Since math seems to check out, convince me to use leverage

[Goof]

For the past 12 years, I've been saving towards a blue chip, non-depreciating bucket list car I'd keep for 40 years. I've spent 20 years of my life -- including professionally (exotic car sales) -- figuring out what kind of car I'd keep 40 years, and have owned a less hardcore version of it for 9 years that's kept me extremely happy for comparable TCO (no depreciation!) to buying a 5-year old used Toyota Camry (which would depreciate).

T-cost of the car is ~$265K, with ~$25-30K in other expenses (plane, hotel, shipment, tire swap, paint correction, full PPF, cosmetic tweaks) at delivery. The original plan was to put $212K down, borrow $53K at 60@4.49% or less, and open a 0% card to float the other expenses for 11 mo. and then pay it off. The payment schedule was to pay off in 18 months, with total interest paid of just under $2,000.

This ensures the car is mine, I have no debt as usual, and if life threw me multiple curveballs where I also had to accept a 60-70% pay cut for a while, I could shoulder shrug because I live frugally.

-----

Yet with $220K of cash to be on hand after I sell my current car, I've sat down and mathed it out. Instead of $212K down borrowing $53K, I could put $70K down, borrowing $195K. If I run the note to term, I pay $23K of interest instead of $2K with the other plan. I also now have $150K to invest.

-----

I make ~$270K cash-equivalent compensation, but have been spinning up an old business again, so this year is ~$300K and I've the ability to grow that further towards $350K after hours. My monthly "living my best life" expenses with the new car (insurance is yikes) and paying for health insurance (if unemployed or self-employed) is ~$4000 excluding the upcoming car payment. I save minimum $50K/yr into retirement including employer 401k match and SE 401K Employer profit-sharing, $10K into Series I Bonds, and have the ability to stuff more into taxable accounts.

I have 1yr "living my best life" e-fund, with an additional 1yr in US Series I Bonds, both of those excluding the car payment. Now, "paying for your blue chip sports car" is not an emergency. I could belt tighten and stretch each of those to 14mo (28 mo. total). Yet I feel I should keep 30% of that $150K in "cash" (US Treasury MMF) as an "extended emergency fund" to ensure I can cash flow the scheduled payment for a year without touching the e-fund or I Bonds.

Of the remaining 70%, 50% goes into something like VTI, 20% goes into something like VXUS.

-----

I've used Portfolio Visualizer to backtest this as best as I can. Here are the results over every 7 year period going back to 1986 (furthest back I can test for free). Obviously, there have been worse performing periods in the US! I also need to "stay the course" but having lived through the dot com crash and GRC, I can say I actually do, despite a -43.96% drawdown being spooky. I've genuinely been, "set it and forget it."



As expected, there's periods where it's a bit worse performing or a wash compared to interest paid, factoring in taxes on LTCG and the MMF dividends.

Now, do I "need" the money in 7 years? No. I don't. There are things I'd "like" to do, but if we were in serious doldrums, I could wait. I'm very patient. I also don't have a significant other that might be screaming at me to change course, so I only have to answer to myself.

-----

Generally, math points to investing the money and cash-flowing the debt payments. Again, 50% US, 20% ex-US, 30% "cash."

What I ask for is a sanity check my math and to further put me out of my comfort zone -- I'm already out of it by agreeing to debt for once! Curveball questions. What ifs. Absolute disaster scenarios.

Thanks in advance!

[nisiprius]

Non-depreciating car?

[Goof]

RS (RennSport) Porsche. Some like the GT3 RS 4.0 (2011 model year) actually beat the stock market over the past 14 years. This is the "pay to play" section of the market, with "track day" specials. Generally, you're paying for something street legal (used actual race cars are cheaper, but aren't street legal) you can drive to/from the race track, have your fun, and be fast. The cars that do very well in this part of the collector market "just work" and put down faster lap times than cars with a higher MSRP.

I've sold this and far crazier for a portion of my life, including at the very high end (some 8-digits). In a worst case market crash (think GRC or worse), the worst case expected "floor" is 70% of T-cost in a market dumping scenario until the collector market recovers. "Track day specials" is a part of the market I specifically specialized in professionally, so I know it extremely well.

I don't expect what I'm buying to materially appreciate for some time, but I generally expect its floor to be no less than 90% of T-cost. The car I've had for 9 years which is "special, but not that special", I'm looking at the sale price in the next 6 weeks being exactly what I bought it for new 9 years ago. There's a mountain of public transaction data to prove that out.

[smitcat]

RS (RennSport) Porsche. Some like the GT3 RS 4.0 (2011 model year) actually beat the stock market over the past 14 years.

I've sold this and far crazier for a portion of my life, including at the very high end (some 8-digits). In a worst case market crash (think GRC or worse), the worst case expected "floor" is 70% of T-cost until the collector market recovers.

I don't expect what I'm buying to materially appreciate for some time, but I generally expect its floor to be no less than 90% of T-cost. The car I've had for 9 years which is "special, but not that special", I'm looking at the sale price in the next 6 weeks being exactly what I bought it for new 9 years ago. There's a mountain of public transaction data to prove that out.

Leverage can work both ways ....using leverage for a higher risk assett is reasonable if that assett is a minor part of the portfolio required/desired for future plans (FIRE?).
Saying that a car will beat any market longer term typically means someone leaves out the overall yearly costs of the car. Insurance, repairs, maintainance and use will consume varying amounts dependent upon storage/use/type/future changes.

[Goof]

Saying that a car will beat any market longer term typically means someone leaves out the overall yearly costs of the car. Insurance, repairs, maintainance and use will consume varying amounts dependent upon storage/use/type/future changes.

Agreed. However, the car I'm buying I don't expect to beat the market over 40 years, but to NOT MATERIALLY DEPRECIATE (in absolute terms, not inflation adjusted). Big difference. I'm looking at it more as a US Series I Bond I can drive (after 40 years, not short-term), though for the first 15-20 years the primary cost is insurance, fuel, consumables (tires and brakes aren't cheap!) and maintenance. There should be material appreciation after that as the cars "settle" into their long term owners, as these kind of vehicles tend to trade hands fairly frequently in the first 10 years of their ownership. The primary reason I don't expect material appreciation is the expected production numbers are too high (probably ~1400 sold in the US), so they can sate market demand easily enough. You generally need to get to < 1000 cars in the US for supply to be sufficiently constrained to drive any material appreciation, so long as there is serious, enduring demand for such a vehicle (there's lots of rare vehicles that no one will ever care about).

Cars that actually beat the market over shorter periods (< 20 years) are rare, but exist for periods of time.

Cars that beat the market overall? None have ever existed. Ever. Even a Ferrari 250 SWB hasn't done it. The market over that time crushes it as expected.

-----

But I'm not here to discuss the collector car market. I'm mostly here to discuss the math of investing $150K over putting it down on a car.

[bombcar]

Past performance is no indication of future results. Buy the car because you want it not because it might still be worth something in the future - who knows what will change and what will happen. If you take a loan, it’s because you can afford the loan and think you can do better elsewhere. But if the people who are giving you the loan believed what you believe, why would they give you the loan and not buy the car themselves?

The loan versus payoff versus investment question has been asked 1 million times. The main thing about the loan is it’s a protection against inflation consider this.

[blimp]

I think there is a bias in assessing "non-depreciating" luxury goods.

For instance, when people look at certain LV purses and rolex watches, many of them retain value over time, even adjusted for inflation.

