zentrose

I overheard a conversation about an individual who was buying a new car for his wife. It went like this:


Car buyer: I am buying on credit because my money would be better invested somewhere else.

Friend: Oh, do you invest?

Car buyer: No, but paying cash just isn't smart.


This is all just for fun. I am wondering if there really are people who believe their "money would be better invested somewhere else". For me it did not make sense because of the added insurance cost and the type of equities I own. Sometimes they go up. Sometimes they go down. In the long run it all works out and my annual returns have been quite good. I would never count on good returns though. I have seen some people lose it all.

So, I have a few questions for the investor folks:

1. Do you finance or pay cash for your cars?
2. How do you justify your decision as a "smart" decision?
3. Do you consider your car to be an asset or a liability?
4. Does your car bring you income?

My answers are:

1. Cash. Finance is the devil.
2. If I was smart, I would have bought a used honda fit.
3. Liability unless I am buying an insurance policy.
4. Yes, but it is insignificant.

Moddiction

I make MUCH more off my money by investing in my own business than the small interest amount I lose when financing. I usually put some cash down but always prefer to finance with a low interest rate.

BrutalDawg

If you can finance an auto loan at .9 or lower, it's pretty damn easy to find an investment vehicle with a yield of 3% or higher with minimal risk. Rates are so low right now, take advantage of it.

nhbpep3&bbap2colin

I put a hefty down payment on MY06, but chose to make payments as I'm still looking to "build" my credit

zentrose

Interesting comments! I suspected that financing was common practice. It is good to see that financing is actually benefitting everyone. In my case buying my S2000 turned out to be a great time to sell some of my equities.

BrutalDawg - I agree, but nothing is certain. I sold some equities to purchase my car and have already returned the money to the account. It wasn't that much money in the first place.

s2000Junky

Just went through this with a buddy. He just purchased 2012 $35,000 Nismo Z. Has 60k in savings. Rather then lose half his savings, he opted to take advantage of the low 2.5% interest rate and put $10k of his savings down on the car. I also felt this was smart. Just a more practical and safe way to use his money rather then leaving such a deficit in his savings which would take many years to replenish. If something comes up he would need that savings for he would have it.

Maybe for a guy with a few hundred k in the bank and has the ability to save $10-$20k a year, dropping $35k for a car rather then financing wouldn't have the same impact and therefore wouldn't mean the same thing, but that's certainly not me and not a lot of folks.

zentrose

Reality check. Your friend is now 25k in debt. He has a lienholder that holds title to his car. Also, with a 35k car you will want collision, comp, and maybe even gap insurance. For a small loan like 25k you could open a new amex account and be effectively getting negative interest while still holding the title to the car.

As far as saving money, that is more a test of personal willpower. You advised your friend to enter a financially burdensome situation, of course he will have a hard time saving 10-20k a year .

The others above actually found a way to benefit from their car loans. I find that very impressive if they truly found themselves a net gain. The banks are not in the business of losing money

grubinski

I pay cash for mine.

In my opinion, if you can't pay cash, you can't afford it ... not that I held that opinion when I was younger and just starting out, mind you. ;-)

zentrose

Yes. Finally. This is an investing section right?

Just for the hell of it I opened a "what if" account so I can make some videos about if I had taken a loan on my S2000 and invested the money in the market. I developed my own formula for trading in undergrad. I am not the biggest fan of advising people to use the stock market because I have witnessed a lot of folks lose their shirt. I HIGHLY suggest you hand your finances over to a professional.

My s2000 was about 19k, so that is where we will start. I started with 10,900 in equities and 8,000 in FDIC fixed income two weeks ago. Yes this is roughly a 60/40 split. I typically run a higher split but this is my car fund account so I like to be conservative. My roth IRA is extremely aggressive.

Here is an equity screen shot. The market is doing well, but don't trust it. $700 gained so far. $200 is already going to be taxed at my short term capital gains rate. The other $500 is kind of a lie as well because it does not factor in trading commissions or capital gains.


Will it go up or will it go down? I don't know and I really don't have time to know. I wish I did have time. This finance stuff is a lot more interesting than engineering (to me). I am doing this to place a reality check on the situation. I am going to keep the math quantifications elementary so everyone can understand. Let's see how it pans out over the next few years

zentrose

Also Grubinski, I am envious of your ohlins DFV. If I was not compulsively stashing away my paycheck for graduate school... those shocks would be on my s2000 right now.