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Don't Liquidate Investments for Car Purchase

  //stocks-investing.news-articles.net/content/202 .. on-t-liquidate-investments-for-car-purchase.html
  Published in Stocks and Investing on Thursday, February 26th 2026 at 14:35 GMT by The Globe and Mail
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Published February 26, 2026

The question of how to finance a major purchase - like a new vehicle - is a perennial one for many Canadians. A recent query to The Globe and Mail's Globe Investor column highlighted a common dilemma: is it wise to liquidate income-generating investments to cover the cost? The short answer, as financial advisors consistently reiterate, is usually no. But the reasoning behind that answer, and the broader implications for personal finance, deserve a deeper look.

As the original questioner from Calgary astutely pointed out, their income stocks had performed well, generating a steady stream of dividends. Selling these assets to fund a car purchase seems superficially appealing, but it's a move fraught with potential financial drawbacks. The immediate impact is a capital gains tax, which effectively diminishes the amount of money actually available for the vehicle. More significantly, selling locks in a gain that won't benefit from potential future growth, and simultaneously eliminates a reliable source of passive income.

Beyond the immediate financial cost, market volatility introduces an element of risk. While past performance isn't indicative of future results, history does show that stock prices fluctuate. Selling now, even at a peak, means missing out on potential upside. Conversely, selling during a downturn would crystallize a loss, exacerbating the financial strain of the purchase.

However, the most crucial consideration often overlooked is the role of income-generating stocks within a broader financial plan. For many Canadians, these stocks aren't simply "extra" money; they're a foundational component of their long-term retirement strategy. Disrupting that plan for a depreciating asset - a car, which loses value the moment it's driven off the lot - is a significant misstep. Financial planners often emphasize the importance of maintaining a consistent investment strategy, particularly as retirement nears. Frequent buying and selling, especially to fund lifestyle purchases, can derail carefully constructed plans.

Beyond the Sale: Exploring Alternative Financing Options

Fortunately, Canadians have several viable alternatives to selling investments. Auto loans remain the most popular and often most sensible option. These loans are typically secured by the vehicle itself, reducing the risk for the lender and allowing them to offer more competitive interest rates. Comparison shopping for auto loans is crucial, as rates can vary significantly between banks, credit unions, and dealerships.

Personal loans, while also an option, generally carry higher interest rates than auto loans. They may be suitable for those with excellent credit scores, but careful consideration of the total cost of borrowing is essential. Leasing, though it doesn't build equity, offers lower monthly payments and can be attractive to those who prefer to upgrade their vehicle regularly.

The Foundation of Sound Financial Decision-Making

Before committing to any financing option - or even before deciding to purchase a new car - a thorough assessment of one's overall financial health is paramount. This includes ensuring a fully funded emergency fund covering three to six months of essential living expenses. This safety net provides a crucial buffer against unexpected job loss, medical bills, or other unforeseen circumstances.

Equally important is addressing high-interest debt, such as credit card balances. The interest paid on these debts can quickly erode any potential savings from a new car purchase. Prioritizing debt repayment not only saves money but also improves creditworthiness, potentially securing better loan terms in the future. Furthermore, consider the total cost of car ownership, not just the purchase price. Insurance, maintenance, fuel, and depreciation all contribute to the overall expense.

Ultimately, the decision of how to finance a new car is a personal one. But it's a decision that should be made within the context of a comprehensive financial plan, prioritizing long-term financial security over short-term gratification. Selling investments to fund a lifestyle purchase should generally be avoided, particularly when viable alternatives exist and a solid financial foundation is in place. Seeking advice from a qualified financial advisor is always recommended before making any significant financial decisions.