However, when doing these retrospective analyses, you are looking at current cars/watches/purses/etc which have been popular for a long time.

There are many car and purse models which are no longer popular and have fallen out of favor. There are many luxury brands which never became popular or established a strong following. No one is looking at these products and considering their massive depreciation because they are simply not notable.

How often do you think about baseball cards which lost 80% of their value since 1987, beanie babies which are no longer desired, etc?

Fundamentally, cars age and have decreased pragmatic value over time and require expensive upkeep. There may be new car innovations with important technical features which make old exotic cars less desirable to wealthy buyers. It is impossible to predict that a particular model will retain value.

You should assume a normal rate of care depreciation when considering this purchase. Buying a $265K car when you have a $270K income is stupid unless you have a super-high net worth.

Also, luxury cars simply don't provide any long-term happiness. You will get used to the car within a few months, and it will feel the same as a Camry.

[sambb]

the car will depreciate in a recession or if you are out driving, totally safely, and a teen who is texting and driving, rear ends you. I would buy it if you can afford it and accept the possibility that it might not depreciate at all, but then again, you might be wrong and it might depreciate or not age well. Agree that cars have been on a nice run, but that doesnt mean the future holds the same. And despite your thoughts to hold it for 40 years, that isnt common. Would you rather have the car or the $$ in an ETF? Thats what it comes down to. It isnt easy to decide that when passions come into play. Best thing is to have a great job that gives you comfort in net worth, so these purchases arent about finances, but rather they are about passion.

Just because you are selling your car at your purchase price 9 years ago, ask yourself - what would that $$ have been in a S and p 500 ETF with dividends reinvested, along with the additions for insurance and maintenance? Then again, one could do that exercise on any purchase.

I would buy the new car if you can afford it, drive it, and enjoy it. it sounds like a fun luxury. If you are under some financial stress about buying, then i wouldnt buy it.

[Goof]

Past performance is no indication of future results.

Agreed 110%

Buy the car because you want it not because it might still be worth something in the future.

So that is the case here. They put the engine I've wanted into the package I've wanted them to put it into. They literally built exactly what I wanted. I have an allocation to custom order it, and that build locks Tuesday (expected delivery in early January across the country). Yesterday I did a track day in its closest equivalent as a function "test drive" and it exceeded expectations.

As someone who has driven nearly 1000 exotic sports cars, I've spent TWENTY YEARS figuring out what I would eventually plunk this kind of money down on, and keep until my early-to-mid 80s.

But if the people who are giving you the loan believed what you believe, why would they give you the loan and not buy the car themselves?

Because it's a bank, not a car collector. Trust me when I say I've already been competing against collectors. It took 27 months of effort (HUNDREDS of hours spent, calling 40% of dealers in the US!) to get an allocation where I could build the car to order. My alternative is buying 2nd hand cars with 20-600 miles which cost 80-85% of the MSRP but marked up to the same or higher T-cost. The current markup in the market is softening given economic conditions and collectors closing their wallets a bit.

The main thing about the loan is it’s a protection against inflation consider this.

Yep, and that's where I'm struggling, because I normally don't take on debt, and I'm usually just stuffing money into retirement. Again, original plan was 80% of T-cost down, and burn the note down in 18 months. Interest paid would be 0.75% of T-cost. Though when I looked at the math, I had to question myself. If it were a $10K difference or less I wouldn't care and would stick to the conservative plan. Since it is "likely" but not guaranteed to be a larger difference -- AND because I have no immediate future plans for the money -- I've had to question myself for once!

[Goof]

the car will depreciate in a recession or if you are out driving, totally safely, and a teen who is texting and driving, rear ends you.

Correct. This is where I expect in a serious recession where transaction values in a dumping scenario to be down to 70% of T-cost for the duration (and that's being pessimistic). Regarding depreciation from mileage, there will be some but not material depreciation in the case of high mileage.

I'm about to sell my car in 6 weeks with "much higher mileage" than most transactions. I'm still expecting to recover 97-100% of original purchase price based on public transaction data. If the market continues to soften, it might be as low as 92%. 8% depreciation over 9 years for a car I've thoroughly enjoyed I consider extremely good value.

or if you are out driving, totally safely, and a teen who is texting and driving, rear ends you. I would buy it if you can afford it and accept the possibility that it might not depreciate at all, but then again

Car is to be insured with a declared value collector car policy, not depreciation insurance. 100% of value will be recovered. It's why the insurance is so expensive. The bigger issue in such a scenario isn't recovering what I paid, it's actually finding the closest replacement to purchase second-hand, as that could take more than a year for one to come up.

[smitcat]

Saying that a car will beat any market longer term typically means someone leaves out the overall yearly costs of the car. Insurance, repairs, maintainance and use will consume varying amounts dependent upon storage/use/type/future changes.

Agreed. However, the car I'm buying I don't expect to beat the market over 40 years, but to NOT MATERIALLY DEPRECIATE (in absolute terms, not inflation adjusted). Big difference. I'm looking at it more as a US Series I Bond I can drive (after 40 years, not short-term), though for the first 15-20 years the primary cost is insurance, fuel, consumables (tires and brakes aren't cheap!) and maintenance. There should be material appreciation after that as the cars "settle" into their long term owners, as these kind of vehicles tend to trade hands fairly frequently in the first 10 years of their ownership. The primary reason I don't expect material appreciation is the expected production numbers are too high (probably ~1400 sold in the US), so they can sate market demand easily enough. You generally need to get to < 1000 cars in the US for supply to be sufficiently constrained to drive any material appreciation, so long as there is serious, enduring demand for such a vehicle (there's lots of rare vehicles that no one will ever care about).

Cars that actually beat the market over shorter periods (< 20 years) are rare, but exist for periods of time.

Cars that beat the market overall? None have ever existed. Ever. Even a Ferrari 250 SWB hasn't done it. The market over that time crushes it as expected.

-----

But I'm not here to discuss the collector car market. I'm mostly here to discuss the math of investing $150K over putting it down on a car.

Then the primary thing to consider is that leverage works both ways...

FWIW ..."and have owned a less hardcore version of it for 9 years that's kept me extremely happy for comparable TCO (no depreciation!)"
Say $100,000 car 9 years ago which can sell for $100K now compared to the S & P 500 over those same 9 years.
Car - $100,000 breakeven
S & P - $315,000
$215,000 difference

[sambb]

Well said when considering S and p 500 compounding. one has to look at the opportunity cost, not the appreciation or depreciation of the asset, but rather compare it to the s and p, etc.

[Goof]

Well said when considering S and p 500 compounding. one has to look at the opportunity cost, not the appreciation or depreciation of the asset, but rather compare it to the s and p, etc.

Agreed, which is why I'm looking at it. Regarding "money grows more than the car" I also won't disagree, but here's the thing:

• I make $270K+, but live on as if I make < $70K, this car purchase aside.

• I do not go out to eat.

• I don't buy luxury goods.

• I don't go to movies, concerts, museums, etc.

• I don't have subscription media services.

• I don't buy luxury gadgets. I STILL play the video games I had as a kid!

• An exciting day out for me is taking a walk to do errands, and meeting some happy dogs.

• The last time I've been on a proper vacation, was 34 years ago.

• ... and so on.

My retirement savings is at 8.5X my gross income in my early 40s. I own a home that is paid off and I've personally kept in a fantastic state of repair.

