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Random Quote: Catch them all and let the wife sort them out
toys= pay cash and thats that period.said that a few years ago and all the mathmetical genius ' s disagreed. "oh my" now look at the situation !!!!!!!!!!!! time to pay the piper !!!!!! its all good . got a buddy that used to tell me all the time "why should I use my money as Ill use the banks" - he is shaking his head now !!!!!!!
Pardon me while I digress further but I can't leave this particular one alone LOL....
Never been a big fan of investing in broad index/tracking funds. Why invest in SP500 funds when that arbitrarily invests you in a bunch of those 500 companies that are dogs? Sure, it keeps expenses down, but it doesn't take any more time for a fund manager to pick the 200 "Buy" or "Accumulate" or "A/B" or whatever qualification you like out of those 500 and end up with a fund that way outperforms the broader index.
I don't own any S&P500 funds and will not. My large cap funds have outperformed and more than doubled from 1999-2009, the S&P has gone nowhere..... even including reinvestment. According to my fund research, as of 2/28/2010, $10K in the SP500 10 yrs ago would be worth $9695 today. No thanks. I can't afford to lose a decade of returns :-)
But I suppose an index fund is still better than stuffing it under the mattress 10 yrs ago, at least you can document some long term capital losses on your 1099s. :-)
-Dave
'06 Century 3200WA, F250s, aka "SuperFishal"
__________________
-Dave
'06 Century 3200WA, F250s, aka "SuperFishal"
'02 Mitzi Skiffs 15, Yamaha 40hp
Padre Isles, TX
Joe -- i'm trying to hang with you as much as I can man, but you're S&P return assumptions are fanciful. 1950 - 2010: the S&P 500 (excluding dividends) has a nominal annualized rate of return of 8.70% and inflation averaged 3.77% for a real (inflation-adjusted) return of 4.75% (see note below). If dividends were reinvested, the nominal rate of return would have been 10.92% or 6.88% after inflation adjustment.
I'm willing to give you the benefit of the doubt that your investment returns CAN beat interest payments, but presenting it as if its virtually guaranteed is misleading. Especially since you generally only have a short 5-7 (maybe 10 if you LOVE your existing boat) time horizon to perform, before you have to start over with a new loan at a new rate.
This is not directed at you rabs, just all these dozens of posts of numbers flying around, needling over 1% here or there.................
I am not getting all this talk of percentages???? %%%%%%% ??? APR's.
It means NOTHING. 5 or 6 or 7% means nothing talking extended term loans.
.
With a 15 year loan, someone will pay ballpark 70% of the financed priced, around $170,000 for a $100,000 boat, regardless of whether it is 5 or 6 or whatever percent. $170,000 for (for example) a 22 foot grady white (with a hardtop and pulpit) and now it needs a repower, among other things. OMG!
A 30 year note will equal over 300%!
Oh yeah...the 'write-off' for a second home.....get back 5 cents on the dollar.
Hows does a return on a stock or mutual fund come into play comparing against a 10 or 15 or 20 or 30 year crazy boat loan? It doesn't.
Financing becomes really unappealing when look at in real dollars and not APR's.
So financing that 22 foot boat, paying it off, then repowering it and freshening it up for a total of ballpark $200,000 = someone who needs to have their head examined! But a 6% loan was better than a 5% return on an investment?????
Still owe 35,000 0n a1997 Intrepid 28.9 with 2003 F225's.
Payments are only 323 a month.
Just paid the Admiral's Expedition off a couple of months ago and we're throwing an extra 500 a month at the boat.
Don't know or care what the boat is worth. It's not leaving barring an act from God.
