What is a good investment or purchase to make right now?

Thread Starter

strantor

Joined Oct 3, 2010
5,329
I am considering selling a vehicle that I own outright, to pay off a high-interest unsecured loan that I took out a few years ago to build my workshop. That will free up $750/mo. Then I will need to replace the vehicle I just sold.

I can't decide what makes more sense; to go buy a new vehicle or to buy a beater car and some land, or something else. Normally that would be a no-brainer (maybe it still is) but I think this might be a unique time in history where buying a new vehicle could actually make financial sense for the first time, and only for a brief window.

The reason is these stimulus checks that went out to everyone in the past months. That is likely to cause a lot of inflation in the coming years, no? If I took out a large auto loan right now, I would be paying it back with devalued dollars. In 2 or 3 years I might be able to sell it for the same amount I paid for it (while a brand new one would cost twice as much).

I might be exaggerating the extent of the inflation, I don’t know. That's why I ask. Does it make sense? Is there something that is a better buy for now?
 

jpanhalt

Joined Jan 18, 2008
10,221
As for the stimulus checks, they did not go to everyone. They did go to those who are expected to spend, not invest, them. That is intentional in design and has been part of every federal stimulus plan I can remember. The "stimulus" part is to increase consumer spending.

On cars, if you depend on a car for a living, I would buy new or very recent with warranty. I tend to keep my "new" cars 10 years or more. In fact, the '84 Chevy S-10 I bought is still in the family. My first grandson got it for his 16th birthday.

Whether to buy used from an individual or dealer is always a question. I have sold or gifted cars that I just wanted to replace, but were otherwise in good condition, to individuals. When I knew the car was about to die, I used it as a trade-in. I suspect not everyone follows that philosophy. Some people who change cars more frequently may trade in perfectly good cars that are still under some sort of warranty.
 

Papabravo

Joined Feb 24, 2006
14,399
Stimulus checks - plural. I've only seen one. A vehicle is a depreciating asset and I would not recommend assuming that you could realize a profit from such ownership over the short term of say 3 to 7 years. Holding a vehicle for 40 or 50 years has paid off with an increase in value for some vehicles. As far as sources of inflation we had it long before there was such a thing as a stimulus check and the reasons for it are complex. As our friend in the UK pointed out it has been extremely low for the past decade and is likely to remain so.

The amount of debt you should carry should be related to your income. It should hardly ever exceed 25% of that income. Eliminating it is one strategy but reducing it can also work. If it is any comfort to you, the yield on fixed income investments have fallen through the floor to levels where many investors are taking on way more risk than they are comfortable with by venturing into the stock market. There are people and institutions paying premium prices for long dated bonds yielding 2% to 4% which reduces the YTM to less than 1% or even negative returns. I would look at it this way, there are very few places to park assets these days. So you should be glad that inflation is not reducing your net worth as you watch everything turn to dust.
 

killivolt

Joined Jan 10, 2010
786
I am considering selling a vehicle that I own outright, to pay off a high-interest unsecured loan that I took out a few years ago to build my workshop. That will free up $750/mo. Then I will need to replace the vehicle I just sold.

I can't decide what makes more sense; to go buy a new vehicle or to buy a beater car and some land, or something else. Normally that would be a no-brainer (maybe it still is) but I think this might be a unique time in history where buying a new vehicle could actually make financial sense for the first time, and only for a brief window.

The reason is these stimulus checks that went out to everyone in the past months. That is likely to cause a lot of inflation in the coming years, no? If I took out a large auto loan right now, I would be paying it back with devalued dollars. In 2 or 3 years I might be able to sell it for the same amount I paid for it (while a brand new one would cost twice as much).

I might be exaggerating the extent of the inflation, I don’t know. That's why I ask. Does it make sense? Is there something that is a better buy for now?
I think economic development has helped Utah over all, no sign of slowing economic growth. Many Companies are moving here with higher pay availability for those who qualify. Manufacturing also on the rise for lower pay grades, Tech companies etc. I‘ve purchased beater cars but usually I replace most parts that will likely go out first tune up and oil change, replace the trans filter. I will wait to do a water pump, if the owner hasn’t changed it and has +100k miles it’s time to do the 100k mile parts replacement etc. Then calculate how many miles you will put on it, for me it’s little to none because I work from home. Even when I didn’t I purchased my house only 8 blocks from the University.

Back then everyone I knew went for the house 25 miles away or further to get more home, but the price is buying a new car every other year.

kv
 

justtrying

Joined Mar 9, 2011
429
A cehicle is not an investment. My philisophy has aleays been buy what you can afford and pay outright. If you come buy on hard times, vehicle can always be sold and you will get some cash for it. It is much harder to get someone to take over your payments than to sell it outright.