I have lived very frugally in a expensive cost of living area (Boston) to do this as responsibly as humanly possible. I am trying to satisfy my inner 6-year old while I'm young enough to thoroughly enjoy it (early 40s) for many years to come, because I gave up nearly everything else for it. Note this car is NOT used as a conveyance, only for fun excursions on backroads and track days. 99.9% of my trips are on a $35 pair of out-of-season Nikes. Though I may buy my father's 2006 Honda CR-V LX AWD in the next 2 years for $4000-4500 as a "splurge."

All I'm looking to do is question the math of putting $150K of additional money in 50% US/20% ex-US/30% cash, instead of lump summing it directly into a car that won't see any material appreciation for at least 15 years. I believe the consensus here is, "Yes, put it in the market, especially if you're just going to sit on it forever. Duh."

[smitcat]

Well said when considering S and p 500 compounding. one has to look at the opportunity cost, not the appreciation or depreciation of the asset, but rather compare it to the s and p, etc.

Agreed, which is why I'm looking at it. Regarding "money grows more than the car" I also won't disagree, but here's the thing:

• I make $270K+, but live on as if I make < $70K, this car purchase aside.

• I do not go out to eat.

• I don't buy luxury goods.

• I don't go to movies, concerts, museums, etc.

• I don't have subscription media services.

• I don't buy luxury gadgets. I STILL play the video games I had as a kid!

• An exciting day out for me is taking a walk to do errands, and meeting some happy dogs.

• The last time I've been on a proper vacation, was 34 years ago.

• ... and so on.

My retirement savings is at 8.5X my gross income in my early 40s. I own a home that is paid off and I've personally kept in a fantastic state of repair.

I have lived very frugally in a expensive cost of living area (Boston) to do this as responsibly as humanly possible. I am trying to satisfy my inner 6-year old while I'm young enough to thoroughly enjoy it (early 40s) for many years to come, because I gave up nearly everything else for it. Note this car is NOT used as a conveyance, only for fun excursions on backroads and track days. 99.9% of my trips are on a $35 pair of out-of-season Nikes. Though I may buy my father's 2006 Honda CR-V LX AWD in the next 2 years for $4000-4500 as a "splurge."

All I'm looking to do is question the math of putting $150K of additional money in 50% US/20% ex-US/30% cash, instead of lump summing it directly into a car that won't see any material appreciation for at least 15 years. I believe the consensus here is, "Yes, put it in the market, especially if you're just going to sit on it forever. Duh."

"I believe the consensus here is, "Yes, put it in the market, especially if you're just going to sit on it forever. Duh."

If your total plan can 'afford' larger decreases in value in both the vehicle and the portfolio this is true.
No comments on anything else.

[blortchplop]

I think you might not be getting the best responses on the two payoff options because the specifics on the loan / payoff terms are a little hard to find in the original post (especially for invest option), and details about the car are mixed in.

The two options are:

T-cost of the car is ~$265K, with ~$25-30K in other expenses (plane, hotel, shipment, tire swap, paint correction, full PPF, cosmetic tweaks) at delivery. The original plan was to put $212K down, borrow $53K at 60@4.49% or less, and open a 0% card to float the other expenses for 11 mo. and then pay it off. The payment schedule was to pay off in 18 months, with total interest paid of just under $2,000.

-----

Yet with $220K of cash to be on hand after I sell my current car, I've sat down and mathed it out. Instead of $212K down borrowing $53K, I could put $70K down, borrowing $195K. If I run the note to term, I pay $23K of interest instead of $2K with the other plan. I also now have $150K to invest.

-----

Generally, math points to investing the money and cash-flowing the debt payments. Again, 50% US, 20% ex-US, 30% "cash."

It was hard to abbreviate the fact that you have 2 years expenses in emergency funds, not including the payments you'd have to make on the $195k loan, and that's why you'd want 30% of the money invested to back the loan in cash.

What would the interest rate and term be on the $195k loan? The same 4.49% and 60 months as the first option? You also mention a 7-year investing period later in the post. What would the monthly loan payment be?

Which of the two options has a better end outcome for your savings? From what you've written, I imagine you're in a good spot either way, so maybe it's moot.

The biggest concern I would personally have about taking out a loan that large is temporary loss of income before the loan is paid off. But you have plenty of emergency savings plus the 30% cash plan for the backing investment.

[Goof]

I think you might not be getting the best responses on the two payoff options because the specifics on the loan / payoff terms are a little hard to find in the original post (especially for invest option), and details about the car are mixed in.

4.49% at 60mo would be for both $53K or $195K. I've spoken to the underwriters at the bank and they're confident of this given my income, my assets, and my credit score (it's 84X/850). There is a chance that by the time the note is underwritten, the interest rate may be 25-40 basis points lower, but I won't count on that given how aggressive the lender currently is with their loan rates.

The scheduled payment for $53K is $987.84. The first payment would be $5000 (get loan to net 90-120), the second payment would be $3500, then all subsequent payments would be for $2500 until July 2026, in which I'd pay off the balance of $8766.22, with total interest paid of $1,999.02. This is the ultra-conservative "I will let nothing ever go wrong" approach I had originally planned for. I have the title. Car is mine. Job done.

The scheduled payment for $195K is $3,634.50. Total interest paid would be $23,070.16. I would have $150,000 to add to the 3-fund portfolio which would be $75K into VTI, $30K into VXUS, and $45K into VUSXX to "extend the emergency fund" to cover scheduled car payments for a year outside of my primary emergency funds. I can take a 55% pay cut and still handle those payments plus the drastically more expensive declared value insurance. There is also money in taxable accounts that could immediately pay off the car note but I will always pretend it doesn't exist unless push comes to shove.

-----

The 7 year investing period is a minimum. Ultimately I'd like to do some improvement to the house to have things done. One of them is replacing the very tiny 1-car garage with a wide 2-car garage with a bit of extra room to service them myself, etc. The upcoming car is "extremely intense" in terms of a driving experience, so I've long identified a grand-touring oriented sports car to put alongside it which is "more normal" for my definition of normal.

So those cabinets, a modern HVAC system (current furnace is only 8 years old), modern water heater, garage, and car 2 are not needs. They are wants. If it takes 10 years or 14 years, I'm good. However, I would like to have the home improvements done within the next 18 years.

The second car is a want, and market values have been very stable, so there's no closing window of opportunity that I foresee for at least 7 more years. The plan for a "conveyance" as I get older is a $4000-4500 self-serviceable reliable "beater". I have mostly walked and used public transit almost exclusively for the past 16 years, but I realize as I get older that may change due to unforeseen circumstances.

Which of the two options has a better end outcome for your savings?

So the conservative payoff plan saves me $21K of post-tax interest in the first 5 years. Most market situations handily beat that over a 7-year window by quite the margin. There's a few historic windows that are below that, and a few that are a wash. If the income situation doesn't change I can always do all the home improvements with new cash that is accumulated. The 2nd car can always wait, but I'd like to have that done in 13 years if able.

[blortchplop]

Which of the two options has a better end outcome for your savings?

So the conservative payoff plan saves me $21K of post-tax interest in the first 5 years. Most market situations handily beat that over a 7-year window by quite the margin. There's a few historic windows that are below that, and a few that are a wash. If the income situation doesn't change I can always do all the home improvements with new cash that is accumulated. The 2nd car can always wait, but I'd like to have that done in 13 years if able.