Just last Friday I put a deposit down on a new boat. I looked for about 6 months and I could not find what I was looking for used. Boats were either beat up or to old. I know some people can fix problems but that is not me. I need to keep my boating issues at a minimum and I know I have to pay for that. I also know I did not squeeze every penny out of the dealer but the deal I got was in line with other quotes I got from other dealers in this boat. Nobody had it in stock so it had to be ordered. When I was getting ready to sign the purchase order I asked the salesman if I decided to sell the boat the day after I got it how much could I sell it for and he responded $12K less then the $62K price I paid. I don't consider myself upside down only that is the cost of boating. I hope nothing comes up in my life that makes me have to sell the boat before I am ready to do something else but that is the cost of boating and it is worth it to me. Financing or not financing there is a cost of boating. I guess it is like my returement. I am not going to take the money out todayso why should I care about the value today when I should only worry about the value when I take it out. That being said it feels a lot better on the day sit goes up then down so I just don't look at it. Don't worry about the value of your boat unles you think you may have a life altering event or you decide it is time to sell.
There is nothing wrong with financing a boat if you can afford the payments. IMHO, anyone who blows all their cash on a boat is stupid.
I have a loan on my present boat, which I bought in August. The bank called me up and asked what was wrong with the boat, because I bought it for so much less than what is worth. I made a great deal, I have a boat worth more than the loan on it, and I held onto my cash.
I have no intention of getting rid of it for a long, long time. Like others have said, if you are not selling it, what difference does it make?
I am mild to moderately retarded. I paid cash for my boat in 1996. Got divorced in 2001 and got to pay cash again for the boat...sort of. Bought house in 2002 after divorce...took out small mortgage ($100k)...paid 30 year loan off in 4.5 years. Credit score went down.....why ....no more mortgage....that is when I knew the world was getting AFU.......and remember ...I'm slow/modrately retarded. Alsmost bout new/used bigger boat in 2007......then my company was bought by the same comapny I had quit 10 years before........bad juju there too. Bought a new motor for the old boat in 2007.....paid cash for it......knowing it was NOT a good investment but it gave me peace of mind........House is paid for, cars (mostly junk) paid for...boat paid for......its old but still nice........I hate my job and am still not right in the head.
This is not directed at you rabs, just all these dozens of posts of numbers flying around, needling over 1% here or there.................
I am not getting all this talk of percentages???? %%%%%%% ??? APR's.
It means NOTHING. 5 or 6 or 7% means nothing talking extended term loans.
.
With a 15 year loan, someone will pay ballpark 70% of the financed priced, around $170,000 for a $100,000 boat, regardless of whether it is 5 or 6 or whatever percent. $170,000 for (for example) a 22 foot grady white (with a hardtop and pulpit) and now it needs a repower, among other things. OMG!
A 30 year note will equal over 300%!
Oh yeah...the 'write-off' for a second home.....get back 5 cents on the dollar.
Hows does a return on a stock or mutual fund come into play comparing against a 10 or 15 or 20 or 30 year crazy boat loan? It doesn't.
Financing becomes really unappealing when look at in real dollars and not APR's.
So financing that 22 foot boat, paying it off, then repowering it and freshening it up for a total of ballpark $200,000 = someone who needs to have their head examined! But a 6% loan was better than a 5% return on an investment?????
Pardon me while I digress further but I can't leave this particular one alone LOL....
Never been a big fan of investing in broad index/tracking funds. Why invest in SP500 funds when that arbitrarily invests you in a bunch of those 500 companies that are dogs? Sure, it keeps expenses down, but it doesn't take any more time for a fund manager to pick the 200 "Buy" or "Accumulate" or "A/B" or whatever qualification you like out of those 500 and end up with a fund that way outperforms the broader index.
I don't own any S&P500 funds and will not. My large cap funds have outperformed and more than doubled from 1999-2009, the S&P has gone nowhere..... even including reinvestment. According to my fund research, as of 2/28/2010, $10K in the SP500 10 yrs ago would be worth $9695 today. No thanks. I can't afford to lose a decade of returns :-)
But I suppose an index fund is still better than stuffing it under the mattress 10 yrs ago, at least you can document some long term capital losses on your 1099s. :-)
-Dave
'06 Century 3200WA, F250s, aka "SuperFishal"
Once again Dave, you're on point. You've just captured the essence of my investment experience -- 1999-present. Its been a heckuva run. ... I'd love to earn a nice steady 8-9% over the next ten, then I might be more inclined to expect to "beat" a 6-7% interest rate. ...
