3 year lease vs. long term finance
04-15-2007, 05:09 PM
#31
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Historical average of US broad based stock indices is around 7% (think s and p and dow). Thats about 5 percent on an after tax basis (less if you assume the reduced capital gains tax rates wont last). Remember, we have only had reduced tax gains rates for about 10 years now (thanks to a Republican congress which is now gone). If you can get better, thats great but not sure you should count on it lasting.
My point about financing is that if you are using it to purchase something you can afford and that "something" is a depreciating financial asset, then this is simply a terrible long term financial plan.
To each his own. If one wants to lever up and buy toys, feel free. Not a very good measure of wealth in my book.
My point about financing is that if you are using it to purchase something you can afford and that "something" is a depreciating financial asset, then this is simply a terrible long term financial plan.
To each his own. If one wants to lever up and buy toys, feel free. Not a very good measure of wealth in my book.
04-15-2007, 05:12 PM
#32
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Originally Posted by 911Dave
What historical figures are you basing this argument on? The only relevant analysis takes into account today's numbers and the projections over the anticipated life of the loan. As an example, I just bought my car with a 6.15% 4-year loan. On a pre-tax basis, my portfolio needs to generate a roughly 7.7% return, figuring a mix of ST and LT cap gains and dividends (for which tax rates are capped at lower than marginal), in order to break even. Historically, "the" (I'll get to this in a moment) stock market has returned better than 10% over many decades. Obviously, anything can happen over the next 4 years and I could end up losing the bet. But I estimate that risk to be minimal so I chose to borrow the money and stay fully invested.
There is no such thing as "the stock market". There are many stock markets around the globe. Nobody should be investing in just one of them. And even if you're talking about the U.S. markets, the historical rate of return is for the market as a whole, which includes all the losers as well as the winners. An individual who pays attention to their portfolio and takes the time do minimal research should be able to trounce the U.S. market (as a whole) reasonably consistently (as I have done).
A lot of people seem to have adopted this mantra because they hear other people saying it. They believe it is even worse to finance a depreciating asset. The fact is that it is irrelevant how you pay for it - the car will depreciate exactly the same amount regardless. The car purchase and the financing method are two completely different transactions (except in the case of a lease that can be deducted as a business expense). It's a bad financial move to spend money on anything that you don't need to survive, generally speaking. It would be a bad financial move to spend money on a washing machine, a tropical vacation, new clothes, a computer, a plasma TV, or anything else that depreciates FAR MORE than a Porsche on a percentage basis (which is just about everything under the sun).
There is no such thing as "the stock market". There are many stock markets around the globe. Nobody should be investing in just one of them. And even if you're talking about the U.S. markets, the historical rate of return is for the market as a whole, which includes all the losers as well as the winners. An individual who pays attention to their portfolio and takes the time do minimal research should be able to trounce the U.S. market (as a whole) reasonably consistently (as I have done).
A lot of people seem to have adopted this mantra because they hear other people saying it. They believe it is even worse to finance a depreciating asset. The fact is that it is irrelevant how you pay for it - the car will depreciate exactly the same amount regardless. The car purchase and the financing method are two completely different transactions (except in the case of a lease that can be deducted as a business expense). It's a bad financial move to spend money on anything that you don't need to survive, generally speaking. It would be a bad financial move to spend money on a washing machine, a tropical vacation, new clothes, a computer, a plasma TV, or anything else that depreciates FAR MORE than a Porsche on a percentage basis (which is just about everything under the sun).
Hate to break it to you but most professional money managers barely beat the s and p or dow over the long haul. Thinking you can consistently "trounce" the market reminds me of a story about Joe Kennedy:
Old Joe didnt lose a dime in the crash on black monday. turns out he pulled all of his money out of the market about 3 weeks before the crash after his shoe shine boy started giving him stock tips and talking about the market.
04-15-2007, 09:06 PM
#33
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Originally Posted by DerivativesGuy
Hate to break it to you but most professional money managers barely beat the s and p or dow over the long haul.
It has also been proven countless times that professionally managed portfolios do not beat portfolios of randomly chosen stocks over the same period more than 50% of the time. There is also no indication whatsoever that professional money managers are better stock pickers than amateurs. People assume these things incorrectly all the time.
04-15-2007, 09:14 PM
#34
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Originally Posted by DerivativesGuy
Historical average of US broad based stock indices is around 7% (think s and p and dow).
This strategy may not work for most others but it certainly has for me.
04-15-2007, 10:12 PM
#35
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Originally Posted by 911Dave
Nope, it's 10-11%. But that doesn't matter - I do not buy the whole market and I don't pick stocks and mutual funds at random. What matters is the rate of return on MY portfolio vs. the cost of my leverage.
This strategy may not work for most others but it certainly has for me.
This strategy may not work for most others but it certainly has for me.
04-15-2007, 11:42 PM
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Originally Posted by 911Dave
Nope, it's 10-11%. But that doesn't matter - I do not buy the whole market and I don't pick stocks and mutual funds at random. What matters is the rate of return on MY portfolio vs. the cost of my leverage.
This strategy may not work for most others but it certainly has for me.
This strategy may not work for most others but it certainly has for me.
Anway, if indeed you consistently beat the market (which you incorectly assume averges 10-11% on a "real" net of inflation basis), and on an after tax basis you excceed the return of your car loans, then sign me up. you can earn 2% and 20% (management and incentive fees). Start your own firm or sign up with a star hedge fund manager.
04-16-2007, 12:01 AM
#37
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2% and 20%......sounds like another hedge fund waiting to implode.
04-16-2007, 12:32 AM
#38
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Originally Posted by DerivativesGuy
which you incorectly assume averges 10-11% on a "real" net of inflation basis
Besides, inflation doesn't need to be considered when comparing rates of return on investment vs. loan cost in this example, because both sets of cash flows are discounted at the same rate. The timing of the positives and negatives skew the equation a little, but they too are irrelevant because I'm going to trounce "the" market again this year.
I'm done now. I'm going driving.
04-22-2007, 10:21 PM
#39
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to put a bit of a spin on things, i make about 15-18% cash on cash on my RE investments after expenses...
anyone feel free to PM me about a 10% guaranteed investment secured by RE...
anyone feel free to PM me about a 10% guaranteed investment secured by RE...
04-22-2007, 11:07 PM
#40
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Long term you won't. Sad but true. Read this thread, there are some smart people who know what they are talking about. And if you could really make the kind of return you talk about, you wouldn't be driving a Cayman, you would have a full time driver.
Long term you won't. Sad but true. Read this thread, there are some smart people who know what they are talking about. And if you could really make the kind of return you talk about, you wouldn't be driving a Cayman, you would have a full time driver.
04-23-2007, 08:17 PM
#42
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Originally Posted by P-Car fanatic
to put a bit of a spin on things, i make about 15-18% cash on cash on my RE investments after expenses...
anyone feel free to PM me about a 10% guaranteed investment secured by RE...
anyone feel free to PM me about a 10% guaranteed investment secured by RE...