Do hybrids last as long as naturally aspirated engine and do they make sense?

[lovcom]

Probably so, but there's 0 risk of losses. I just put the money in a capital one and have automatic loan payments come from that account. There's no worry about selling off shares monthly, even when it might be down from some weird tarriff news. Super simple.

And, you can often negotiate a better sale price when you finance vs paying cash.

It will depreciate whether I have a loan or not.

Zero risk of losses? No, I assure you, you are losing money: depreciation, and loss of investment gains. Building wealth requires "work", and some complexity. Once you arrive up there, you will find that that "worry" and "work" was well worth it times a million.

 

[CarlB]

OK, but in the case of you buying a vehicle either way; you are spending say $100K either way:

1. You pull the cash out of your savings/investments...etc. and lose whatever that money was going to make
2. You take a low interest loan (0%, 0.99%...etc) and keep that $100K invested where it makes money

The money making more money and you making the payment with the investment revenue, is the smarter way to go.

If that's the assumption, then both are terrible options and have nothing to do with smart investing. If you want a car, buy a car. But understand the giant amount of loss.

 

[lovcom]

So "I've had" (2012, 2014, 2019, 2021) doesn't actually mean you then?

Some were mine, others wife's, children...

 

[CarlB]

Zero risk of losses? No, I assure you, you are losing money: depreciation, and loss of investment gains. Building wealth requires "work", and some complexity. Once you arrive up there, you will find that that "worry" and "work" was well worth it times a million.

Absolutely. 3.5% is losing money these past 5 years when only looking at inflation and ignoring opportunity cost.

 

[OVERKILL]

If that's the assumption, then both are terrible options and have nothing to do with smart investing. If you want a car, buy a car. But understand the giant amount of loss.

OK, so your alternative is to not buy a car? Are we walking?

 

[ATex7239]

A commuter vehicle is a liability not an investment. There are mechanisms which can decrease or increase losses overtime but it is going to be a loss in the end no matter how you dice it.

 

[CarlB]

OK, so your alternative is to not buy a car? Are we walking?

I'm gonna guess you didn't read the entire conversation.

 

[OVERKILL]

Some were mine, others wife's, children...

OK, that's helpful, maybe be more upfront about that? When I refer to my wife's RAM 1500, it's my wife's RAM 1500, because my vehicle is the Jeep, even though I maintain both vehicles.

 

[CarlB]

A commuter vehicle is a liability not an investment. There are mechanisms which can decrease or increase losses overtime but it is going to be a loss in the end no matter how you dice it.

Yep, which is exactly why if worrying about the numbers you want to minimize that loss.

 

[OVERKILL]

I'm gonna guess you didn't read the entire conversation.

I came in at the point where the argument was a low interest car payment vs spending the cash. This is why I mentioned, if you are spending the money either way, the better of the two choices is to allow the money to continue to work for you, including paying for the vehicle.

 

[CarlB]

I came in at the point where the argument was a low interest car payment vs spending the cash, which is where I've entered, and presented my point, based on somebody buying the vehicle either way, as I have.

The response to your point is right after.

Post in thread 'Do hybrids last as long as naturally aspirated engine and do they make sense?'

Yesterday at 2:10 PM

Why does depreciation matter? It depreciates the same whether I have a loan or not.

For purchase, you give up the potential ROI, for loan you paying interest on that depreciating asset so the loss is slightly higher. In both scenarios you need to math in the depreciation of that asset to fully understand the amount lost. Another way to think about it, is if you hear someone talk about 0% APR on a new auto loan. That's not the case. If the car is depreciating 20% in the first year, then it's still (Potential earnings + Depreciation rate) as the interest.

So for fake numbers...

• CarlB

• 

 

[OVERKILL]

The response to your point is right after.

Post in thread 'Do hybrids last as long as naturally aspirated engine and do they make sense?'

Yesterday at 2:10 PM

Why does depreciation matter? It depreciates the same whether I have a loan or not.

For purchase, you give up the potential ROI, for loan you paying interest on that depreciating asset so the loss is slightly higher. In both scenarios you need to math in the depreciation of that asset to fully understand the amount lost. Another way to think about it, is if you hear someone talk about 0% APR on a new auto loan. That's not the case. If the car is depreciating 20% in the first year, then it's still (Potential earnings + Depreciation rate) as the interest.

So for fake numbers...

• CarlB

• 

That doesn't really address the "if you are buying the vehicle anyway" absolute angle though.

Let's say we are talking about a retiree that has just driven their vehicle for 25 years and now needs to buy a new vehicle. Their monthly income, including investment revenue is $12,500. They can either dip into their investments, pull out the $100K, that is making money, or, they can finance the vehicle. Assuming the interest rate is extremely low (0%, 0.99%...etc), and what the market is paying them on their investment, it's the better option to take the loan, because they don't reduce the size of their investment.

Yes, there's depreciation and all that to consider as to the "real cost", but in terms of the impact on their investment, reducing its size to pay for the vehicle, vs using the return to pay for the vehicle, the latter is the smarter choice.