There are risks with buying both used and new. I am on my third used vehicle. First one was a lemon, but was a good learning experience (do not buy through friends). Second one lasted me 5 years and I spend a total of $4500 canadian on it. That is less than $1000 per year. There is not a vehicle you can purchase for that money. It should have lasted longer, but it blew a cylinder. Not sure why. Currently I upgraded to a better vehicle, also used, i think I can get at least 10 years out of it. Got it for $6000. Lose money upfront, but great to budget going forward.
 

SamR

Joined Mar 19, 2019
2,559
The big problem with buying new is a soon as you drive it off the lot it has depreciated ~30%. So I look for fairly new and still under warranty or can buy an extended warranty if it is an exceptional vehicle. I don't think I have ever lost any money with a 3 year extended warranty on a used vehicle. I don't buy from individuals, too much puffery and haggling. Recently bought a Honda van that was 2 years old with less than 10,000 miles on it for less than half the new list price and under warranty. With all the electronics on it, I did buy an extended bumper to bumper warranty which so far hasn't paid off. There are very good deals out there but it takes time and effort to find them. Most buyers don't have the patience to find them.
 

justtrying

Joined Mar 9, 2011
429
I have researched US market and given population density you should have no need at all to buy new and be stuck with a payment. Where I live it is hwy robbery and even I learned to assess how to purchase used off private sales - learn who the people are and what they do. I know too many stories of people getting screwed by dealerships also. Not worth the hastle. Where I live for example it is a choice of GM or Ford. Toyota is 130 km away. Anything eropean is very far away...
 

MaxHeadRoom

Joined Jul 18, 2013
21,403
Limit what you buy to the cash you have available. I've paid cash for my last 6 vehicles and having a car payment is something I'd never consider again.
A recent odd experience:
I very rarely buy from a dealer and have never purchased one on credit.
So when shopping recently for a new auto, I saw a model advertised by a local large dealer ship, the car was about 1yr old and in excellent, low mileage condition, also a good price..
So I see the dealer ad states a cash price with the optional credit terms with a price of $2500 under the cash price.
So I naturally assumed that this was a ploy to suck in the 5yr term credit buyers.
When I sat down with the salesman I stressed the point I did not want credit, even with the lure of $2500 'bonus', nevertheless he asked me to look over the credit form.
I see printed at the bottom, 'This loan can be paid off at any time without penalty' I asked him to confirm it, and he reluctantly seemed to agree.
So I took the chance and signed the credit form.
The next week I went into my bank where the loan was registered and payed the full amount off.
I am still trying to figure out his angle? o_O
Max.
 

SamR

Joined Mar 19, 2019
2,559
have never purchased one on credit.
Last one I bought I had the cash but their loan interest was below what my investments were yielding so I figured "why not use their money instead of mine" and come out ahead. Then the wife rolled it over without penalty into our 2% home equity loan.

I am still trying to figure out his angle?
The sales guy has a "playbook" he has to follow the same as the finance guy does. Might as well just sit back and let them talk it out and get it over with. Then do what you want to do. They insist on saying it as they see it as a part of their job to do so and have to follow their book script or they aren't doing their job.

Never trade-in. Give it away or sell it outta your front yard. You will come out ahead to do so even if it is a pain in the tuchus.
 

Thread Starter

strantor

Joined Oct 3, 2010
5,329
I am aware that brand new cars depreciate rapidly, and I would never consider buying a new car to be an "investment;" I suppose I did word the title of the thread badly. I acknowledge that it never makes financial sense to buy a brand new car. Reasons for buying a brand new car must be other than financial. But those other reasons can be just as valid, depending on your perspective.

For me, I have other reasons, but financial concerns are at the top of the list. I just perceive the scales to tipping in a direction to move the financial concerns down a place or two, and I don't know how accurate my perception is.

Let me explain...

But first, let me give a few supporting details.
1. I'm looking specifically for a truck. For some reason truck prices seem to be going up at a higher rate than other types of vehicle prices. A truck equipped the way that need (more accurately a combination of my needs and wants), costs around $60k
2. I will be using this truck partially for my small business, so it will be partially tax deductible.
3. For these large-sticker-price vehicles, many manufacturers or dealerships are offering financing options which are previously unheard of. Like 0% interest for 72 or 84 months. These same deals are not available for "slightly used" vehicles.
4. Trucks seem to have a higher resale value than other types of vehicles.

With that said...
We all know that if you buy a $60k brand new vehicle, in 10 years what you will have is a $15k used vehicle. Obviously if you're going to have a 10y/o $15k used vehicle, it would be nice to have only paid $15k for it and not $60k. But if you did pay $60k for it, then that means you got a decade of (hopefully) unproblematic use out of it.

But that's not the whole story; not when we introduce a high inflation rate and long-term interest-free loans. What if you could have a 10 y/o $15k vehicle that you financed for $60k but effectively only paid $50k for? That would be a little better, no?

