Originally Posted By: Mykl
Originally Posted By: Tdbo
It only really makes sense IF you have the money to buy the car for cash but take advantage of a subsidized by the manufacturer and then dollar cost average the purchase of the car.
In 2012, I could have paid cash for my Accord but chose to take advantage of .9% Honda financing to purchase the car so that I could take advantage of the return (16.9% average return over the last 3 years in a variety of mutual funds through American Funds) and conserve capital at the same time. I can then cash flow the payment. In the end, it obviously is a 16% gain.
However, I'm not borrowing $ just to throw in a mutual fund. I am using inexpensive financing to augment an ongoing investment.
I don't think this is the same situation as the OP is in.
I'm really happy for you that it worked out so well. But I think you need to place a "*" next to that "16% gain" remark, because that is *not* typical. In fact, I would like to know which funds you had that performed so well so I can have a look at them, because it is rare for any single fund to beat the market by such a wide margin.
I'm sure you disagree, but my opinion is that if you're holding debt, and you're investing, that debt may as well be funding those investments because otherwise those funds could have gone to paying down your debt. It doesn't much matter to me that the collateral for that loan is a car.
There are Four differences in my situation:
1. I can write a check and pay off my car tomorrow (13K financed on a 19K car) either through mutual funds or savings.
2. I did not buy a car that in anyway is out of budget.
3. I have a sufficient salary to cash flow my payments and allow my money to appreciate.
4. I am in no way living beyond my means. While comfortable, I am living beneath my means.
If you are interested, I would get a good fee based Financial planner and go at it. I simply mentioned my American Funds because they are the part of my portfolio that I am the most familiar with. I will list the fund and the % gain I had last year. All are AM Funds:
American Balanced 18.05%
American Mutual FD 20.08%
Cap Inc Builder-A 16.45%
New Perspective 19.42%
Income Fund of America 16.95%
Capital World Growth & Income A 20.65%
Fundamental Investor 23.42%
Growth Fund America 24.18%
I am very conservative in investing and this is a very diversified approach.
I am not advocating irresponsible levels of debt, what I do is leverage my money to achieve a return that will enable me to retire with a good income.
BTW, this approach will enable me to retire effective May 1 of this year at 53 years old. Between my pension and investments, I will have 90% of my current salary monthly without touching principle.
I have done this through a lot of saving and thoughtful investment. The .9 I am spending to finance the car will cost me $275. over 4 years. Leaving it in the funds that I have noted using my average return of 16.9% will yield over the 4 years almost $17,350 in additional value.
If one is going to be able to retire in this day and age, one needs to be able to prudently utilize their resources. .01% in a bank account isn't going to cut it. If I can use a +800 FICO score to conserve capital and allow thousands of dollars of return, IMO it is stupid not to do so,