It's sounding like you'll be ok either way. If you really want to run numbers, I think the two things to compare are:

• No $150k to invest, reduced savings until $53k loan is paid off in July 2026, increased (or back to normal) savings thereafter.
• $150k to invest with reasonable expected after-tax returns. Reduced savings for 60 months, increased (or back to normal) savings thereafter.

Main things I'm trying to highlight are the impact of the loan payments on your savings rate and the tax drag on the invested $150k. You did touch on the latter in your first post.

If you want to go against the title of the thread and convince yourself to put more money down, you can always go listen to some Dave Ramsey

[Goof]

It's sounding like you'll be ok either way. If you really want to run numbers, I think the two things to compare are:

• No $150k to invest, reduced savings until $53k loan is paid off in July 2026, increased (or back to normal) savings thereafter.
• $150k to invest with reasonable expected after-tax returns. Reduced savings for 60 months, increased (or back to normal) savings thereafter.

Main things I'm trying to highlight are the impact of the loan payments on your savings rate and the tax drag on the invested $150k. You did touch on the latter in your first post.

If you want to go against the title of the thread and convince yourself to put more money down, you can always go listen to some Dave Ramsey

Yep. Accounting for taxes, a 6.2% CAGR is basically what I'd consider to be the "minimum" break-even point where carrying the debt to be "worth it." Historically I am ultra-pessimistic by default, because if I can succeed in the face of fairly awful conditions (retirement was based around average 1% real return over 75 years of accumulation and withdrawals), odds are I'll be more than covered when the world is fairly normal. So far I've blown out expectations by... a lot. I'm around 20 years ahead of schedule in terms of retirement savings.

Regarding tax drag, that is a part of why I've been doing weekends and nights spinning up an old business I put on snooze about 6 years ago. Well, that and I could possibly go back to solo endeavors. Traditional 401k is always maxed, match is worth $8.5K this year, closer to $9K next year after COLA adjustment, and then backdoor Roth IRA. I can do after-tax contributions up to 10% of gross pay (which I mega backdoor twice a year to minimize tax drag), but with the business spinning back up I plan on reigning in the after-tax contributions and just profit-sharing the full 25% of my SE gross revenue into my SE 401k until I max both sides of the 401k limit, since I'm edging into the 32% federal bracket. Then $10K into Series I Bonds which doubles as extended emergency fund if absolutely necessary, but otherwise will be part of the portfolio to serve as part of my fixed-income going into retirement.

[FellsGuy]

This just doesn’t feel like the place not to discourage you against buying your no cost dream car and if everything else in your life is totally buttoned up why not.

[blortchplop]

It's sounding like you'll be ok either way. If you really want to run numbers, I think the two things to compare are:

• No $150k to invest, reduced savings until $53k loan is paid off in July 2026, increased (or back to normal) savings thereafter.
• $150k to invest with reasonable expected after-tax returns. Reduced savings for 60 months, increased (or back to normal) savings thereafter.

Main things I'm trying to highlight are the impact of the loan payments on your savings rate and the tax drag on the invested $150k. You did touch on the latter in your first post.

If you want to go against the title of the thread and convince yourself to put more money down, you can always go listen to some Dave Ramsey

Yep. Accounting for taxes, a 6.2% CAGR is basically what I'd consider to be the "minimum" break-even point where carrying the debt to be "worth it." Historically I am ultra-pessimistic by default, because if I can succeed in the face of fairly awful conditions (retirement was based around average 1% real return over 75 years of accumulation and withdrawals), odds are I'll be more than covered when the world is fairly normal. So far I've blown out expectations by... a lot. I'm around 20 years ahead of schedule in terms of retirement savings.

Regarding tax drag, that is a part of why I've been doing weekends and nights spinning up an old business I put on snooze about 6 years ago. Well, that and I could possibly go back to solo endeavors. Traditional 401k is always maxed, match is worth $8.5K this year, closer to $9K next year after COLA adjustment, and then backdoor Roth IRA. I can do after-tax contributions up to 10% of gross pay (which I mega backdoor twice a year to minimize tax drag), but with the business spinning back up I plan on reigning in the after-tax contributions and just profit-sharing the full 25% of my SE gross revenue into my SE 401k until I max both sides of the 401k limit, since I'm edging into the 32% federal bracket. Then $10K into Series I Bonds which doubles as extended emergency fund if absolutely necessary, but otherwise will be part of the portfolio to serve as part of my fixed-income going into retirement.

Are you also considering that in the $53k loan case, you can start saving more again after the loan is paid off in July 2026? The $150k loan would still have 38 months or so to go at that point (if both start in October of this year). I'm guessing that 6.2% CAGR on $150k is the after-tax breakeven compared to 4.49% on $195k. I don't think it accounts for being able to start saving more again after paying off the $53k loan.

• No $150k to invest, reduced savings until $53k loan is paid off in July 2026, increased (or back to normal) savings thereafter.
• $150k to invest with reasonable expected after-tax returns. Reduced savings for 60 months, increased (or back to normal) savings thereafter.

[Watty]

What I ask for is a sanity check my math and to further put me out of my comfort zone

I did not follow your numbers at all but if you do not want the car badly enough to write a big check for it then you may not want it badly enough to buy it.

Car sales people often try to sell ordinary cars based on the monthly payments and that gets lots of people into trouble. You seem to be doing a glorified self inflicted monthly payment sales job on yourself.

If I understand it right then it also sounds like you plan to drive the car on a daily basis. I am not a "car guy" but I am skeptical that it will hold it's value well if it has a couple of hundred thousand miles on it in 40 years. In maybe 10(??) years or so it will also become a lot harder to find parts for it.

[Goof]

Yes, that does account. My taxable savings does not drop to $0 while carrying the loan. The savings rate is simply reduced.

As I mentioned previously, before the new car, I live on about 25% of my gross income. That income is also going up (so long as I can sustain and grow it). I actually scrapped together the cash for the new car in the past 27 months once I was certain it would be announced and actually exist.

[Goof]

I did not follow your numbers at all but if you do not want the car badly enough to write a big check for it then you may not want it badly enough to buy it.

I absolutely can write a check for 100% of it. But that would involve liquidating assets in taxable accounts, which is a taxable event. I consider that a no go. The best I can do without a taxable event is 80% of the T-cost.

Moreover, my entire life I HAVE paid cash for everything. I have not paid a cent of interest on anything but a mortgage (paid off!) since 2004. However this is the first time since I bought the house (where I put 55% down!) where I have a giant stack of money, and over the years I've learned that if I actually kept and invested that money instead of paying cash for things, the pile would actually be bigger.

If I understand it right then it also sounds like you plan to drive the car on a daily basis.

Then you... didn't read anything I wrote? At all?

[Watty]

If I understand it right then it also sounds like you plan to drive the car on a daily basis.

Then you... didn't read anything I wrote? At all?

I saw;

Yet with $220K of cash to be on hand after I sell my current car....

So I assumed that this would be your only car.

Maybe it was just me but I had a hard time following your post and I might have missed it but when you said;

Instead of $212K down borrowing $53K, I could put $70K down, borrowing $195K. If I run the note to term, I pay $23K of interest instead of $2K with the other plan. I also now have $150K to invest.

I could not figure out what interest rate you were expecting to pay on the $195K loan and how long the loan was for.

[Goof]

Here's all the numbers for people who aren't actually reading anything:

• Age 42

• Cars are toys, not required. 99.9% of trips are on foot, subway, bus or light rail

• $270,000 a year minimum W-2 income. $23.5K gross per month.