 

[SC Maintenance]

It's FDIC insured ...

FDIC is a law that could be changed. Unlikely yes, but could happen.

Still, funny you would go to the trouble to arbitrage 1.51% on a car loan, then just give up the extra almost 1% by going to T-bills totally risk free. Your money.

 

[CarlB]

That doesn't really address the "if you are buying the vehicle anyway" absolute angle though.

Let's say we are talking about a retiree that has just driven their vehicle for 25 years and now needs to buy a new vehicle. Their monthly income, including investment revenue is $12,500. They can either dip into their investments, pull out the $100K, that is making money, or, they can finance the vehicle. Assuming the interest rate is extremely low (0%, 0.99%...etc), and what the market is paying them on their investment, it's the better option to take the loan, because they don't reduce the size of their investment.

Yes, there's depreciation and all that to consider as to the "real cost", but in terms of the impact on their investment, reducing its size to pay for the vehicle, vs using the return to pay for the vehicle, the latter is the smarter choice.

It does if their goal isn't to lose $20k+ year one.

If their goal is spend $100k on a new car, paying interest on a depreciating asset is still going to lose them a pile of cash. That's ok, it's just bad finances and we can all accept it. We're adults.

 

[OVERKILL]

It does if their goal isn't to lose $20k+ year one.

If their goal is spend $100k on a new car, paying interest on a depreciating asset is still going to lose them a pile of cash. That's ok, it's just bad finances and we can all accept it. We're adults.

What do you propose as the alternative then? Their goal is to buy a replacement vehicle, so what is your alternative means of obtaining said vehicle without some form of penalty, grand theft auto?

This is like "well, you are going into the vault, and you are going to get a dose, but it's your job to go into the vault." In any scenario, you are going to go into the vault; in any scenario, you are getting a dose. In this instance, low interest/no interest financing is the lower dose option. Yes, you are still going to lose something, but you are also going to lose money paying taxes on that investment revenue as well, which is why you try and write-off as much as you can.

 

[rijndael]

FDIC is a law that could be changed. Unlikely yes, but could happen.

This is so far down in the weeds of speculation, like worrying about future tax law changes, that I'm not interested in that rabbit hole. I deal with what's here, today.

Still, funny you would go to the trouble to arbitrage 1.51% on a car loan, then just give up the extra almost 1% by going to T-bills totally risk free. Your money.

I don't do T-Bills because I have to report certain types transactions in a financial disclosure. It can be quite burdensome. Buying certain things can siginficantly up my reporting requirements, frequency and detail. I adjust what I buy to minimzie my reporting requirements. I'm sure I leave some things on the table as a result.

 

[CarlB]

What do you propose as the alternative then? Their goal is to buy a replacement vehicle, so what is your alternative means of obtaining said vehicle without some form of penalty, grand theft auto?

If you can't pay cash it's too much car. Which is right back where we started with "never finance a depreciating asset."

The better play would be to buy whatever car they had their heart set on in the used market to save the 20%+ depreciation. Then if you want to finance, whatever knock yourself out. Just don't get drunk on credit.

 

[OVERKILL]

If you can't pay cash it's too much car. Which is right back where we started with "never finance a depreciating asset."

The cash is invested, making money. That's the point.

The better play would be to buy whatever car they had their heart set on in the used market to save the 20%+ depreciation. Then if you want to finance, whatever knock yourself out. Just don't get drunk on credit.

Many models, including many of the Toyota ones mentioned in this thread (and various Jeep models), don't depreciate 20%, and then you lose things like warranty coverage, which, when you are in your 70's, can be important.

 

[CarlB]

The cash is invested, making money. That's the point.

Many models, including many of the Toyota ones mentioned in this thread (and various Jeep models), don't depreciate 20%, and then you lose things like warranty coverage, which, when you are in your 70's, can be important.

If you want subjectivity, do what you prefer. If the goal is maximizing profit of that cash thats "invested." Then you'd buy the least amount of used car that fits the needs.

But if you want a warranty, a new shiny toy, then just accept you pay for that luxury with higher costs (more loss).

You're mixing the two ideas. Want vs Need.

 

[OVERKILL]

If you want subjectivity, do what you prefer. If the goal is maximizing profit of that cash thats "invested." Then you'd buy the least amount of used car that fits the needs.

The profits on the investment make the loan payment. My argument is simply that if you are spending the money, this is the smarter route vs pulling that money out of the investment portfolio and spending it. Sure, you could spend less and get less, but that's not the point that @rijndael had made with his two options that I originally was responding to.

But if you want a warranty, a new shiny toy, then just accept you pay for that luxury with higher costs (more loss).

I'd argue warranty is more than a "want" for somebody in their 70's.

You're mixing the two ideas. Want vs Need.

No, I'm coming at this from a fixed spend perspective, which I thought I had made clear, IE, you are buying the vehicle anyway, these are your two options for paying for it, which is how @rijndael had presented his reply to you.