Investing 102

[Vegas69]

I think they are reading this thread, just not posting. One thing I've learned from my real estate newsletter that I've been sending out for over 5 years is the fact that even if they read it, they don't completely understand the details. Don't take your knowledge for granted. It's a very simple game for you at this stage of your life.

I like the plan to buy a 4-5 year old car from an old lady that only drove it on Sunday cash, and invest the car payment into the market every month. When you don't have debts, you can dip your toe in all kinds of buckets.

I met with my advisor this week to discuss my game plan and additional contributions. One thing we discussed was TAXES. I'm 36, and it's logical to assume that taxes will be much higher when I'm 65. Ten thousand citizens are turning 65 every day in this country and a majority are living on social security, ONLY. It's not a pretty picture... I picked 65 because that's around the time I'll start drawing on SEP, ROTH, and life insurance. I really like the tax advantages of the Roth and life insurance policies at retirement age due to the huge shelter they create down the road. Let's say you have a great year and don't want to bump up into the next tax bracket, you have the option to draw off your roth or life insurance policy to enjoy some tax free income.

[Flash68]

Opportunity Cost is the name of the game in this whole Finance vs Pay Cash for car deal.... by paying cash you give up the opportunity to make that 3% spread on the 1.9% loan vs a conservative 5% return on the cash invested. I do not currently have any car loans but would not hesitate to and plan to in the future.

Another thing here on the whole "debt free" deal that is somewhat common is the strategy of not paying off your 2nd mortgage (HELOC) entirely because you can throw all kinds of purchases/expenditures (remodel, cars, anything) on there without any questions and the interest is tax deductible. Used responsibly it can be a very good tool or option to have.

My retired neighbor does it (former IRS employee) and puts all his vehicle purchases on there and I know for a fact he has done the math and pencils out in his case. Your results may vary.

[glassman]

And yes, you do need to change that avatar. Its freaky.

From your friend in the tri valley you haven't met yet

Mike

[Vegas69]

Originally Posted by Flash68

Opportunity Cost is the name of the game in this whole Finance vs Pay Cash for car deal.... by paying cash you give up the opportunity to make that 3% spread on the 1.9% loan vs a conservative 5% return on the cash invested. I do not currently have any car loans but would not hesitate to and plan to in the future.

Another thing here on the whole "debt free" deal that is somewhat common is the strategy of not paying off your 2nd mortgage (HELOC) entirely because you can throw all kinds of purchases/expenditures (remodel, cars, anything) on there without any questions and the interest is tax deductible. Used responsibly it can be a very good tool or option to have.

My retired neighbor does it (former IRS employee) and puts all his vehicle purchases on there and I know for a fact he has done the math and pencils out in his case. Your results may vary.

Don't forget about capital gains tax on your gain. Also, 1.9% is for a new car or dealer purchase normally. Used car loans may not be so attractive. Especially, private party. I sleep great at night with the title in my safe and no chance of losing money on my investment AND having a car payment. We all have different tolerance for risk. My point is that 95% of Americans have no business taking these risks.

[WSSix]

Well, today is a good day. I checked in on my company match 401k and I'm now fully vested. That's a nice 5% pay raise every year that's now all mine from here on out. Fidelity is doing a good job at managing it too based on the returns it's earning. Combine that with my ESPP which allows me to buy company stock at a 10% discount, a stock that also pays a dividend, and I'm more than happy. I've never had this much money before and while it's only a small percentage of what I need/want to retire, I finally feel like I'm on the right path and actually making progress towards my long term financial goals. Today is a good day.

[ErikLS2]

Greg you have made many excellent points in this thread but I got to agree with Todd on this one. Most people when they finance a car do so by asking "how low of a payment can I get?" usually never considering the interest rate, term, etc. They look at that low interest rate and figure out how much cash they'll have left over to buy more, yep, STUFF!. If they did it your way, sure, a great move, but teaching them that discipline is the challenge. I guess you're both right!

I love this thread and all it's points about investing. It wouldn't hurt to add to the discussion some tips on how to buy stuff, finance it if needed, as wisely as possible. I've always said one of the easiest ways to make money is to not lose it in the first place (or spend it foolishly).

[GregWeld]

The entire key to this thread is about how to better manage your money. Save. Invest. Earn a return on your investments thru the good markets AND the bad.

There is little point in accepting that everyone must be so stupid that they can't make good decisions --- or that with some help in understanding their options... that they can't think through what is a better more reasonable way of doing things.