Here are the inflation rates for the past 10 years:
Screenshot_20200924-060605_Google.jpg

They're actually not bad. Let me use the inflation rates from 2000-2008 as an example:
Screenshot_20200924-061035_Google.jpg
Screenshot_20200924-061205_Google.jpg

So if in 2000 you had taken out a 0% APR loan for $60k, then you effectively "locked in" your monthly payments in 2000 dollars, and paid it off with devalued 2001-2007 dollars. The rate of devaluation was sliding that whole time so you didn't exactly pay $50k inflation-adjusted dollars, but maybe you paid $52k-55k? But if during that 7 yr period hypothetically a pandemic spurred the .gov into printing out vast sums of free money for errbody, driving the value of the dollar down in series of 2 or 3 huge latent negative spikes? Who's to say you wouldn't have paid only $50k? Or less? $45k? $40k? A blessing and a curse.

...aaand let's say in 2007 the post-apocalypse used vehicle market was bonkers because nobody was buying vehicles during that time (esp. not expensive trucks). Maybe your used truck is worth twice what it should be at any other time in history.

If it had all happened like that, you still wouldn't have made a "profit" off the deal (unless you can quantify the value of the usage of the truck and factor it in) so it still can't be considered an "investment," but you would be able to say that you bought a brand new vehicle at one of the only times in history where it almost made sense to do so, and you took it in the shorts to the smallest extent possible ever.

That's where I'm coming from. I'm counting on you all who probably know more of the world than I do, and who aren't guided by the same emotion that I am, to disabuse me of these notions if they are silly.
 
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Papabravo

Joined Feb 24, 2006
14,399
Those rates for the last 20 years beat the livin' snot out of the 1970's and 1980's. So they're real bad for saver's and fixed income investors, but great for borrowers. The 25% rule still applies even if the debt service has no interest component you can't afford to let the total exceed 25% of your income no matter how attractive the deal. I'm from the PAW school of thought, that accumulating assets and living within your means is not just the most important thing -- it is the only thing.

Another thing to consider is that since the 1970's real wages have gone down steadily over a 50 year span due to the ravages of inflation. A compound rate of inflation of 4.75% over those years amounts to a 10-fold change in income and prices. My annual salary from 1970 to 2014 did not keep up with that pace so I lost ground my ENTIRE working life.

The moral of this story is: as much of a deal as you get on the loan, your income is being ravaged in the same way. so if you are taking on debt, be prepared to lose some percentage of your income as well and don't ever let the debt service exceed 25% or even close.
 
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Thread Starter

strantor

Joined Oct 3, 2010
5,329
Those rates for the last 20 years beat the livin' snot out of the 1970's and 1980's. So they're real bad for saver's and fixed income investors, but great for borrowers. The 25% rule still applies even if the debt service has no interest component you can't afford to let the total exceed 25% of your income no matter how attractive the deal. I'm from the PAW school of thought, that accumulating assets and living within your means is not just the most important thing -- it is the only thing.

Another thing to consider is that since the 1970's real wages have gone down steadily over a 50 year span due to the ravages of inflation. A compound rate of inflation of 4.75% over those years amounts to a 10-fold change in income and prices. My annual salary from 1970 to 2014 did not keep up with that pace so I lost ground my ENTIRE working life.

The moral of this story is: as much of a deal as you get on the loan, your income is being ravaged in the same way. so if you are taking on debt, be prepared to lose some percentage of your income as well and don't ever let the debt service exceed 25% or even close.
I appreciate the advice and I see the same so far (losing ground my entire life) although at 34 years old I have a lot more ground to lose yet. You prescribe a 25% thumbrule, while I've heard the same and similar, as low as 10%. Some of these thumb rules have stipulations; like a car payment should not exceed 10% of your income or a house mortgage should not exceed 25% of your income, or similar. Since you don't provide any stipulations I assume you refer to a person's entire debt load (monthly payments vs monthly income). If that's the case then I don't think your advice is achievable for me or most people in my age group. I earn 2.5x the median income for my age group, live in a 1400sf house that was built before I was born, and my mortgage alone is 20% of my income (per month). If I were the average American my age, that mortgage would be nearly 50% of income. I would only be able to afford a hovel under under an overpass if I earned the median income and stuck to the 25% rule. I think the only people who can feasibly follow this thumbrule are people who remain propped up by wealth accumulated in more prosperous times. People who have long since paid off their mortgages or people who signed on the dotted line 20 years ago and whose mortgage payments are now 25% of what mine is, for equivalent homes. People who have retirement income that isn't (and never will be) available to me. It would be easy to make such suggestions from that vantage point. Not so easy to comply, from mine.