We can all cherry pick the best 3 or 5 year period or pick a starting or end point that justifies good or bad returns. Keep in mind in the early 1980's motgages were 15-17%, so a 20% return isn't so good. and if you expend 2003-2007 (the most recent gravy years) to 2000-2009, the return drops to 4% average. Even the 3/2009-3/2010 70% is misleading, because we are still 30% lower than the 2007 peaks.
The realities are the market has a 4-5% real return above inflation in any 15 or 30 year cycle. Market interest (prime credit) borrowing rates are 2-3% above inflation for the same cycle. Meaning long term you should be able to make 1-3% on well borrowed money.
But the analysis also must deal with tax consequences which favor cash for most people (in high tax areas) who can afford a six figure toy - here's why: in NY if you make $250k/yr (two school teachers wages) and own a modest non-waterfront home (2,200 sq ft - $650,000 with a $400k mortgage), you will be subject to AMT @ 26% since the $58,000 in total AMT allowed deductions will be fully eaten away interest on the mortgage ($23k/yr), propert taxes (2% is avg = $13k/yr), NY state & NYC income taxes (12.3% combined rate - deductions = $21k/yr), without any other deductions - meaning the interest on the boat loan is paid with 100% taxed money @ 38% rate minimum, and any income earned, even if it is capital gains is also at the 38% because of the AMT application, so unless you are making an 80% marginal return, you will be behind. Even at current rates, if you borrow at 7% and got back 12% (unlikely), you are still losing money.
For some the math may work out, but not in the #1 tax state in the nation. For everyone here that ownes a home AMT applies to incomes between $180-550k of family income, and above the $500k/yr you lose all your deductions anyhow and are paying the $35% federal and 12.3% NY rates, so the math is even worse.
OK - so what you are saying, I think, is that the formula of comparing after tax cost of borrowing to after tax investment returns to determine if financing makes sense is valid, but for some, the comparison will not be favorable enough to accept the risk, because asymmetry in tax treatment from limitations will make the transaction tax-disadvantaged. Abolutely agree - but it doesn't change the decision criteria.
I have a 6% loan, fully tax deductible on a current basis. On the investment side, because of trading restrictions I have from the field that I am in, it is too much of a hassle for me to turnover my investments frequently or buy individual stocks. The good news is that only the dividends and occasional realized capital gains that my mutual funds record are taxed currently. The rest are taxed when I sell, and I only sell 5-10% of my portfolio every year - just to rotate sectors. That means my tax benefit (from the interest deduction) is realized now while the tax expense from investment income is way in the future. That makes the overall benefit of financing higher. If pretax returns and pretax interest were EQUAL in my case, I would still be better off financing.
Thanks for saving the day Dave & Frayed-- very well put. I think Joe and I got off track because he seemed to think I was espousing a 100% cash only/no debt theory. My original conundrum which got this rolling was questioning the ease by which a boat buyer who is PROBABLY not too financially savvy can get themselves into a 20 year loan on a asset that depreciates like a boat, and do that while only ponying up 10% at closing. ... and then they're stumped at being underwater 5 years later... I think Dave's 50/50 rule is great - if, and only if, you have the cash on hand to retire that loan completely at any time and not wipe yourself out.
I can't set sail on Joe's glass-half-full market theory primarily because I've been an investor since 1999. Appreciating regression, probability theory and market appreciation over the long term is one thing, but its hard to make financial decisions based on those theories when your actual market experience tells you otherwise -- and I am NOT a market gambler.
Dave put it right on the money: "Over the long term, I agree with you. Historical returns are in your favor and beat cash far more often than not. But for any future 5 or 10 yr period (which is fairly short in portfolio theory, hence a recommendation for far more cash near retirement age), [and which is also the likely time frame for owning the boat you buy today... if not less] you cannot approach a near 100% level of confidence in a 9% return, or even >7% . My guess is the std deviation on the low end there is .6 or .7. The odds are still in your favor, but a lot of risk. That is enough to send a lot of boats off to the repo lots or ruin some credit reports."
