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SVTPerformance's Chain of Restaurants
Road Side Pub
Liquid Assets and Expensive Car Purchase
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<blockquote data-quote="Fox Fan" data-source="post: 15738559" data-attributes="member: 49259"><p>Lots and lots of opinions, but the math of whether or not to take a loan, given your decision to buy a car, boils down to 2 things:</p><p></p><p>1. Loan Interest Rate (assuming no additional fees)</p><p>2. Opportunity Cost (expected return on investments)</p><p></p><p>Interest rate > Expected rate of return => no loan</p><p>Expected rate of return > Interest rate => loan</p><p></p><p>Now, your opportunity cost may not be a simple calculation, because it depends on the type of investments you make. The more risk averse you are, the less variance in your investments, hence a safer albeit smaller ROI. But, it's hard to beat an auto loan interest rate in this manner. The more risk tolerant, the higher your expected return, but also the greater the variance (less secure). The current expected stock market return in the long-run is expected to be below historical averages... maybe 6-8% total return. This beats what someone with excellent credit is likely to find for an auto loan, but is not very safe, as IMO the market is currently overvalued.</p></blockquote><p></p>
[QUOTE="Fox Fan, post: 15738559, member: 49259"] Lots and lots of opinions, but the math of whether or not to take a loan, given your decision to buy a car, boils down to 2 things: 1. Loan Interest Rate (assuming no additional fees) 2. Opportunity Cost (expected return on investments) Interest rate > Expected rate of return => no loan Expected rate of return > Interest rate => loan Now, your opportunity cost may not be a simple calculation, because it depends on the type of investments you make. The more risk averse you are, the less variance in your investments, hence a safer albeit smaller ROI. But, it's hard to beat an auto loan interest rate in this manner. The more risk tolerant, the higher your expected return, but also the greater the variance (less secure). The current expected stock market return in the long-run is expected to be below historical averages... maybe 6-8% total return. This beats what someone with excellent credit is likely to find for an auto loan, but is not very safe, as IMO the market is currently overvalued. [/QUOTE]
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SVTPerformance's Chain of Restaurants
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