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Ultimately this is about wants vs needs and I'm getting pissy because I'm on the extreme side of thrift and conservation and it seems so stupid to me that these people, the ones who "just can't afford that", would choose to buy these cars with these long loans rather than do something more proactive like a retirement account.
This reads as though you're upset that these people are enjoying their lives more than you because you - - - in your own words, mind you - - - are taking frugality and retirement planning to an extreme. In fact, I believe that you stated in another post that rather than enjoying travel, nice clothes, dining out, and luxury cars, you'd rather save all that money and pay down your mortgage.
Retirement planning is not the end all and be all of living life. I would never deprive myself of life's pleasures (big or small, whatever that may entail), solely in the name of squirreling away all my money for later years. It is possible for people to borrow money to buy an expensive car (if that gives them pleasure) while at the same time trying to save and invest money for retirement. It doesn't need to be a one or the other proposition as your extreme philosophy seems to dictate. I'm not putting you down; if that philosophy works for you, fine; however, if you're really happy with your life the way it is, then how other people choose to spend their money really shouldn't bother you.
no, because its a long term strategy not a 2 year or 5 year strategy. sure, in any period of time your performance in the market may be below the interest rate you pay. but the time horizon isn't the length of the auto loan, its your life of investing.
Nope, sorry. It is the length of the loan. You're either selling shares to make the payments (in which case the shares are only held that long so obviously the horizon was that short), or, alternatively, making payments using money from another source which could otherwise have been used to buy shares. Neglecting transaction costs and taxes, forgoing the purchase of shares is equivalent to selling, because money is fungible.
I never cease to be amazed at how distorted the analysis can get, but the truth of the matter is that your horizon is spread out from zero to the length of the loan, because the payments have to be made throughout. This is the fact.
Low interest car loans can be a good thing or a bad thing depending on the borrower. It always makes sense to try and get it paid off ASAP. You really can't compare a mortgage to a car loan IMO. But I do agree in paying off the mortgage early too if possible.
Yes. If I'd had my crystal ball, I would have financed the car, sold the equities, waited a year with the cash sitting in a bank account, and the invested after it went down by 50%. But I don't have a crystal ball or profess to having any such magical abilities to time the market.
BUT, if you had paid cash for the car, and then DCA'ed your payments back into the market you'd come out ahead.
This is why I say it is what happens to stock prices during the loan life that matters, not the next 30 or 40 years or however long until you retire.
I would pay cash for the car unless the rate was below what I could earn on CD's/money markets, because otherwise you are breaking the rule of "not investing money in the equities markets for time horizons under 5 years".
And I would not invest money needed for car payments in the market, except for the portion devoted to payments more than 5 years in the future. Discuss.
but if you had invested that money rather than dump it into your mortgage, you would have that extra cash that would allow you to live off of less work income later.
anyway, dumping your cash into a mortgage is increasing your risk. debt reduces risk. you ever see anyone lose their job and then immediately go and pay off their mortgage? no, you don't do that because liquid investments and cash is much easier to access that money in your house.
No. Leverage means you stand to lose more. If you have $100k in assets and $0 debt and your assets lose 30%, your net worth goes to $70k. If on the other hand you have $200k assets and $100k debt, your net worth is also $100k, but if the assets decline 30% then they are worth only $140k giving you a net worth of just $40k.
Leverage magnifies both gains and losses. I seriously don't get why this is so hard to understand.
Sometimes participating in a thread is like being sucked into a vortex. I apologize for my role in getting it side-tracked.
I read the story again, and it does bother me on a number of levels. It bothers me that America is so bloody car-dependent; it bothers me that the individual in the article did not plan ahead for replacing her vehicle; and it bothers me that reliable vehicles are so expensive that long-term loans are the only option for many buyers.
You're forgetting that the mortgage interest payments largely cancel the gains. You can't just ignore the interest and expect the answer to be meaningful.
Ok let's change that.
Instead of saying "equity", let's make it "total payments". How's that?
This entirely depends on how long you were into the loan when your cash flow disruption occurred and how long the disruption is
How?
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