Joe you are making a financing decision based on a higher risk tolerance than me or Frayed or Dave. We can argue until the Contender thread shuts down (or Jeep quits grinding his teeth over depreciation) about whether all cash, or all borrow, or 50/50 is "smarter," but the right answer is beyond math. Personal - sometimes deeply ingrained - feelings about risk tend to trump, or at least strongly infuence, any pay now/pay later decisions.
But we have clear consensus on one thing -- the question is moot if you're financing because you can't afford to pay cash. Clearly that is a bad financial decision!
SO coming full circle, with many apologies to all tired readers of this thread: I'm still stumped as to how there can be such an active market for 10 down/20 year boat loans, given the credit environment overall, given that Joe's market theory is at least at present a "risky" bet over a short 5-10 year time horizon, and given that probably 90% of these borrowers are not thinking through their financing decision as thoroughly as Joe (and the lenders probably don't care)?
I don't think there's a bona fide answer.. but unfortunately (or rather, fortunately) that market is active, and i guess its a good thing, since its allowing beleagured buidlers and dealers to actually sell boats. If boats don't get sold, our hobby ceases to exist real quick...
Just for fun: At quick glance through all 8(?) pages of this thread -- safe to say its roughly 50/50 re: those in favor of cash vs. those in favor of borrow? Anyone care to take the time to actually add up the responses??? That would be interesting....!
I promise - no more novella posts! Is your question why is there demand, or why is there willing supply? IMHO, the demand is more because boaters are still buying boats that they can't comfortably afford, than it is because boaters are voluntarily taking the high finance option while backed up by large investment reserves. And there are buyers that do have reserves, but don't want to deplete them any more than they have to, so as to maintain liquidity.
As for supply, the credit markets are walled up for lenders with their cost of funds still in the very low single digits. Their spreads on 7% single A or BB credit quality loans are more than enough to cover their anticipated default rates. There is still 85% of the country working, and the worst of the employment contraction is behind us. Those that have survived intact can qualify for a loan.
Joe -- i'm trying to hang with you as much as I can man, but you're S&P return assumptions are fanciful. 1950 - 2010: the S&P 500 (excluding dividends) has a nominal annualized rate of return of 8.70% and inflation averaged 3.77% for a real (inflation-adjusted) return of 4.75% (see note below). If dividends were reinvested, the nominal rate of return would have been 10.92% or 6.88% after inflation adjustment.
I'm willing to give you the benefit of the doubt that your investment returns CAN beat interest payments, but presenting it as if its virtually guaranteed is misleading. Especially since you generally only have a short 5-7 (maybe 10 if you LOVE your existing boat) time horizon to perform, before you have to start over with a new loan at a new rate.
I guess it hinges on the definition of "virtually guaranteed". My underlying premise, which I have validated historically, is that looking at the length of time that I will have the boat and the loan (15 years), the average nominal rate of return over every rolling 15 year period since the indexes were created has in very few cases been lower than double digits.
I posted a link to a website where you can get the nominal and CAGR in the market for any period in the last hundred years, either in this thread or the New boat prices thread. I am willing to take the risk that the next 15 years is one of the very rare periods where that is not achieved, and the odds of it being below 6% are almost nonexistant.
Only 3,000 posts behind Contender Warranty... Lets keep this thread going!!
Joe - think you're right, though i think you may be overestimating the % of finance buyers who are just doing so "by choice" so they can deploy their cash elsewhere. If more folks were that responsible, we wouldn't have had such a bloodbath over the past two years... At the very least it would have been much less devasting. But from my perspective (i work for a boutique commercial bank) that's not the really the fault of the borrowers as much as it is the lenders. But that's the start or a whole different thread.....
OK, so how do we pivot this thing a bit while staying close enought to the original topic??
Seriously, if someone could turn this into a poll, so we could get some statistics re: borrowing vs. paying cash, that might be interesting info.. is that possible???
Pardon me while I digress further but I can't leave this particular one alone LOL....
Never been a big fan of investing in broad index/tracking funds. Why invest in SP500 funds when that arbitrarily invests you in a bunch of those 500 companies that are dogs? Sure, it keeps expenses down, but it doesn't take any more time for a fund manager to pick the 200 "Buy" or "Accumulate" or "A/B" or whatever qualification you like out of those 500 and end up with a fund that way outperforms the broader index.