• My current "living my best life" expenses currently at $3450/mo. EVERYTHING. Including holiday gifts for people, discretionary spend, etc.

• Paid off mortgage. $650K market valuation.

• $1,660,000 in tax-advantaged retirement accounts, adding minimum $50,000 per year

• $640,000 in taxable accounts intended for retirement, adding minimum $15,000 per year, but can add FAR, FAR more.

• 12-14 months expenses in HYSAs for Emergency Funds.

• Currently 12-14 expenses in Series I Bonds that can double as an extended emergency fund.

• Will have $220,000 "cash" in US Treasury MMF available for this purchase that I accumulated over the past 27 months.

--

• Car T-cost -- MSRP, options, delivery charge, sales tax, gas guzzler tax, doc fees, reg. etc is ~$265,200.

• Debate is whether I put $212,200 down and finance $53K, or put $70,200 down and finance $195K to have $150K to add to taxable accounts. Math very consistently points to the latter, not the former.

• That money would be $75K VTI, $30K VXUS. Also $45K VUSXX to "extend the emergency fund" because "paying for your supercar is not an emergency."

• I am sourcing my own financing. 4.49% at 60mos is the best rate I can find in the United States for that term. I can get 4.04% for 36mos. No, there is not a better rate for this vehicle, as the manufacturer does not do "incentive" financing. This is a RennSport Porsche, not a Hyundai.

• No dealership "sold" me anything. They merely brokered the transaction. I'm actually flying 3000 miles for delivery of the car, because that was the best deal in the United States (didn't try Canada) I could ultimately close. I called over 40% of the dealers in the country over the past 27 months to fight for an allocation. I actually got one, to build it myself. My only other option is to buy $190-210K MSRP cars "used" with 20-600 miles for $240-285K ($255-$303K with tax!) in generally hideous color combinations, missing hideously expensive options, etc.

[blortchplop]

Yes, that does account. My taxable savings does not drop to $0 while carrying the loan. The savings rate is simply reduced.

As I mentioned previously, before the new car, I live on about 25% of my gross income. That income is also going up (so long as I can sustain and grow it). I actually scrapped together the cash for the new car in the past 27 months once I was certain it would be announced and actually exist.

Understood. You're doing great financially. And it looks like you can afford this either way.

I'm just saying that the relative comparison between the two options should take into account the reduced savings rate for the $195k loan option from August 2026 until that loan is paid off.

Suppose both loans start in October, and the 60 month loan ends September 2029.

• Put $212k down. Pay $55k total for smaller loan, ending July 2026. Save $3,634.50 starting August 2026 and ending September 2029 (38 months) = $138,111.00. At 7% CAGR compounded monthly (online calculator), this becomes 154,273.83. Net outcome, −$112,726.17.
• Put $70k down. Save $150k at 7% CAGR = $210,382.76 in 5 years. Take out $195k loan and pay $218,070.13 total. Net outcome, −$77,687.37.

There are a lot of caveats to the above: Rough numbers, not including taxes, not accounting for inflation, and I might have messed something up. Given all of that, the invest $150k option does look better.

[flyingcows]

You mentioned selling your current car when you purchase this new exotic car, do you have another backup car that would function as a "daily driver" when the exotic car needs repairs or your waiting weeks for part(s)? I don't know what your planning to buy, so your YMMV but I'd think having another car as a daily driver would probably be important

[Goof]

You mentioned selling your current car when you purchase this new exotic car, do you have another backup car that would function as a "daily driver" when the exotic car needs repairs or your waiting weeks for part(s)? I don't know what your planning to buy, so your YMMV but I'd think having another car as a daily driver would probably be important

My current car is already "semi exotic." I have exclusively driven 2-seater sports cars since 2006.

I have not needed a "daily driver" in 16 years. I moved here to stop doing that.
Of the "99.9% of my trips don't use a car", 98% are on foot, 1% are subway, 0.5% are bus, 0.4% are light rail.
I live in the immediate Boston area.
I work from home.
I live within 8 minutes walking distance of 3 full-size supermarkets (closest is 4.5 minutes), plus a Walmart and my primary pharmacy.
I live within 18 minutes walk of a subway station, or 6 minutes walk to a bus stop that would take me to said subway station.

If I need a car right freakin' now for some other reason -- usually because I need to transport a very large object -- I'm a ZipCar member, so I can reserve a vehicle for 1 hour to a whole day, and go grab it in about a 25 minute walk. This is usually done for winter holidays with inclement weather.

Another "large cargo" option, I'm going to go to a U-haul within a 6 minute walk and rent a panel van to get it done. Total cost well under $50.

[Goof]

Yes, that does account. My taxable savings does not drop to $0 while carrying the loan. The savings rate is simply reduced.

As I mentioned previously, before the new car, I live on about 25% of my gross income. That income is also going up (so long as I can sustain and grow it). I actually scrapped together the cash for the new car in the past 27 months once I was certain it would be announced and actually exist.

Understood. You're doing great financially. And it looks like you can afford this either way.

I'm just saying that the relative comparison between the two options should take into account the reduced savings rate for the $195k loan option from August 2026 until that loan is paid off.

Suppose both loans start in October, and the 60 month loan ends September 2029.

• Put $212k down. Pay $55k total for smaller loan, ending July 2026. Save $3,634.50 starting August 2026 and ending September 2029 (38 months) = $138,111.00. At 7% CAGR compounded monthly (online calculator), this becomes 154,273.83. Net outcome, −$112,726.17.
• Put $70k down. Save $150k at 7% CAGR = $210,382.76 in 5 years. Take out $195k loan and pay $218,070.13 total. Net outcome, −$77,687.37.

There are a lot of caveats to the above: Rough numbers, not including taxes, not accounting for inflation, and I might have messed something up. Given all of that, the invest $150k option does look better.

Appreciate the sanity check. I had a friend very recently do a wild dream purchase (meticulously planned, then timing tipped in their favor) and when he reviewed his numbers with me, I initially questioned it. I then sat there and worked it all out on my own, knowing that he is nearly as shrewd as I am. It was mostly napkin math and a quickly thrown together spreadsheet, but sure enough, it was all method, no mayhem. Math absolutely checked out.

Which is what made me again realize this is why other people do these things. They've done their homework, planned ahead, then got 'er done. Their situation is little different (often better) than mine, but their approach pays dividends over decades.

Not taking better advantage of leverage is a bad habit I've increasingly realized I need to break, and it's a habit that formed out of growing up with people that overspent, didn't save, and vastly increased the cost of things through debt. I've gotten better at it, but my friend's purchase made me re-review my approach, and almost instantly I realized I was likely doing something substantially sub-optimal.

The only other bad habit I have -- that I'm also trying to break -- is with spinning up the business again. Focus only on what I do best (not long term nonsense to increase utilization), and instead of lowering the price, increase the value. I've never closed a sale on an engagement so quickly, client is already overjoyed so far, and looking as if I'm going to trivially close another. This income I've excluded from the above, but three quick engagements which delivery monstrous operational savings are an EASY 40% increase to my income that I can do almost entirely after-hours and on weekends part of the year. Plus it gives me SE revenue which I can put profit-share into my SE 401K instead of making after-tax contributions to my W-2 employer 401k to mega backdoor, which lets me save much more in general, at a much lower cost.