I don't mean to insult, just to highlight the differences in the challenges of this era and bygone ones, and to suggest maybe we need new agree on new thumbrules.
 

shortbus

Joined Sep 30, 2009
7,926
1. I'm looking specifically for a truck. For some reason truck prices seem to be going up at a higher rate than other types of vehicle prices. A truck equipped the way that need (more accurately a combination of my needs and wants), costs around $60k
Why not do a lease? My newest car is a lease, I never believed in them until the sales woman took the time to explain it to me. You only pay for what you use, and you get a new one around every 3 years. I say around because if you have a desirable vehicle near the end of the lease period, one that is selling good as a used vehicle, they sometimes end the lease early if you agree. My lease payment is lower than what I would have paid if I financed to buy outright.

And If you lease it in the company name, wouldn't it all be deductible?
 

Papabravo

Joined Feb 24, 2006
14,399
I appreciate the advice and I see the same so far (losing ground my entire life) although at 34 years old I have a lot more ground to lose yet. You prescribe a 25% thumbrule, while I've heard the same and similar, as low as 10%. Some of these thumb rules have stipulations; like a car payment should not exceed 10% of your income or a house mortgage should not exceed 25% of your income, or similar. Since you don't provide any stipulations I assume you refer to a person's entire debt load (monthly payments vs monthly income). If that's the case then I don't think your advice is achievable for me or most people in my age group. I earn 2.5x the median income for my age group, live in a 1400sf house that was built before I was born, and my mortgage alone is 20% of my income (per month). If I were the average American my age, that mortgage would be nearly 50% of income. I would only be able to afford a hovel under under an overpass if I earned the median income and stuck to the 25% rule. I think the only people who can feasibly follow this thumbrule are people who remain propped up by wealth accumulated in more prosperous times. People who have long since paid off their mortgages or people who signed on the dotted line 20 years ago and whose mortgage payments are now 25% of what mine is, for equivalent homes. People who have retirement income that isn't (and never will be) available to me. It would be easy to make such suggestions from that vantage point. Not so easy to comply, from mine.

I don't mean to insult, just to highlight the differences in the challenges of this era and bygone ones, and to suggest maybe we need new agree on new thumbrules.
At least you have some flexibility in your options and decision making. Consider that you have a 31 year time horizon until you are 65. Social Security may not be there for you so how will you survive when you are ready to retire. That is the ball I think you should have your eye on. It has only been 28 years since I focused on that problem and I damn sure wish I had paid attention to it sooner. I take no offense at your position or the points you bring up. You can change your income profile or your expense profile to suit you needs both long and short term. You did ask for advice, not judgement.
 

Lo_volt

Joined Apr 3, 2014
106
You picked the wrong day to quit buying a car...

1. I'm looking specifically for a truck. For some reason truck prices seem to be going up at a higher rate than other types of vehicle prices. A truck equipped the way that need (more accurately a combination of my needs and wants), costs around $60k
If you are going to buy a truck look for one that holds its value long term. These days trucks are over priced. The demand is off the charts. It's what I call the "testosterone effect". It's all about image. These days, if a guy needs to feel a boost to his "manly-ness" a truck is the way to do it! This drives the demand up and the manufacturers love it. They can charge all the more for them. I do feel for the guy who needs a truck but doesn't need (or want) the frills.

Check Blue Book values of different brands and models of trucks. That will tell you which ones will hold their value longest.
 

dl324

Joined Mar 30, 2015
11,488
People who have retirement income that isn't (and never will be) available to me.
Take it from someone who started late. You needed to start saving for retirement earlier.

I invested 10% of my compensation in company stock (which tanked in 2000 and hasn't recovered) and didn't start putting money into a 401(k) until 18 years before an accident forced me into an early retirement. When I did start contributing, I contributed the maximum allowed by law until a few years before I retired; I had only started using catch up payments and wasn't able to maximize them because I retired 4+ years before I had planned to.

Luckily for me, the company I worked for was contributing 8% of my compensation into a company retirement plan over my several decade career (they dropped it to 6% the last 5 years or so). I had also accrued a $500 monthly pension from them that my financial adviser said I should cash out because he could do better (he didn't).
 

justtrying

Joined Mar 9, 2011
429
I agree with Shortbus, for business, lease is a best option. If you are looking to buy, go with Toyota. At this point they are not much more expensive than other trucks and hold their value the best. They are also most reliable. It is a desired truck everywhere.

To further comment on financing, it is not possible to follow the old school spending rules for most people who are starting out or even mid career. In Canada for example the real estate is out of reach for most and if buying on single income without large downpayment, you will be overextended. Of course there are the very low interest rates, but all this means is that you cannot save money. I am "saving money" but putting as much as I can towards paying off my house.
It was announced that they will be spending more for this virus so will we be facing negative interest rates?

And not to be mean, but will those in power struggle financially or have to worry about pension plans?

p.s one day you can wake up and your money is worthless. I have already lived through that. Then you dont need to worry about what car to buy :)
 
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