Quote:
Originally Posted by BIGJake111
I was about to say, be careful with the percentages, I feel that 95 percent of people who own new cars have more money in that car than 10%. Luckily Homes and such hold value, people that sink tons into a new car can only resale it for a fraction of what they payed.
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Well even if it is 95%, what most people do is really irrelevant if the question is what is the best way I can grow my net worth. If you speak to pre-war generation retirees they think its insane how much the average family over-extend themselves. These pre-war people simply never had a life where the family had two car loans, a loan for a home having more than two bathrooms, multiple credit cars etc. with barely 10% going into savings and retirement or worse 0%.
While financing the purchase of a new car that accounts for more than 10% of your net worth is not remotely a good idea (if you intend to have money when you're retired), at least that car loan is limited to a short loan repayment of 4-6 years relative to the grand scheme of your productive working years that could last 40 years or more.
A home purchase on the other hand if done incorrectly, and that's extremely common, can be far more detrimental to the cause of wealth creation over the course of 30 years of loan repayments. The invention of the 30 year mortgage opened the door for people to buy way more home (dollar wise) than they should be if their goal is to build wealth. It's largely why the U.S. savings rate is barely more than 1% and why the percentage of people who move up from the middle class has been stuck in park. The days when people got rich from their houses is long gone. For the very wealthy in NYC, London, San Francisco or Miami Beach, buying a home can be the best investment they ever made. It really comes down to which incomes are rising and which are stagnant. If home buyers are paying more for homes because the banks and their investors are putting out more money for loans, and not because the incomes of borrowers are rising quickly, then that's a recipe for a bad investment. But a fantastic recipe for the person putting out the loan however since tens of Millions of people are only too willing to over-leverage themselves simply to get back slightly more than they put in after 30 years.
As Roger Lowenstein once said (loosely), it's not the merits of the idea that can burn you as much as the leverage you put behind it.
Quote:
Originally Posted by FirstPorsche987
Not at all. That car is an investment. (As long as you don't set fire to it or drive it into a tree.) It will appreciate must faster than just about anything else--with the possible exception of a LeFerrari.
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I consider anything bought that can be resold to be investment. You're choosing to put money behind one thing instead of another. Simply because something is an investment does not mean it's a good investment if the expectation is a profitable return. If a 918 buyer's rationale for committing more than 10% of their net worth into a single car is primarily based on it being an investment, due to the cars exclusivity, then that's a pretty poor decision as far as risk. For one thing, it's a single play. You are violating the basic principle of never committing more than a few percentage points into a single investment selection. Now you're simply up against the averages with no compelling reason to take on that degree risk to swing for the fences. Now if you're using 10% of your net worth to start a business well that's another matter. I think most people agree that buying a million dollar car like a 918 or a P1 is an indulgement pure and simple. That it represents more than 10% of your net worth makes it an impulsive/emotional indulgement. But for the record I wish I had these problems.
