I will never lease a Ford again
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Joined: Sep 2015
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Leases (in many cases, but not all) are designed to get people into vehicles they otherwise could never afford. Hey ... It's just $400 per month !! Little do they realize that they have zero equity in their vehicle after making all those payments.
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Joined: Dec 2013
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From: SE Michigan
And what you are failing to include in your discussion is that the 8% return is not risk free. As an aside, the SP500 return in 2015 was 1.4%, not 8%. Look, I'm not telling you (or anyone else) that investing in equities is not a good idea....it is (over the long run) as the stock market is not a zero sum game. That is, as productivity increases overall economic wealth increases and that is reflected in equity returns. I was able to retire early because of my investments in the market.
What I am saying is that the game of borrowing to invest can increase returns, but it also increases risk. End of story. It is critically important to understand that. I can also tell you that I've made some of my best investments when those same leveraged people were being washed out of the market, either through margin calls or just scared out due to their investments collapsing while at the same time their debt remaining. I've had friends who have lost serious coin because of leverage.
There are a lot of people who think they can play the game, and say that they are in it for the long run. But when the .... hits the fan, and you are losing big bucks day after day, week after week in the market, those same people realize that they don't have the risk tolerance and get out (near the bottom). Let's put this in perspective. For example, in the 1987 crash I lost over a years salary (gross) in four hours. Four hours. That's when you learn your real risk tolerance! (I was a net investor during the crash because I had cash to invest.)
What I am saying is that the game of borrowing to invest can increase returns, but it also increases risk. End of story. It is critically important to understand that. I can also tell you that I've made some of my best investments when those same leveraged people were being washed out of the market, either through margin calls or just scared out due to their investments collapsing while at the same time their debt remaining. I've had friends who have lost serious coin because of leverage.
There are a lot of people who think they can play the game, and say that they are in it for the long run. But when the .... hits the fan, and you are losing big bucks day after day, week after week in the market, those same people realize that they don't have the risk tolerance and get out (near the bottom). Let's put this in perspective. For example, in the 1987 crash I lost over a years salary (gross) in four hours. Four hours. That's when you learn your real risk tolerance! (I was a net investor during the crash because I had cash to invest.)
I would NEVER finance a truck to invest the proceeds and hope I come out on top. I WOULD finance a truck when I do the math and see that a) I get a Ford Credit rebate of $1,000 (or whatever at the time) which b) pays for a good portion of the low interest that I will get from a credit union when I refinance and c) my investments are generally performing at a level where I feel comfortable that I will beat the truck's rate.
I would never pay cash for a home, or pay off my mortgage too fast, because the reality is that housing is no longer a sure thing or a good investment. Since I bought my house in 2007, if I'm lucky it has appreciated by 10% (if I'm lucky). That entire gain will be lost if I sold tomorrow by paying the 6% realtor commission (yes, you can negotiate that down). So I'm basically even. In the meantime, here's some 10 year returns on index funds at Vanguard, AFTER TAX (through 12/31/15):
Total Stock Market Index Admiral - 6.08%
500 Index Admiral - 5.91% (not 1.4%)
Extended Market Index Admiral - 6.27%
After tax rate is computed using the HIGHEST individual federal income tax rate.
It's important to realize that your personal return on investment is based on your investment. If you buy a $300,000 house and put 20% down, your investment is $60,000. If you sell the house for $400,000 and pay off the $240,000 mortgage, you get $160,000 from your $60,000 investment. That return is pretty large (and yes, this might not happen).
I don't short stocks, I don't do margins, I don't play with home equity lines of credit to buy toys.
Community Team
Joined: Jun 2015
Posts: 2,601
Likes: 552
From: Florida
You are 100% correct. You have to be able to tolerate the risk. And you have to have investments that historically beat your loan rates. And not be stupid
I would NEVER finance a truck to invest the proceeds and hope I come out on top. I WOULD finance a truck when I do the math and see that a) I get a Ford Credit rebate of $1,000 (or whatever at the time) which b) pays for a good portion of the low interest that I will get from a credit union when I refinance and c) my investments are generally performing at a level where I feel comfortable that I will beat the truck's rate.