I don't own any S&P500 funds and will not. My large cap funds have outperformed and more than doubled from 1999-2009, the S&P has gone nowhere..... even including reinvestment. According to my fund research, as of 2/28/2010, $10K in the SP500 10 yrs ago would be worth $9695 today. No thanks. I can't afford to lose a decade of returns :-)
But I suppose an index fund is still better than stuffing it under the mattress 10 yrs ago, at least you can document some long term capital losses on your 1099s. :-)
-Dave
'06 Century 3200WA, F250s, aka "SuperFishal"
I just used the S&P 500 as a readily available long term proxy for the minimal amount you could earn on an average historical basis. If you bring any savvy at all to the market, and don't get whipsawed, you will (and I have) do better.
This is not directed at you rabs, just all these dozens of posts of numbers flying around, needling over 1% here or there.................
I am not getting all this talk of percentages???? %%%%%%% ??? APR's.
It means NOTHING. 5 or 6 or 7% means nothing talking extended term loans.
.
With a 15 year loan, someone will pay ballpark 70% of the financed priced, around $170,000 for a $100,000 boat, regardless of whether it is 5 or 6 or whatever percent. $170,000 for (for example) a 22 foot grady white (with a hardtop and pulpit) and now it needs a repower, among other things. OMG!
A 30 year note will equal over 300%!
Oh yeah...the 'write-off' for a second home.....get back 5 cents on the dollar.
Hows does a return on a stock or mutual fund come into play comparing against a 10 or 15 or 20 or 30 year crazy boat loan? It doesn't.
Financing becomes really unappealing when look at in real dollars and not APR's.
So financing that 22 foot boat, paying it off, then repowering it and freshening it up for a total of ballpark $200,000 = someone who needs to have their head examined! But a 6% loan was better than a 5% return on an investment?????
This is crazy stuff in this thread.
The only crazy part is the decision to buy the boat - not the decision to finance the boat.
I have a 6% loan, fully tax deductible on a current basis. On the investment side, because of trading restrictions I have from the field that I am in, it is too much of a hassle for me to turnover my investments frequently or buy individual stocks. The good news is that only the dividends and occasional realized capital gains that my mutual funds record are taxed currently. The rest are taxed when I sell, and I only sell 5-10% of my portfolio every year - just to rotate sectors. That means my tax benefit (from the interest deduction) is realized now while the tax expense from investment income is way in the future. That makes the overall benefit of financing higher. If pretax returns and pretax interest were EQUAL in my case, I would still be better off financing.
If your boat loan is tax deductible and your gains are taxable at the capial gains rate, the tax consequences for you would be close to zero, so the only math is whether you can make more than 6% on mostly risk free return, so that you profit by the loan - that is a lot easier to do than when you are penalized via the tax system at both ends.
The big problem seems to be, contrary to popular believe, the US tax systemhas gotten so progressive that families earning up to $150k a year can deduct everything, and as a result pay close to zero income tax, and those making more than $250k a year only get the option of buying their own, non-deductible tub of Vaseline.
i used a credit card to buy the pen, i used to sign the loan, which i used to make the down payment on a boat loan for 15 years. then i refi'd the house at 110% to get some extra cash to repower. i could only come up with part of the amount for the repower so i financed that on another 15 year loan with a cosign by a family member. i wish i could afford to get insurance, but i think i'll just gamble on it lasting till i finish paying it off. everyone thinks i'm rich..
really i think financing is just fine, but for the OP, to be that upsided down is beyond me.. sounds like you got sucked in at a really inopportune time. i really did repower on a 15 year loan, but the payments are soooooo low that i don't feel it. on month's where there's extra money, i pay more, and on months when tuition is due for the youngun, i just pay the minimum... it works for me and i'm happy.. seems some other things work for other people.. can't figure that.. must mean we ain't all the same or sumptin.
I guess it hinges on the definition of "virtually guaranteed". My underlying premise, which I have validated historically, is that looking at the length of time that I will have the boat and the loan (15 years), the average nominal rate of return over every rolling 15 year period since the indexes were created has in very few cases been lower than double digits.
