Wednesday, January 10, 2007

The old car ++

I now see the point you are trying to make. But I think this "making money by borrowing" idea only works if you look at it a certain way. Sure, if you have $20,000 free to invest in the market because you took out a car loan, you could make money under the right circumstance. But, looking at it from another perspective, if you kept the old car for a few more years, or just decided to stop owning a car and use the subway, you could have made even more money. If the car loan's APR was 3.9%, and you made 5.9% on the liquid $20,000 you invested, that's 2% profit. But if you didn't take out the loan at all, and invested that same $20,000 and made the same 5.9%, you'd have a 5.9% profit.

Ben's response:

The old car was a total lemon from Day # 1.

I am not wealthy, but I feel I do need the personal mobility of my own vehicle.

You are correct, in one sense , about the investment strategy you sketch out. But a rule of big-time investors --- (like Big Time Ben) is to use "OPM" (Other People's Money.) Or put in this way: The going rate for a margin loan is about 9%. Ergo, this is a pretty good deal.

Do you like the pretty picture?


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