I would never pay cash for a home, or pay off my mortgage too fast, because the reality is that housing is no longer a sure thing or a good investment. Since I bought my house in 2007, if I'm lucky it has appreciated by 10% (if I'm lucky). That entire gain will be lost if I sold tomorrow by paying the 6% realtor commission (yes, you can negotiate that down). So I'm basically even. In the meantime, here's some 10 year returns on index funds at Vanguard, AFTER TAX (through 12/31/15):
Total Stock Market Index Admiral - 6.08%
500 Index Admiral - 5.91% (not 1.4%)
Extended Market Index Admiral - 6.27%
After tax rate is computed using the HIGHEST individual federal income tax rate.
It's important to realize that your personal return on investment is based on your investment. If you buy a $300,000 house and put 20% down, your investment is $60,000. If you sell the house for $400,000 and pay off the $240,000 mortgage, you get $160,000 from your $60,000 investment. That return is pretty large (and yes, this might not happen).
I don't short stocks, I don't do margins, I don't play with home equity lines of credit to buy toys.
I would NEVER finance a truck to invest the proceeds and hope I come out on top. I WOULD finance a truck when I do the math and see that a) I get a Ford Credit rebate of $1,000 (or whatever at the time) which b) pays for a good portion of the low interest that I will get from a credit union when I refinance and c) my investments are generally performing at a level where I feel comfortable that I will beat the truck's rate.
I would never pay cash for a home, or pay off my mortgage too fast, because the reality is that housing is no longer a sure thing or a good investment. Since I bought my house in 2007, if I'm lucky it has appreciated by 10% (if I'm lucky). That entire gain will be lost if I sold tomorrow by paying the 6% realtor commission (yes, you can negotiate that down). So I'm basically even. In the meantime, here's some 10 year returns on index funds at Vanguard, AFTER TAX (through 12/31/15):
Total Stock Market Index Admiral - 6.08%
500 Index Admiral - 5.91% (not 1.4%)
Extended Market Index Admiral - 6.27%
After tax rate is computed using the HIGHEST individual federal income tax rate.
It's important to realize that your personal return on investment is based on your investment. If you buy a $300,000 house and put 20% down, your investment is $60,000. If you sell the house for $400,000 and pay off the $240,000 mortgage, you get $160,000 from your $60,000 investment. That return is pretty large (and yes, this might not happen).
I don't short stocks, I don't do margins, I don't play with home equity lines of credit to buy toys.
We own 21 acres of land we have been paying cash for just to shoot on and kinda as an investment. They are not making any more of that unless we start moving to the moon or mars.
Member
Joined: Nov 2015
Posts: 98
Likes: 26
Whatever dude. I wasn't giving anyone financial advice, just trying to get people to understand that with leverage comes risk, and that they should be aware of the financial implications of their decisions and become educated. I only gave the example because people think and say they would do one thing, when the situation occurs they are unable to follow that plan. You are absolutely right, everyone has a different situation, and what may be right for one is not right for another.
By the way, I've met quite a few financial advisers who were/are complete morons.
But back to topic, how about that lease payoff amount? What's the latest?
By the way, I've met quite a few financial advisers who were/are complete morons.
But back to topic, how about that lease payoff amount? What's the latest?
Senior Member
Joined: Apr 2013
Posts: 1,219
Likes: 196
From: Mississippi
Way off topic, but here's what I don't like about the "make payments on the house and cars because I can earn a better interest rate than they're charging by doing investments". The interest rate you're (I'm) getting on investments is theoretical. You're not really getting it. In other words, you can't pull that money out and use it if needed, and retain that interest rate. So it really doesn't help me to have money in the stock market (which I do). It's pretty much theoretical money for the next 20+ years (for me). But I can't use it to buy something to drive, or a place to live, or something to eat. I guess I could use 60ish percent of it at any given time?
If the economy tanks and the stock market goes to crap (which I think is a matter of time the way things are going, which is further off topic), the theoretical interest rate you were getting is lost. So it'd be nice to have the house and cars paid off and at least have somewhere to live and a way to get around.
I understand the concept completely. I guess I just like a sure thing. Although I invest in a 401k plan, I'm not certain I would if it wasn't a company match deal until I owned everything I have (no payments). I don't make a huge amount of money, and I can't drive my 401k to work, live in it, or eat it lol.
Have fun tearing me apart, financial wizards!
If the economy tanks and the stock market goes to crap (which I think is a matter of time the way things are going, which is further off topic), the theoretical interest rate you were getting is lost. So it'd be nice to have the house and cars paid off and at least have somewhere to live and a way to get around.