I posted a link to a website where you can get the nominal and CAGR in the market for any period in the last hundred years, either in this thread or the New boat prices thread. I am willing to take the risk that the next 15 years is one of the very rare periods where that is not achieved, and the odds of it being below 6% are almost nonexistant.
Lets run a few recent 15 year periods:
1995-2009: Avg. return: 7.73%; CAGR: 5.47%
1980-1994: Avg. return: 10.32%; CAGR: 9.61%
1964-1979: Avg. return: 1.84%; CAGR: 0.31%
And the last ten years (1999-2009) Avg. return: 0.38%; CAGR: -1.65%
So you win in the 1980-1994 15-year period. Assuming you didn't pay 17.99% for your boat loan in the 80's... But I appreciate that this is just a proxy for investment returns. you've hinted that you work in some sort of securities capacity, so I have no problem giving you the benefit of the doubt that you've done better than the S&P since you first started picking stocks. And therefore you're reasoning for considering it a no-brainer to generate market-beating double digit returns may be rational. But you can't assume that the general boat buying public has the same mastery over the market, and to suggest that the odds of the market generating a return below 6% are "nonexistent" really undermines your argument.
So if you really are capable of crushing the overall market year in and year out, to the extent that in your mind, a 6% return over 15 years is guaranteed, then financing a boat, or even a Starbucks latte - at currently available rates of 6-7% is not only rational, but in a way, the only logical thing to do. You're theory, if it plays out at the investment returns you are consistently achieving, is the right strategy.
Holy crap, I go away for a few hours (to drive to the coast and whisper sweet nothings to my boat), and this thread blows up. Ha!
Seriously, IMO good thread even though it went quite a bit sideways. I say that b/c boats are generally expensive. If not to purchase, then to run and maintain. You either spend little, get an older model and use your own personal time to keep from sinking to the bottom of the ocean. Or, like me, you buy a newer rig that isn't a time whore for a BIG WAD OF CASH, either up front or on time.
No matter which way you cut it, boats are a hole in the water into which you throw a lot of your hard earned money.
So I think it's good to have a spirited discussion on the topic.
Lets run a few recent 15 year periods:
1995-2009: Avg. return: 7.73%; CAGR: 5.47%
1980-1994: Avg. return: 10.32%; CAGR: 9.61%
1964-1979: Avg. return: 1.84%; CAGR: 0.31%
And the last ten years (1999-2009) Avg. return: 0.38%; CAGR: -1.65%
So you win in the 1980-1994 15-year period. Assuming you didn't pay 17.99% for your boat loan in the 80's... But I appreciate that this is just a proxy for investment returns. you've hinted that you work in some sort of securities capacity, so I have no problem giving you the benefit of the doubt that you've done better than the S&P since you first started picking stocks. And therefore you're reasoning for considering it a no-brainer to generate market-beating double digit returns may be rational. But you can't assume that the general boat buying public has the same mastery over the market, and to suggest that the odds of the market generating a return below 6% are "nonexistent" really undermines your argument.
So if you really are capable of crushing the overall market year in and year out, to the extent that in your mind, a 6% return over 15 years is guaranteed, then financing a boat, or even a Starbucks latte - at currently available rates of 6-7% is not only rational, but in a way, the only logical thing to do. You're theory, if it plays out at the investment returns you are consistently achieving, is the right strategy.
Dave? where you at?
Come on - now who is being arbitrary?
Here is the data for all 45 15 year periods from the one that ends in 1965 until the one that ends in 2009:
The average CAGR is almost 11.3%, and there are only three of the 45 periods in the sample that are less than 6%. I will take those odds any day of the week, and twice on Sunday.
... I'd love to earn a nice steady 8-9% over the next ten, then I might be more inclined to expect to "beat" a 6-7% interest rate. ... 
Appreciating regression, probability theory and market appreciation over the long term is one thing, but its hard to make financial decisions based on those theories when your actual market experience tells you otherwise -- and I am NOT a market gambler. 
