No, the "world's worst investor" would suggest borrowing against a depreciating asset to invest in "the spread" to gain wealth.
I love the insinuation that I don't know what a simple phrase means in an attempt to make me look like I don't know what I'm talking about since that's the only play that you have. Let's examine the numbers a little deeper since you can't seem to do so yourself given the outline I've provided, shall we?
How much money do you think you would gain borrowing $250,000 @ 1.75% interest to play the spread? That $250k is going to be worth $125k in 4 years which means you're out the other $125k right off the top. There's also the interest which is going to cost you about $10,000. Don't forget about sales tax and registration which will set you back another $20,000 give or take depending on what part of the country you live in. This means that you would have to make over $155,000 in a 4-year window just to break even playing the spread.
Oh, don't forget, this also insinuates that the market remains strong for that to happen and there are no hiccups or downturns during the entire time. Nobody alive can guarantee that and if they say they can, you're talking to a liar. That's an awful lot of risk for even less reward and anybody who truly understands finance can see it with their own eyes.
Even if I gave you a VERY generous guaranteed 12% return on your $250k investment for four years even with compounding interest you won't make that $155k you're out due to depreciation, interest (even at 1.75%) and sales tax & registration. You'll "make" a little less than the $155k you lost, give or take. That reminds me, I wonder what it would cost to insure the worlds fastest exotic hyper-car. ROFL Such a great investment strategy! Why isn't everyone doing this?!
Oh, and that assumes that everything goes perfectly and there's no hiccups to the plan like a loss of income, medical expense or economic collapse that derails your ability to pay. That would be the risk factor that you seem all-too-comfortable with ignoring like it isn't a thing. You're also the same guy who thinks that going to Vegas to gamble is a great investment strategy because nobody ever loses, right?
You tout "opportunity cost" and yet you don't talk about the flip side to that same coin which is (in part) investing that same $5,000 every month that you would be spending on a car payment in the same funds. That same interest rate & compounding interest yields more than DOUBLE that amount over four years and puts you in the $314k range of profit. This is also investing that YOU control because if life happens you can simple decrease your investment for that month or two and not have to consider bankruptcy.
But no, please, continue talking to me about opportunity cost as if I'm the one who doesn't understand.
It doesn't matter if the asset is depreciating or appreciating. You finance because you can better use the money elsewhere. The cost of financing is less than the opportunity cost of the money used for other purposes, such as investing.
The debate isn't whether a car is a good investment, is whether you should finance the car or not.
You seem to be quite risk averse, which is fine since you mention being burned in 2008. However it points to some lingering insecurities. I don't think you got burned because of leverage, it was due to lack of liquidity or reserves is my guess. If the market goes sour or I lose my job, it's not a big deal. I can easily stay afloat for 1-2 years and then dispose of assets as needed until cash flow improves.
Your argument doesn't really make much sense. You say $250,000 will be worth $125,000 in 4 years. I assume you mean I finance a Roadster. Firstly, I doubt the Roadster will depreciate 50% in 4 years since it is rare, but in your scenario you are suggesting no one every buy a new car or any car at all since it will "depreciate" and that is plain silly. We all understand most cars will depreciate in value. If you want to minimize depreciation you seriously should just get the cheapest oldest most reliable used car you can find, but where's the fun in that?
Also, insinuating that I'm a guy that thinks "going to Vegas is a great investment strategy" is also just silly. I'd be curious to know where someone as risk averse as you puts money.
I think what you're asking is if I finance $250,000 @ 1.75% for 4 years, am I making a terrible mistake? Should I have burned $250,000 in cash for this purchase instead? I guess it depends on what else I could do with that money.
A $250,000 car loan @ 1.75% x 60 months means a total payment of $261,279, or a finance charge of $11,279. Please note that inflation for 2021 is projected to be OVER 5% with no clear end in site. That means the bank is actually losing money on this deal, since their interest rate is below the inflation rate.
If I were to invest $250,000 and it grows 4% a year compounding, that will be "worth" $304,163 in 5 years.
By financing, in 5 years I have made $304,163 - $261,279 = $42,866. If I didn't take the loan, I would make $0. That's over a 16% return over 5 years and much better than Vegas!
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