I understand the concept completely. I guess I just like a sure thing. Although I invest in a 401k plan, I'm not certain I would if it wasn't a company match deal until I owned everything I have (no payments). I don't make a huge amount of money, and I can't drive my 401k to work, live in it, or eat it lol.
Have fun tearing me apart, financial wizards!
Senior Member
Joined: Sep 2015
Posts: 755
Likes: 143
Way off topic, but here's what I don't like about the "make payments on the house and cars because I can earn a better interest rate than they're charging by doing investments". The interest rate you're (I'm) getting on investments is theoretical. You're not really getting it. In other words, you can't pull that money out and use it if needed, and retain that interest rate. So it really doesn't help me to have money in the stock market (which I do). It's pretty much theoretical money for the next 20+ years (for me). But I can't use it to buy something to drive, or a place to live, or something to eat. I guess I could use 60ish percent of it at any given time?
If the economy tanks and the stock market goes to crap (which I think is a matter of time the way things are going, which is further off topic), the theoretical interest rate you were getting is lost. So it'd be nice to have the house and cars paid off and at least have somewhere to live and a way to get around.
I understand the concept completely. I guess I just like a sure thing. Although I invest in a 401k plan, I'm not certain I would if it wasn't a company match deal until I owned everything I have (no payments). I don't make a huge amount of money, and I can't drive my 401k to work, live in it, or eat it lol.
Have fun tearing me apart, financial wizards!
If the economy tanks and the stock market goes to crap (which I think is a matter of time the way things are going, which is further off topic), the theoretical interest rate you were getting is lost. So it'd be nice to have the house and cars paid off and at least have somewhere to live and a way to get around.
I understand the concept completely. I guess I just like a sure thing. Although I invest in a 401k plan, I'm not certain I would if it wasn't a company match deal until I owned everything I have (no payments). I don't make a huge amount of money, and I can't drive my 401k to work, live in it, or eat it lol.
Have fun tearing me apart, financial wizards!
The notion that you should finance your car / house at X rate because your cash savings will return X+ in the stock market is quite risky ...
Living within one means is never wrong. I'd personally wouldn't even consider driving a loaded KR unless I would earn a solid $160k plus annually here in Texas. I don't do that - so therefore I don't drive a KR.
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Joined: Mar 2014
Posts: 1,500
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From: Rockwall/Wichita Falls Texas
Nothing wrong with your approach. If everybody would follow those simple rules we'd be better off. Very little personal debt / outstanding credit is preferable to a highly leveraged financial situation. Having significant outstanding car loans and a huge mortgage can quickly destroy you when the stock market goes down and your retirement savings dwindle ... The notion that you should finance your car / house at X rate because your cash savings will return X+ in the stock market is quite risky ... Living within one means is never wrong. I'd personally wouldn't even consider driving a loaded KR unless I would earn a solid $160k plus annually here in Texas. I don't do that - so therefore I don't drive a KR.
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Joined: Sep 2015
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Lol. That's why oil/gas always has, always will be "boom and bust" cycles... 
WTI probably won't crack $60 for the next year(s) to come - Iranian oil coming online and slowing Chinese economy for one part ... The US producers will feel the squeeze even more (but than ... Maybe pioneer natural ressources shouldn't fly lower level staff around in chartered private jets). Plenty of excess fat to trim from the "good days".
WTI probably won't crack $60 for the next year(s) to come - Iranian oil coming online and slowing Chinese economy for one part ... The US producers will feel the squeeze even more (but than ... Maybe pioneer natural ressources shouldn't fly lower level staff around in chartered private jets). Plenty of excess fat to trim from the "good days".
Senior Member
Joined: Apr 2013
Posts: 1,219
Likes: 196
From: Mississippi
Senior Member
Joined: Mar 2014
Posts: 1,500
Likes: 204
From: Rockwall/Wichita Falls Texas
With the oil prices, leasing may be better. When it goes up, get a lease, keep your paid off vehicle. Oil goes down, when your lease is up, you don't have to worry about it being repo'd or paying a monthly payment. If you use your pickup ( I don't currently ) You are able to write off quite a bit from your taxes when you lease it. I have a 5.0, personal preference. I love turbos, so I will put my own on. I don't have a King Ranch. Not that I don't like them or can't afford it. I got a Lariat with black leather and love it.