There's a lot more to the story if you're making 7-10% interest on $28K
If you are not making 10% on your money these days, with the average market conditions over the last 5-6 years, you need a better financial advisor. Or manage your investments yourself.
Yada yada yada - how are you making 10% on $28K - do tell
This is always my benchmark. Personal rate of return last 12 quarters has been just a c hair shy of 11%. Even my high interest savings is over 3%. I am financing the glad at 2:4%. No reason to tie up my higher earning money by sinking it in a vehicle that will only go down in value.
This amuses me as much as the “built not bought” crowd. Not everyone has the time to waste learning to weld or manage money...and even if they could learn the basics, they may be far more risk averse than you are, resulting in crappy welds and worse financial investments. What you’re doing is working fine for you, there’s no need to disparage someone that has achieved the ability to pay cash for a $50k truck.
You don't have to waste time learning to invest. Robo advisers are on the rise all you gotta do is sign up, answer a few questions and let algorithms do the investing for you. Easiest thing I ever done in my life. Only small percentage of the people get rich without investing.
Great question, and you are 100% correct that the math doesn't lie that it makes more sense to use cheap money. The answer for us personally is that once you achieve financial independence, (your passive income alone exceeds your annual expenses in good years and bad, not unrealized market gains) you start to value simplifying your life. Chasing 3-5% return over interest paid on a car note on $50k doesn't move the needle or change our lives in anyway, but not having to think about owning somebody $ does bring happiness. If you are still in the nest egg building phase or are trying to maximize every last dollar then absolutely use other people's money, but once you've built the wealth it's nice to live debt free. Just my $0.02
Like you said I'm sure others feel differently but I'm the opposite. I feel like I already reached my financial independence, however that just only motivates me to achieve even higher wealth status. For example, total interest paid for a 5 year 50k car loan @ 2.9 interest rate is around 3.6k. Instead of paying 50k cash for your truck, you invest the 50k and get an average return let's say 7% for 5 years, your total ROI is 20.8k. Essentially you're making $17,200 burrowing money to invest. To me that's definitely a needle mover. People always forget about compound interest.
On another note, if you pay for the vehicle and then invest the $900 per month for the next 5 years with dollar cost averaging you could make more in interest than leaving $50,000 in an investment. Unless you are in a fixed interest investment (which you can't find one making 7% right now), you could lose value the first year, then only get interest on the lower value for the next, etc. Bottom line is, if you have the cash, either way has virtually the same potential....
Or the market could go down 10 percent 2 years in a row and in 5 years you still aren’t back to even. Then your math looks very very different. There are no investments that offer a risk free 7% rate of return. We have been in a 10 year bull market, the longest in history, history is not on the side of this continuing for the next 5 years. You are correct that over time if you purchased a new vehicle every year for ever and ever it would average out in your favor. Regardless if it’s $27k, $17k, or $7k that doesn’t move our needle over 5 years.