[smitcat]

You mentioned selling your current car when you purchase this new exotic car, do you have another backup car that would function as a "daily driver" when the exotic car needs repairs or your waiting weeks for part(s)? I don't know what your planning to buy, so your YMMV but I'd think having another car as a daily driver would probably be important

My current car is already "semi exotic." I have exclusively driven 2-seater sports cars since 2006.

I have not needed a "daily driver" in 16 years. I moved here to stop doing that.
Of the "99.9% of my trips don't use a car", 98% are on foot, 1% are subway, 0.5% are bus, 0.4% are light rail.
I live in the immediate Boston area.
I work from home.
I live within 8 minutes walking distance of 3 full-size supermarkets (closest is 4.5 minutes), plus a Walmart and my primary pharmacy.
I live within 18 minutes walk of a subway station, or 6 minutes walk to a bus stop that would take me to said subway station.

If I need a car right freakin' now for some other reason -- usually because I need to transport a very large object -- I'm a ZipCar member, so I can reserve a vehicle for 1 hour to a whole day, and go grab it in about a 25 minute walk. This is usually done for winter holidays with inclement weather.

Another "large cargo" option, I'm going to go to a U-haul within a 6 minute walk and rent a panel van to get it done. Total cost well under $50.

Will your current garage pass criteria for storage with the insurance comapny as is? (this changes with high end cars)
How will you get the car and all the support items to the track for track days?
Do you have existing space to change over the car for track days?

[Goof]

You mentioned selling your current car when you purchase this new exotic car, do you have another backup car that would function as a "daily driver" when the exotic car needs repairs or your waiting weeks for part(s)? I don't know what your planning to buy, so your YMMV but I'd think having another car as a daily driver would probably be important

My current car is already "semi exotic." I have exclusively driven 2-seater sports cars since 2006.

I have not needed a "daily driver" in 16 years. I moved here to stop doing that.
Of the "99.9% of my trips don't use a car", 98% are on foot, 1% are subway, 0.5% are bus, 0.4% are light rail.
I live in the immediate Boston area.
I work from home.
I live within 8 minutes walking distance of 3 full-size supermarkets (closest is 4.5 minutes), plus a Walmart and my primary pharmacy.
I live within 18 minutes walk of a subway station, or 6 minutes walk to a bus stop that would take me to said subway station.

If I need a car right freakin' now for some other reason -- usually because I need to transport a very large object -- I'm a ZipCar member, so I can reserve a vehicle for 1 hour to a whole day, and go grab it in about a 25 minute walk. This is usually done for winter holidays with inclement weather.

Another "large cargo" option, I'm going to go to a U-haul within a 6 minute walk and rent a panel van to get it done. Total cost well under $50.

Will your current garage pass criteria for storage with the insurance comapny as is? (this changes with high end cars)
How will you get the car and all the support items to the track for track days?
Do you have existing space to change over the car for track days?

• Yes. I've had Hagerty for 10 years. Complete non-issue. I've had assessors out twice and total nothing sandwich.

• This isn't something I need to trailer. That's the whole point. It's street legal. I drive there, then I drive home. I'm not racing in a league, I'm going out for 30-minute stints at a time before coming in for a break and to digest telemetry data. Basic tools and supplies go in the frunk.

• Track days are currently rare for me since insurance costs are oof and because I don't belong to a local track's "country club." I tend to do a lot more autocross. People who do them as a primary hobby with this level of car tend to have another zero of net worth. I spend a lot more time in New Hampshire, Vermont and Maine on backroads for primary fun. There'll be a 2nd set of tires and wheels in time for track days (no immediate plans for them, I want to go back for more professional level instruction first), and needing to use a meter-long breaker bar to torque the centerlock nuts aside, things are pretty straightforward. I've a BendPak QuickJack to lift the entire car, and things like changing brake fluid is muscle memory after having done it for 20+ years. I'd just run an aggressive street geometry, not change to a dedicated track geometry. Goal is fun, not numbers.

[smitcat]

You mentioned selling your current car when you purchase this new exotic car, do you have another backup car that would function as a "daily driver" when the exotic car needs repairs or your waiting weeks for part(s)? I don't know what your planning to buy, so your YMMV but I'd think having another car as a daily driver would probably be important

My current car is already "semi exotic." I have exclusively driven 2-seater sports cars since 2006.

I have not needed a "daily driver" in 16 years. I moved here to stop doing that.
Of the "99.9% of my trips don't use a car", 98% are on foot, 1% are subway, 0.5% are bus, 0.4% are light rail.
I live in the immediate Boston area.
I work from home.
I live within 8 minutes walking distance of 3 full-size supermarkets (closest is 4.5 minutes), plus a Walmart and my primary pharmacy.
I live within 18 minutes walk of a subway station, or 6 minutes walk to a bus stop that would take me to said subway station.

If I need a car right freakin' now for some other reason -- usually because I need to transport a very large object -- I'm a ZipCar member, so I can reserve a vehicle for 1 hour to a whole day, and go grab it in about a 25 minute walk. This is usually done for winter holidays with inclement weather.

Another "large cargo" option, I'm going to go to a U-haul within a 6 minute walk and rent a panel van to get it done. Total cost well under $50.

Will your current garage pass criteria for storage with the insurance comapny as is? (this changes with high end cars)
How will you get the car and all the support items to the track for track days?
Do you have existing space to change over the car for track days?

• Yes. I've had Hagerty for 10 years. Complete non-issue. I've had assessors out twice and total nothing sandwich.

• This isn't something I need to trailer. That's the whole point. It's street legal. I drive there, then I drive home. I'm not racing in a league, I'm going out for 30-minute stints at a time before coming in for a break and to digest telemetry data. Basic tools and supplies go in the frunk.

• Track days are currently rare for me since insurance costs are oof and because I don't belong to a local track's "country club." I tend to do a lot more autocross. People who do them as a primary hobby with this level of car tend to have another zero of net worth. I spend a lot more time in New Hampshire, Vermont and Maine on backroads for primary fun. There'll be a 2nd set of tires and wheels in time for track days (no immediate plans for them, I want to go back for more professional level instruction first), and needing to use a meter-long breaker bar to torque the centerlock nuts aside, things are pretty straightforward. I've a BendPak QuickJack to lift the entire car, and things like changing brake fluid is muscle memory after having done it for 20+ years. I'd just run an aggressive street geometry, not change to a dedicated track geometry. Goal is fun, not numbers.

I guess you have it covered - I would not be reasonably comfortable working in a small one car garage for any track days or even general upkeep. We have 2 Quickjacks (TL7000) and a 4 post lift available and there still did not seem to be enough space for tires, brakes tools, etc.
Also the garage needed some slight mods to qualify for our insurance - flammables, overhead storage, door, adjacencies, etc were all parts of that requirement a few years back.
Good luck with the car.

[Goof]

I guess you have it covered - I would not be reasonably comfortable working in a small one car garage for any track days or even general upkeep. We have 2 Quickjacks (TL7000) and a 4 post lift available and there still did not seem to be enough space for tires, brakes tools, etc.

Also the garage needed some slight mods to qualify for our insurance - flammables, overhead storage, door, adjacencies, etc were all parts of that requirement a few years back.
Good luck with the car.

Yep, it's why in time I want to replace the garage with a "2.5 car" so there's a lot more room for storage, tools and just physical room. It's not even a condition issue, it's just a size issue. I have more than sufficient width right now, but an extra foot or two of width (so 1.25 car) would be wonderful.

