Started by brisktinker15 · · 👁 5 views · 95 replies
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hiddensailor60 said:Look, what you’re saying only makes sense if you aren't capable of disciplining yourself to save. This way, the bank essentially forces you into "forced savings"—though I question whether we can even call it saving; in my view, you’re just losing money.I said that if you have the cash for a car—and let me add that I also have some monthly surplus that could be set aside—personally, I find it unprofitable to shell out all that cash upfront for a vehicle:
Based on that cash, you secure a loan from the bank under terms you negotiate to suit your own taste, specifically regarding the loan term and the monthly payment amount.
You receive funds from the bank and use them to buy the car; here are my specific reasons why I believe this logic holds up:
1. Once the loan is paid off, your initial cash is returned to you. This means you effectively owned the car and were saving money simultaneously... without the loan, you would still be saving, just a smaller amount.
If I had the cash for a car—let's say $25,000—I would put it into a stock mutual fund, take out a margin loan against 70% of the value of those shares, and buy the car over a three-year period. I would only pay the interest; I'd leave the principal until the very end.
Let's assume that the fund yields a 20-30% annual return; after three years, the holdings would be worth $40,000. I pay off the $17,500 margin loan (70% of the $25,000), and at the end of three years, I have the car and $22,500 in cash. (Granted, I was paying interest for three years, but that's a negligible amount in this context).
Doesn't my math look better? 😁 Of course, I emphasized the word "assume"—funds can lose money, too—but I am quite confident that over the next three or four years, one doesn't need to worry about "serious" US equity funds.
And for the strategy you were describing, you'd also need to be in a position to afford the monthly payments $667 for the car, which is no small feat.
But then again, everyone does what works for them and what they perceive to be most profitable, right? 🙂
wiredotter16 said:I want to introduce you to a specific type of Lombard loan; I noticed nobody here has mentioned this option yet, so it might pique your interest.
Let’s run a scenario. Suppose you don't have $60,000 sitting around in cash, so instead, you take out a home equity loan for that amount. You set aside $10,000 to cover old debts and miscellaneous stuff, then dump the remaining $50,000 into an investment fund. Based on that $50,000 stake, the bank grants you a Lombard loan of $25,000, which also gets funneled straight back into the fund. Essentially, the capital isn't "available" for spending. Some funds have been pulling 50% annual returns or even exceeding 100% over the last few years, but let's be realistic—let's assume you aren't that lucky and they return a modest 30%. Of course, that 30% is working on a total principal of $75,000.
With that $10,000 cushion you kept on the side, you cover your monthly mortgage payments, and for the bank providing the Lombard loan, you simply pay the interest. That $10,000 is enough to service both the mortgage installments and the interest for the next five years. You can run the math on the rest yourselves.
Here is the setup:
$75,000 in the fund
30% annual return
Compound interest calculation
After five years, the fund sits at $214,000. You pay the bank back its $25,000 credit, leaving you with roughly $190,000—all while having paid off your mortgage installments.
And look, you aren't forced to withdraw the money from the fund after those five years.
In that case, you could potentially qualify for a new Lombard loan worth 50% of the fund's value, bringing your total managed capital to about $300,000.
After another five years, you’d have upwards of a million dollars in the fund. You pay back the initial $25,000, then the subsequent $100,000, and ten years in, you're looking at a million-dollar balance plus whatever you've cleared on the mortgage.
And all of this started with nothing more than a mortgage on a house or an apartment.
I should clarify: this isn't for everyone. Most people either can't or won't wrap their heads around this strategy because they're too afraid, or for whatever other reason.
But I'm young and reckless enough to see that ten years isn't a lifetime. Even if the fund ends up yielding a measly $300,000 at the end of a decade—which is my pessimistic estimate—I won't make that kind of money in ten years unless I start smuggling cocaine from Colombia.
I'm eager to hear what you all think.
If you want to test the theory, try running these numbers with a 15% annual return. Even then, you'll be wealthy by our standards... and you'll be completely financially independent within ten years.
Actually, I am still quite young and reckless enough. To me, ten years isn't a lifetime. Even if this fund ends up yielding a measly $300,000 after a decade (pessimistic view), I will take it.
Gregory Williams7 said:Actually, I am still quite young and reckless enough. To me, ten years isn't a lifetime. Even if this fund ends up yielding a measly $300,000 after a decade (pessimistic view), I will take it.
Heh, so now he’s young, reckless, and perpetually in debt 😁
hiddensailor60 said:Look, what you’re saying only makes sense if you aren't capable of disciplining yourself to save. This way, the bank essentially forces you into "forced savings"—though I question whether we can even call it saving; in my view, you’re just losing money.I said that if you have the cash for a car—and let me add that I also have some monthly surplus that could be set aside—personally, I find it unprofitable to shell out all that cash upfront for a vehicle:
Based on that cash, you secure a loan from the bank under terms you negotiate to suit your own taste, specifically regarding the loan term and the monthly payment amount.
You receive funds from the bank and use them to buy the car; here are my specific reasons why I believe this logic holds up:
1. Once the loan is paid off, your initial cash is returned to you. This means you effectively owned the car and were saving money simultaneously... without the loan, you would still be saving, just a smaller amount.
If I had the cash for a car—let's say $25,000—I would put it into a stock mutual fund, take out a margin loan against 70% of the value of those shares, and buy the car over a three-year period. I would only pay the interest; I'd leave the principal until the very end.
Let's assume that the fund yields a 20-30% annual return; after three years, the holdings would be worth $40,000. I pay off the $17,500 margin loan (70% of the $25,000), and at the end of three years, I have the car and $22,500 in cash. (Granted, I was paying interest for three years, but that's a negligible amount in this context).
Doesn't my math look better? 😁 Of course, I emphasized the word "assume"—funds can lose money, too—but I am quite confident that over the next three or four years, one doesn't need to worry about "serious" US equity funds.
And for the strategy you were describing, you'd also need to be in a position to afford the monthly payments $667 for the car, which is no small feat.
But then again, everyone does what works for them and what they perceive to be most profitable, right? 🙂
Kimberly Nguyen said:From what I can gather, there aren't really any hidden fees involved, unless you count getting some paperwork notarized for certain types of pawn loans... or if a specific bank decides to tack on a fee just for managing your credit account...
Or are you actually talking about the interest costs? 🤷
wiredlynx28 said:Clear out any outstanding balance and you'll get your security deposit back. Alternatively, you can just cover the interest up until whichever month you decide to settle the debt early; if you opt for the fixed-term route via a certificate of deposit, you'll receive interest through that same month.
