Final answer:
Ollie should consider using his inheritance to pay off student loans and start a 401(k) to balance immediate debt relief with long-term retirement savings. Given the advantages of compound interest, investing in the stock market can multiply returns over many years. He must weigh the risk and returns of different investment vehicles against his financial goals.
Step-by-step explanation:
Best Option for Managing an Inheritance with Debt and Retirement Considerations
Ollie is considering how to manage a $15,000 inheritance considering his student loans and the absence of a 401(k) plan. One option is to invest the entire inheritance in the stock market, which has historically provided higher average returns over time, especially when you consider the power of compound interest. For example, a $3,000 investment at a 7% annual return grows to $44,923 in 40 years. Taking a vacation would provide immediate satisfaction but no financial advancement. Keeping the money in a savings account is safe but yields lower returns compared to stocks or bonds. The most effective mixture of immediate and long-term benefits might be to pay off student loans and contribute to a 401(k), thereby saving on the interest Ollie would have paid on the loans while also investing for the future with tax advantages.
Investing in a 401(k) also takes advantage of employer matching programs (if available) and tax deferment. The level of risk associated with stocks and the potential for higher returns must be balanced with Ollie's personal financial goals, timeline for investment, and risk tolerance. In general, high risk doesn't inherently mean low returns; rather, it implies a higher variability in possible outcomes. Ultimately, Ollie should consider a diversified approach to investment and debt repayment that aligns with his financial stability and retirement objectives.