Diversifying Portfolio by paying cash

[jajajaja]

hi,

My portfolio is 100% stock, mostly S&P500 ETF but I also buy individual stocks when I am feeling adventurous.
Then, my strategy for safe investments to diversify my portfolio is to pay cash on my cars and home improvements rather than taking a loan on them.
CD or T-bills rates or bonds always seem lower interest rate than the loan interest rate I get on cars and home improvement.
Maybe I am missing something, are there other safe investments better than what I am doing? Or are there loan lenders that give better rates than CD or bonds?

thanks

[avalpert1]

Generally, neither cars nor home improvement expenses are investments at all... So if the goal is hedging your risky investments with safer ones, a better option would be to actually invest in safer assets (like treasuries).

[Doctor Rhythm]

Paying cash for a car isn't an investment; it's just...buying a car. Thus, there is no diversification benefit possible.

Almost everyone posting here pays cash for their depreciating expenses unless there's a financially advantageous reason to get a loan.

[jajajaja]

Yes, I dont consider depreciating assets as investments. They are necessary expenses that either I can take a loan on (paying high interest rate) or pay in full with cash (basically "opportunity cost" as cash to potentially buy higher yield investments is now used up).

I have seen advice saying dont pay for cars in full and use that money to invest on higher yield investments. My situation is that I am already 100% stock so my hedging is my cash on these depreciating assets which is effectively "earning" me the interest rate that I would have paid when taking a loan.

[avalpert1]

Yes, I dont consider depreciating assets as investments. They are necessary expenses that either I can take a loan on (paying high interest rate) or pay in full with cash (basically "opportunity cost" as cash to potentially buy higher yield investments is now used up).

I have seen advice saying dont pay for cars in full and use that money to invest on higher yield investments. My situation is that I am already 100% stock so my hedging is my cash on these depreciating assets which is effectively "earning" me the interest rate that I would have paid when taking a loan.

You can not take a loan and still diversify your non-leveraged holdings, so other than a way to rationalize the amount of risk you taking in your investments there is no connection between the two decisions.
And I don't know who is telling you to take out car loans in order to invest in stocks but I'd stop listening to them for financial advice - if you want leverage for investing there are almost certainly cheaper ways to get it.

[jajajaja]

Yes, I dont consider depreciating assets as investments. They are necessary expenses that either I can take a loan on (paying high interest rate) or pay in full with cash (basically "opportunity cost" as cash to potentially buy higher yield investments is now used up).

I have seen advice saying dont pay for cars in full and use that money to invest on higher yield investments. My situation is that I am already 100% stock so my hedging is my cash on these depreciating assets which is effectively "earning" me the interest rate that I would have paid when taking a loan.

You can not take a loan and still diversify your non-leveraged holdings, so other than a way to rationalize the amount of risk you taking in your investments there is no connection between the two decisions.
And I don't know who is telling you to take out car loans in order to invest in stocks but I'd stop listening to them for financial advice - if you want leverage for investing there are almost certainly cheaper ways to get it.

Admittedly I have never directly got leverage for investing so not familiar with it. What is the cheaper way to do it? I just did a quick look at Fidelity Margin rates and it is around 11.5% if you have $100K. A car loan of 6% is much cheaper interest than 11.5%.

Regarding the connection between the 2 decisions, I guess I just consider my "portfolio" to be all the assets I have, not just the assets that are in the brokerage accounts. And I rebalance them in totality depending on my risk appetite. I consider home and car (albeit depreciating) as "safe/non-volatile" assets, and stocks as "risky/volatile" assets, for example.