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  #1  
Old 11-03-2008
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Finance or Cash?

Hello again,

I suppose I should ask my accountant this question, but then I'd have to get an accountant...

I'm about to buy a new-to-me boat. Were I to finance, 20% down would leave me with a $25,000 loan, the minimum for many lenders, and the highest rates, currently about 8%. I am in the position to comfortably pay cash as well.

The only argument I can think of for financing is the opportunity to free up those funds for investment, hoping they'd return better than the loan rate I'd pay. However, I am currently as invested in equities as I want to be, and in reality the cash would make nowhere near 8% in a MMA or the bond market.

Does anyone have any thoughts to add for me?

thanks,
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Old 11-03-2008
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Ed-

Given the current state of the stock market, it might be far better to finance the boat and put the cash (25k) into the stock market, as there are some really good bargains out there at the moment. By the time this recession ends, I'm guessing that the return on some of these bargain stocks is going to be well above the 8% interest rate you're looking at.

That said, I'd only go with the better high-end stocks...rather than anything riskier... A lot of good companies, which are doing well, have had their stock prices brought down by the current market situation, even though it wasn't really warranted in their specific case. YMMV.
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Ignoring, for the moment, the argument that you could earn more with your investment, it is never a good idea to finance anything if you don't have to - it will always cost more in the long run, particularly with any depreciating asset. In terms of strictly a financial decision which is the premise of your question, as Warren Buffet says, " never buy a depreciating asset".

Assuming you are going to buy it,and can afford to pay cash, the issue then becomes whether you can find any investment guaranteed to earn more than the cost of financing - if you do, please tell the rest of us...
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Of course, he could always get financing from one of those banks that are about to fail...and see if he can get a government bailout... :
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You know what the first rule of sailing is? ...Love. You can learn all the math in the 'verse, but you take
a boat to the sea you don't love, she'll shake you off just as sure as the turning of the worlds. Love keeps
her going when she oughta fall down, tells you she's hurting 'fore she keens. Makes her a home.

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Old 11-03-2008
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Quote:
Originally Posted by sailingdog View Post
Ed-

Given the current state of the stock market, it might be far better to finance the boat and put the cash (25k) into the stock market, as there are some really good bargains out there at the moment. By the time this recession ends, I'm guessing that the return on some of these bargain stocks is going to be well above the 8% interest rate you're looking at.

That said, I'd only go with the better high-end stocks...rather than anything riskier... A lot of good companies, which are doing well, have had their stock prices brought down by the current market situation, even though it wasn't really warranted in their specific case. YMMV.
SD,

I too am pretty optimistic about the US stock market, and I've made some major buys over the last month (all at dramatic lows, thankyouverymuch!) I COULD put this money in the market too, but I feel well invested at this point.
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Ed-

In that case, buy the boat... and post photos of her.
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You know what the first rule of sailing is? ...Love. You can learn all the math in the 'verse, but you take
a boat to the sea you don't love, she'll shake you off just as sure as the turning of the worlds. Love keeps
her going when she oughta fall down, tells you she's hurting 'fore she keens. Makes her a home.

—Cpt. Mal Reynolds, Serenity (edited)

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Old 11-03-2008
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Quote:
Originally Posted by k1vsk View Post
Ignoring, for the moment, the argument that you could earn more with your investment, it is never a good idea to finance anything if you don't have to - it will always cost more in the long run, particularly with any depreciating asset. In terms of strictly a financial decision which is the premise of your question, as Warren Buffet says, " never buy a depreciating asset".
Well- We can infer then that, as wise as he may be, Warren Buffett is not a boater.

On the issue of depreciation, it's one of the reasons that I looked for one of the oldest boats that offered (most) everything I wanted. Most of the depreciation should have already been taken by previous owners. (I know, I know, maintenance and upgrades majorly muddle that argument...)
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Old 11-03-2008
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Paying cash means never having to worry about making a payment. You're free to sell, trade or otherwise use the boat in any manner you choose, for any reason you choose. Also, you aren't beholden to an insurance company for coverage you may or may not want.

The assumption of unnecessary debt, in the hopes of uncertain gains in speculative pursuits, is something I would avoid.
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Full, is the spirit, that thinks not, of falling.
True, is the soul, that hesitates not, to give.
Alive, is the one, that believes, in love.
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Quote:
Originally Posted by sailingdog View Post
Ed-

In that case, buy the boat... and post photos of her.
Will do SD. Will do. The survey is on Thursday. Pictures may not be too quick in coming though, as I may not be able to bring her home until spring. (Which totally bums me out. But this fall is a bear already, and I'm not sure the trip would be wise at this point. Besides, I'd just be bringing her to where it's more expensive to haul and store anyway)
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CASH= Its yours to do with what you want.
BANK=Its yours as long as you can pay the insurance and the payments.
Forget the investment thing.How do you want to live?How do you want to project yourself to others?{read kids}
Your choice
Mark
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