a new car. But while the joy fades over time, the cost associated with that new car can linger for years to come. Few people know how much a car's value decreases as soon as you drive it off the dealer's lot. It's far better to save your money and invest it in something that appreciates in value like a mutual fund with a proven track record. With even low risk investing, you would be surprised at the opportunity lost by not redirecting that monthly amount into something that provides a return on your money.

First and foremost, a new vehicle loses value the second you drive it off the lot. So, for example, assume you just financed a vehicle for $30,000.00 over the next five years. In the first year of paying for that vehicle, it loses more than 20 percent of its value. In addition, you will pay a significant amount of interest on the amount financed. Over those five years you would pay $4,798.80 in interest alone at a 6 percent interest rate. Wouldn't you rather be earning that interest instead of paying it?

This is why it is important to think about the things that you invest in. Any asset that loses money faster than your ability to pay, it off is a bad investment. There are a lot of things that you could invest in that increase in value. Gold and silver prices are at an all-time high. There are stocks you could invest in, CDs, bonds and other opportunities you could discuss with a financial adviser.

Additionally, there are many alte
atives to purchasing a new car. You can get that same new car feel from a car that has just come off lease. Many leased cars have extremely low mileage and minimal wear and tear. And you will be buying them at their greatly reduced depreciated value.

So, wouldn't it be wiser to use that same $30,000.00 to increase your net worth rather than to spend it on one feel good purchase? The decision, of course, is yours. However, it is important to think about financial investments and how they will help or hurt your financial situation. Before you make that decision, either way, here's a slightly different perspective for you to consider. A $439/month car payment over the course of 20 years, invested instead, with a rate of return of 10 percent a year, would give you $336,141.16 at the end of that time. In 30 years, that same investment amount would be worth $1,000,624.36.