To me it's like telling someone that they shouldn't buy anything -- and should ONLY concern themselves with saving money for retirement. Pure BS!

How does a guy buy rental property?? The smart money puts down enough to make the payment be low enough that the rental income covers most if not all of it. You do that by taking on debt. It's leverage. The difference is that you hope the value of the property goes UP over time... and, of course, someone else is making your mortgage payment for you.

This thread is about how to THINK... it's never been about WHAT YOU SHOULD DO. Like our cars -- you take a little info from a variety of sources and do with it what you will. To say one is wrong and one is right is just crazy. But the INFO is what you should be gathering and thinking about. Some guys can only live by being debt free... okay... I'm good with that. Some people can manage debt and use it to make themselves even more money. Some people will just plain fail at all of it. The key is to be able to think your way through all the scenarios and take a little from here and a little from there and make a plan that fits YOU, whatever that is.

[WSSix]

In regards to buying vehicles, Clark Howard, who is a consumer advocate out of ATL, has always said that if you buy used, keep it for at least five years. If you buy new, keep it for at least 10 years. Doing it this way means the depreciation hit no longer matters. Combine that with what's been mentioned involving loans and interest rates and you can help yourself in the long term not lose money on a vehicle purchase. Especially, one that is a daily commuter and not something with sentimental value such as our project cars.

I intend to only buy used and pay cash. I'm also not buying anything expensive. I came out of pocket just under $5000 for my 01 Sierra. I don't like making payments on anything or being in debt for something like a vehicle. So, for me, it works that way. I doubt that will change as I get older and have a family involved but we will see. In the meantime, I've got my credit in order to help ensure I can get favorable rates when I do need to borrow money. I'm just focused on the long term which is what this thread is geared towards.

When we get new guys in at work, I do my best to convince them to think long term as well and take advantage of the company matched 401k and ESPP. It's not easy to convince guys in the early 20s to put money away when they are making 50k + a year. I usually phrase it in the terms of them getting a raise every year when all they have to do is simply agree to put money away each month. It's still not easy and some of them are eager to do what it takes to get a raise or promotion. Many of them are too hooked on being consumers. I guess the marketing folks in this country are doing their jobs well.

[glassman]

Originally Posted by WSSix

In regards to buying vehicles, Clark Howard, who is a consumer advocate out of ATL, has always said that if you buy used, keep it for at least five years. If you buy new, keep it for at least 10 years. Doing it this way means the depreciation hit no longer matters. Combine that with what's been mentioned involving loans and interest rates and you can help yourself in the long term not lose money on a vehicle purchase. Especially, one that is a daily commuter and not something with sentimental value such as our project cars.

I intend to only buy used and pay cash. I'm also not buying anything expensive. I came out of pocket just under $5000 for my 01 Sierra. I don't like making payments on anything or being in debt for something like a vehicle. So, for me, it works that way. I doubt that will change as I get older and have a family involved but we will see. In the meantime, I've got my credit in order to help ensure I can get favorable rates when I do need to borrow money. I'm just focused on the long term which is what this thread is geared towards.

When we get new guys in at work, I do my best to convince them to think long term as well and take advantage of the company matched 401k and ESPP. It's not easy to convince guys in the early 20s to put money away when they are making 50k + a year. I usually phrase it in the terms of them getting a raise every year when all they have to do is simply agree to put money away each month. It's still not easy and some of them are eager to do what it takes to get a raise or promotion. Many of them are too hooked on being consumers. I guess the marketing folks in this country are doing their jobs well.

Yep, they are doing a great job of turning most into completely consumer driven society, one of which can't stand. We need jobs back, growth, bringing back blue collar, here in the states.

I am looking more at foreign markets now, but i like investing in what i know....

[Flash68]

Originally Posted by glassman

And yes, you do need to change that avatar. Its freaky.

From your friend in the tri valley you haven't met yet

Mike

Freaky is/was the goal. Guess I succeeded.

Originally Posted by Vegas69

Don't forget about capital gains tax on your gain. Also, 1.9% is for a new car or dealer purchase normally. Used car loans may not be so attractive. Especially, private party. I sleep great at night with the title in my safe and no chance of losing money on my investment AND having a car payment. We all have different tolerance for risk. My point is that 95% of Americans have no business taking these risks.

True. Agree with Greg though that well managed debt (leverage) is a powerful tool when part of overall sound financial management.