As previously mentioned that's a "want" not a "need." I'd like to commit to that (and the 2nd and final toy car) in another 8 years, but there's no firm timeline on that. There may be a $4000-4500 "beater" CR-V I buy off my parents in a few years, but that's going to live outside if I decide to do it.

[HomerJ]

Buy the car, pay as much cash as you can.

Do not take a larger loan and hope to make more in the market.

My personal opinion, if you can't afford to pay cash for a toy, you can't afford the toy.

But the original loan is small enough that you can pay it off within a year or so, so stick with that.

[smitcat]

I guess you have it covered - I would not be reasonably comfortable working in a small one car garage for any track days or even general upkeep. We have 2 Quickjacks (TL7000) and a 4 post lift available and there still did not seem to be enough space for tires, brakes tools, etc.

Also the garage needed some slight mods to qualify for our insurance - flammables, overhead storage, door, adjacencies, etc were all parts of that requirement a few years back.
Good luck with the car.

Yep, it's why in time I want to replace the garage with a "2.5 car" so there's a lot more room for storage, tools and just physical room. It's not even a condition issue, it's just a size issue. I have more than sufficient width right now, but an extra foot or two of width (so 1.25 car) would be wonderful.

As previously mentioned that's a "want" not a "need." I'd like to commit to that (and the 2nd and final toy car) in another 8 years, but there's no firm timeline on that. There may be a $4000-4500 "beater" 2006 CR-V I buy off my parents in a few years, but that's going to live outside if I decide to do it.

We did the reverse order - built the 2.5 car garage on the opposite side of the house with the existing 2 car garage. Then we had the 'home' ready for whatever cars and support 'stuff' we needed prior to aquiring the car(s). Insurance liked it that way as well. That was just our experience.
I did build my first car in a 'tiny one car garage' as you alluded to above - not sure how I got that done in my 20's but would not want to repeat it again looking back at the old pictures.

[smitcat]

Buy the car, pay as much cash as you can.

Do not take a larger loan and hope to make more in the market.

My personal opinion, if you can't afford to pay cash for a toy, you can't afford the toy.

But the original loan is small enough that you can pay it off within a year or so, so stick with that.

He can pay cash but the math favors the loan.
Does his holdings, expenses, or osition in life in any way describe that he cannnot afford the car?

[EdNorton]

Look at prices on BAT, trend is down. I would not own a car in Boston. Expect ordinary maintenance on exotics to cost $2-4k, if you can find competent mechanics. Just my opinion.

[edge]

Is this cost recovery an illusion of non-inflation adjusted dollars?

In any case, buy the car if you can afford it.

[Watty]

I am sourcing my own financing. 4.49% at 60mos is the best rate I can find in the United States for that term.

This is the critical part, the fact that you are buying a car is not relevant since this loan could just as easily be a home equity loan, margin loan, etc.

For a $195 loan the monthly payment would be $3,634 a month($43,614 a year, rounded to $44K ). At the end of the first year the remaining loan balance would be $159,415.

https://www.calculator.net/amortization ... #calresult

The problem is that you have a huge sequence of returns risk.

If you started out with an offsetting $195k in a seperate account and paid the loan out that then at then end you would have taken out $44K and would have a balance of $195K -$44K= $151K.

The problem is that about 27% of the time the stock market will have a down year.

https://www.missionsq.org/prebuilt/apps/downloadDoc.asp

For example in a modestly down year the stock market might be down a bit more than 10% so your $195 would be down about $20K. With the payments during the year your ending account balance would be $195K -$44K -$20K=$131K which is not enough to pay off the remaining loan balance of $159K.

That is the problem with using leverage when you are spending out of the account. On average you might expect to come out ahead but some percent of the time you will do badly and if you run into something like a 30% stock market decline at the same time you are making large monthly payments you will quickly dig yourself into a hole.

[Valuethinker]

Look at prices on BAT, trend is down. I would not own a car in Boston. Expect ordinary maintenance on exotics to cost $2-4k, if you can find competent mechanics. Just my opinion.

Boston was the first place in the world I saw prominent notices "No radio in car". This was in the mid 1980s.

Boston used to have a reputation (again: 1980s) for car thieves. Really *good* car thieves. In the way of these things, what happens is you get 1-2 really good gangs with the right fences, and it becomes an epidemic.

This happened in Toronto with bicycle theft. Turned out one shop had fenced, I think it was over 100k bicycles. Fed the whole ecosystem.

Does Boston still have that reputation? Or is your comment just about driving in Boston (which seemed Montreal-like to me, and Montreal traffic and driving are legendary - something in the Gallic personality perhaps?). And parking - there was also a book in a bookshop (late 1980s) entitled something like "Boston parking nightmares". I gathered that there were actually more licence permits than actual parking spaces, so even at optimum you would have illegally parked cars.

[Valuethinker]

For the past 12 years, I've been saving towards a blue chip, non-depreciating bucket list car I'd keep for 40 years. I've spent 20 years of my life -- including professionally (exotic car sales) -- figuring out what kind of car I'd keep 40 years, and have owned a less hardcore version of it for 9 years that's kept me extremely happy for comparable TCO (no depreciation!) to buying a 5-year old used Toyota Camry (which would depreciate).


What I ask for is a sanity check my math and to further put me out of my comfort zone -- I'm already out of it by agreeing to debt for once! Curveball questions. What ifs. Absolute disaster scenarios.

Thanks in advance!

So you basically rest this on the assumption that the car will not depreciate in nominal terms?

Since that means 2-3% depreciation in real (inflation adjusted) terms that may not be overly aggressive.

You need to think about total wipeout scenarios.

- Car is totalled what is your position?
- car loses its attractiveness to other buyers eg new emission control regs and so suffers a large slump in value
- stock market drops -50%

I must admit I don't favour a leverage strategy, out of pure caution. The after tax cost of borrowing can be quite painful. But, to each their own.

[Caduceus]

There's a lot of irrelevant extraneous information that shouldn't factor into your decision making. It basically boils down to (1) what rate you're borrowing at, and (2) what you're investing in (the expected return over the relevant time horizon.)

Personally I would not borrow at 4.5% to invest in a portfolio that's US-stock heavy. I say this as someone who does use leverage occasionally (in the form of call options), and for me, the few times I've done that has paid off in life-changing ways. Rolling over a call comes at a cost, just like borrowing from whatever type of source comes at a cost.

The fundamental valuation of what you're investing in matters. Borrowing 4.5% to invest in a US-stock heavy portfolio at current prices just isn't the type of slam-dunk scenario that would be tempting to me. Since the U.S. market has historically returned well in excess of 4.5%, you don't really need to back-test anything to figure out that - historically speaking - borrowing at any rate well less than its historic rate of return (assuming returns on equity remain the same going forward) will net you a positive return over some long enough time period. Why doesn't everyone do it?

[PeninsulaPerson]

• The last time I've been on a proper vacation, was 34 years ago.

I gave up nearly everything else for it.

These parts seem sad but that's just to me.

It's your life and you can do what you want - you obviously have the money and the interest/passion for it.

Certainly you won't park it anywhere outside in metro Boston ever, right?

You'll be wary of the increasingly insane/distracted drivers.

Not even quite sure why you're asking, given what you have put in to get this car.

Sounds like no SO, no kids. Do you have a dog, or just pet other people's?

[HomerJ]

Buy the car, pay as much cash as you can.

