Thoughts - paying cash for car vs. investing and making payments

So serious question - I’m getting ready to take delivery of my new truck - and debating should I just pay for it - or take a loan and invest the $$ - using that fund to pay the monthly payments.

Obviously- investing has risk, but I think those may just be outweighed by upside reward.

Taking say 55k - putting in into a couple of large broad ETFs - (Dia, spy or the like) and then selling just out of the money options either weekly or in case of SPY 3 times a week for income.

I’ve of course done well this past year investing - as have most people. My YOY is something like 30% - my “mad money” fund of riskier plays is even higher (68% - thanks Bitcoin).

Assume my interest will be 4% - I just need to beat that and the taxes on profits (and if I lose - then that’s less tax I have to pay).

 

Lots of folks sign up for the payment plan when purchasing a new vehicle ~ mostly being enticed by zero percent interest for X number of years and a reduction in the sale price.
The guys I know paid off the vehicles once the incentives were gone and called it a day. Of course, they weren't interested in the option of investing the bankroll and making money with it.
It's your call ~ what ever works for you . . .

 

I think you will get a 50/50 split in answers. My vote is pay off the truck and then make payments to retirement. But then again, I won’t buy a brand new truck either.

 

No. Just pay off the truck. The sequence of risk is just too real in the short term.

 

Pay off the truck.
Not having a monthly payment = Freedom

 

Make sure you factor income taxes on gains into your figures

 

Or factor in tax savings should the market crash and he can write off some losses......

 

Retirement/savings not a factor - both are secure

The no debt = freedom….from what ? If your working to service debt - then you are a prisoner of your own making. People who talk this simply don’t get - you shouldn’t have bought a new vehicle to begin with. It’s calling living within your means. Sorry if it upsets some here - but it’s the truth.

There’s a reason I haven’t owned a new vehicle in 15 years now for myself. I just don’t enjoy the payment associated with them. Wife makes good money and has had a few - my last couple of non work cars prior to my truck were hand me downs when she got bored.

As I said - my investment strategy is relatively conservative - anything is possible, but guaranteed if the overall market tanks say 80% - the last worry any of us have is falling behind on car payments. The financial apple cart will be upset and their would be chaos.

Likewise - I don’t expect to yield more than 15% at best - worst think that could happen is a market that goes straight up for me…selling covered calls you benefit most from a smooth market with a little volatility evenly throughout the term - or at least peak when you sell and bottom closing they out and waiting for a modest rebound to repeat.

Also thought about doing something similar chasing a few large dividend payers - like big energy or tobacco co. Option upside is minimaland a little more risk in energy - but the dividend alone would cover the loan interest - if it makes money year over year…it’s a win.

HYG is a final thought.

 

I was gonna use multi-quote and add my ¢.02 but it sounds like you’ve decided.

 

Well those are a lot of details you left out. That said, regardless what you MIGHT be able to get investing that money, I just hate the idea of paying interest on a depreciating asset. I have paid cash for my cars for the last 15 years..no regrets.

 

Depends on your age and risk tolerance. I chose to pay cash for my 13 because we have a money market account for things like that, low risk but low return. For me the cash flow was a better option. I put half the payment in money market and half in medium risk investments.
In 1988 I made either a lucky guess or an informed decision. We needed to refinance our house and I took enough equity out to pay cash for a new vehicle. Haven't had a car payment since. But I also keep vehicles until they're unsafe to drive or the maintenance costs too much. And we figure out what the payment would be and invest it.
It worked for me, YMMV.

 

The potential upside of the gamble is nowhere near big enough to be worth the risk. Pay off the debt first and fast. Then invest even more since you have no payment

 

Yeah, if someone can withstand an 80% market drop, then why fret over a $55K truck.

 

Simple. Never sell high or buy high...

 

you provided good evidence of your recent history in investments. Pretty sure you answered your own question but no one has a crystal ball.

 

Hmmm... well I tend to end up buying high and selling low, so I know what my choice would be.

Now, if I actually had a process to get 15% returns on investments? I guess rather than buying a truck on a loan and working on making the money to pay it off, I would work my investment process until I made the $$$ needed and still just pay cash for the truck.

Then again, maybe I'm just too boring. Heh

 

Cash is a stupid term. You walk into a dealership with that much actual cash you’ll have some questions to answer.

 

If I can borrow at a low interest rate and pay it back with depreciated dollars...why not? I'd rather put today's dollars to work on appreciating assets.

 

Quickly reading through your post it appears you have already made your mind up bit looking for affirmation.

Still, my 2 cents is pay cash for the truck and use what would have been the monthly payment to periodically buy in to the market.

Source: I manage money for a living.

 

55k is a pretty expensive vehicle. If it’s a want or toy, pay off the 55k truck or don’t buy it.

or maybe buy a truck cash for significantly less than 55k and invest the remaining as you plan.

 

Agree. Looks like OP asked a question and answered it too. Sounds like my wife...

 

I had the money in my account so I paid cash for my truck last January. In hindsight, if I had been putting more money into my mutual funds for the months before then and thus not had the cash in my account, I could have gotten a loan at a lower interest rate than what my investments have been making. However, there's only so much you can put into tax sheltered accounts in Canada so, as someone else mentioned, you'd have to look at how much tax you'd be paying on those gains on top of paying the interest on the loan.

 

Perhaps, I'd speak on the reckless cam side in this discussion. I'm willing to spend money on a car while I have it. The only compromise I'd go to is to take out an installment plan, but pay it off within six months. I don't want to be a victim of thoughts about life unpredictability and similar arguments against large purchases. I didn't look for ten alternatives to get rid of the old car, I sold it to the first company I saw in a Google search - car wreckers whangarei. Similarly, I don't want to make a dozen alternative plans for buying a car. Do I need it? Yes? Need it now? Yes. Then there is nothing to think about, there is a car, and there is money, so the matter is resolved.

 

A timely bump of this thread. Back when this was posted, the no brainer approach would have been to invest the money. FF to today...not so good of a decision dumping $55k into a market ahead of a big correction.

 

I'm putting about half down on the car I'm buying my wife and financing the rest at about 5.6%. Not a good time to be taking money out of mutual funds to pay for stuff.

 

I don’t get it. Why not pay cash then invest the would be $900 payment every month?

 

If you have that much cash sitting around, why weren't you investing it before?