Do not take a larger loan and hope to make more in the market.

My personal opinion, if you can't afford to pay cash for a toy, you can't afford the toy.

But the original loan is small enough that you can pay it off within a year or so, so stick with that.

He can pay cash but the math favors the loan.
Does his holdings, expenses, or osition in life in any way describe that he cannnot afford the car?

The "math" has assumptions which may not hold up.

If the amount you can make between borrowing and investing is a significant number to you, then you can't afford the toy. Because then the prudent thing is to not buy the toy, and invest all the money, which would be far more significant gains.

Buying a luxury toy should only happen if it makes very little difference in your financial life.

That's just my opinion. No problem if people disagree.

The OP can totally afford the car. He also saves so much a year that he doesn't need to play this game.

Also, this does appear to be more than the typical toy, and more like the main focus of his free time, so there's that as well.

[dalbright]

I would personally go the route that pays off the car the fastest without leveraging into the market but I'm a bit more risk averse than most. The price doesn't even seem that crazy compared to how many 100k basic suvs and trucks I see on the road and lots lately. Just to confirm, you are flying 3k miles to order it then have it shipped back or are you driving it 3k back? You seem to have the current cash and lifestyle to enjoy the car, so now would be a good time. Never know what can come up later in life.

[smitcat]

Buy the car, pay as much cash as you can.

Do not take a larger loan and hope to make more in the market.

My personal opinion, if you can't afford to pay cash for a toy, you can't afford the toy.

But the original loan is small enough that you can pay it off within a year or so, so stick with that.

He can pay cash but the math favors the loan.
Does his holdings, expenses, or osition in life in any way describe that he cannnot afford the car?

The "math" has assumptions which may not hold up.

If the amount you can make between borrowing and investing is a significant number to you, then you can't afford the toy. Because then the prudent thing is to not buy the toy, and invest all the money, which would be far more significant gains.

Buying a luxury toy should only happen if it makes very little difference in your financial life.

That's just my opinion. No problem if people disagree.

The OP can totally afford the car. He also saves so much a year that he doesn't need to play this game.

Also, this does appear to be more than the typical toy, and more like the main focus of his free time, so there's that as well.

"Buying a luxury toy should only happen if it makes very little difference in your financial life."
- 55X times expenses at 42 years old
- home of 650K fully paid off not included
- adding 4-5 times more expenses each year
- multiple jobs and mulitple 'employers'
- SS will likely cover all expenses at FRA
Does the purchase make any difference in this financial life ....when the person could be fully FIRE at 42?

"If the amount you can make between borrowing and investing is a significant number to you, then you can't afford the toy. Because then the prudent thing is to not buy the toy, and invest all the money, which would be far more significant gains."
Liquidating funds all at once when you have higher income which causes more funds at higher rates almost never makes sence - certainly when you do not need to. Loans are often a good choice when making larger purchases een when you can choose cash. The math is pretty clear as we have been through this excercise a few times ourselves.

[firebirdparts]

I only care about the car, but putting that aside, this question has been asked by even the very most financially incompetent people everywhere forever.

You accept risk and you accept risk premium. Or you don't. What really matters is the safety net, and the safety net here is very heavy duty.

As the years go by you'll either win or lose. Odds are you'll be okay. What more can you say? Most people use a mortgage on the house for this kinda thing.

[StealthWealth]

Is there a business use for it? Something that would allow you to depreciate it since you aren't planning to ever sell it? Take it to educational events and/or secure consulting or sales based on demoing it? Talk to a CPA of course.

[HomerJ]

"If the amount you can make between borrowing and investing is a significant number to you, then you can't afford the toy. Because then the prudent thing is to not buy the toy, and invest all the money, which would be far more significant gains."

Liquidating funds all at once when you have higher income which causes more funds at higher rates almost never makes sence - certainly when you do not need to. Loans are often a good choice when making larger purchases een when you can choose cash. The math is pretty clear as we have been through this excercise a few times ourselves.

I don't think he should liquidate funds that would cause a taxable event, but he's not asking about that.

He has $220k in cash, and is asking if he should put that all down on the car, and borrow a minimal amount that he could pay off quickly.

Or make a small down payment, get a loan, and invest the rest and hope the investments pay more than the interest costs on the loan.

The "math" works out, if you assume the investments will make more than the loan, but that's an assumption. A decent assumption, but certainly not guaranteed.

Again, just my personal opinion. If you're worried about trying to arbitrage 1%-2% on a luxury toy purchase, you probably shouldn't buy the toy.

It's a pretty big amount, so the money generated could be decent, but there is a chance for a decent loss as well.

Why not tell him to take a mortgage out on his house, and invest all that money as well?

All I'm looking to do is question the math of putting $150K of additional money in 50% US/20% ex-US/30% cash, instead of lump summing it directly into a car that won't see any material appreciation for at least 15 years. I believe the consensus here is, "Yes, put it in the market, especially if you're just going to sit on it forever. Duh."

It's not a 15 year proposition or a forever thing. It's a 5-year loan, so it's a 5-year thing. Will you make more in the market over 5 years than the interest rate? Maybe. That's short-term though, so who knows?

[smitcat]

"If the amount you can make between borrowing and investing is a significant number to you, then you can't afford the toy. Because then the prudent thing is to not buy the toy, and invest all the money, which would be far more significant gains."

Liquidating funds all at once when you have higher income which causes more funds at higher rates almost never makes sence - certainly when you do not need to. Loans are often a good choice when making larger purchases een when you can choose cash. The math is pretty clear as we have been through this excercise a few times ourselves.

I don't think he should liquidate funds that would cause a taxable event, but he's not asking about that.

He has $220k in cash, and is asking if he should put that all down on the car, and borrow a minimal amount that he could pay off quickly.

Or make a small down payment, get a loan, and invest the rest and hope the investments pay more than the interest costs on the loan.

The "math" works out, if you assume the investments will make more than the loan, but that's an assumption. A decent assumption, but certainly not guaranteed.

Again, just my personal opinion. If you're worried about trying to arbitrage 1%-2% on a luxury toy purchase, you probably shouldn't buy the toy.

It's a pretty big amount, so the money generated could be decent, but there is a chance for a decent loss as well.

Why not tell him to take a mortgage out on his house, and invest all that money as well?

All I'm looking to do is question the math of putting $150K of additional money in 50% US/20% ex-US/30% cash, instead of lump summing it directly into a car that won't see any material appreciation for at least 15 years. I believe the consensus here is, "Yes, put it in the market, especially if you're just going to sit on it forever. Duh."

It's not a 15 year proposition or a forever thing. It's a 5-year loan, so it's a 5-year thing. Will you make more in the market over 5 years than the interest rate? Maybe. That's short-term though, so who knows?

"I don't think he should liquidate funds that would cause a taxable event, but he's not asking about that."
Please read his posts like this one....
"I absolutely can write a check for 100% of it. But that would involve liquidating assets in taxable accounts, which is a taxable event. I consider that a no go. The best I can do without a taxable event is 80% of the T-cost."

You did not reply to the previous question you asked....
"Buying a luxury toy should only happen if it makes very little difference in your financial life."
- 55X times expenses at 42 years old
- home of 650K fully paid off not included
- adding 4-5 times more expenses each year
- multiple jobs and mulitple 'employers'
- SS will likely cover all expenses at FRA
Does the purchase make any difference in this financial life ....when the person could be fully FIRE at 42?