Penn4S

If you didn’t do better than 10% this year on your investments I would suggest you have a chat with your financial advisor. Even my 401K was over 11%. Not saying don’t pay cash but it’s worth thinking about as cheap as money is at this time.

Selo

This is a kid who was only twenty five when the bull market began. He had no money to lose in the crash of 07 and 08. When a crash occurs, people talk of a conservative investment as one that only loses 20% instead of 40%. Conservative investments at the moment are bringing in 5-10%, but it's not going to last forever. And when the next crash occurs, there'll be a lot of super nice, near new Porsches available for really cheap, from people who thought they had it all figured out.

Gus_Smedstad

As I said upthread, this sort of logic only makes sense if you don't have enough much experience in equities. Assuming a 5 year loan, a bit more than half the money is due in 2.5 years. That's a ludicrously risky time frame for equities, and bonds aren't returning anything remotely like 10%.

This is a really terrible time to be assuming your market investments are going to return 10% going forward. There's little question in my mind that the market as a whole is in a bit of a valuation bubble. Just about any metric you use will point in that direction. About the only counterargument that comes to mind is that bond yields are unattractive enough right now to make possible low returns on equities look good.

My personal rate of return has been 14.25% for the trailing twelve months, and I'd never consider taking out a 5-year loan for leverage. Though what LexVan said about a knee-jerk reaction to debt once you're debt free is spot on as well. I could take out a 30-year mortgage and invest the money in the market, and I'd certainly come out ahead over the course of the loan, but I'm not going to do that either.

Long bull markets tend to skew perspectives for the relatively inexperienced. I remember back in the dot-com bubble, my sister-in-law was asking about putting money into the market... for an expense that was due in 4 months. When people start thinking investments can only go up, that's about as clear a sign as you'll get that the market's due for a big correction, if not an outright crash.

Dewinator

I do, because when I bought my first Porsche in my 20s I couldn't afford to pay cash and don't regret it for a second. Now that I'm in my 30s, that wouldn't be appropriate anymore.

I agree with you and do plan to deleverage when I'm in my 40s, but I think the leverage makes sense right now to while I'm young enough to recover from another big hit (I bought my first house in 2007 so that was a big hit to recover from but I learned a lot from it) to increase my expected returns. Of course I'll be here!

Gus_Smedstad

I was going to brush off EMT1's blanket statement and murphyslaw1978's endorsement of the same, but on second thought, I believe it's an issue worth addressing.

Net worth is simply not a good metric for judging this sort of decision, and there are several different use cases that need to considered separately.

If you're buying a car to use, not a toy, it's an ongoing expense, like buying a house. Like buying a house, most people buying cars are buying something that's more than their cash on hand. Maybe not more than their net worth, taking into account things like house equity or 401(k) funds, but more than they their accessible net worth.

That's not intrinsically a foolish decision, any more than buying a house is. It's a matter of income and expenses. When I bought a used Honda Civic in 1988 for $4000, I didn't have $4000 in hand, but I did have enough income to meet the payments and save money at the same time. In the meantime I had a car for work and everyday tasks. It wasn't absolutely necessary, but it was definitely worth the monthly expense.

When I bought my Toyota Supra Turbo in 1998, that was less of a clear cut case. I didn't need that much car, but I was spending a couple of hours commuting every day, and the idea of having a really fun car to do it was appealing. I only had about $20k in savings, so again I had to take out a loan since the car was $38k, but I did have the income to cover the expense comfortably. The loan was 13% of our take-home pay, but our savings rate was still about 25% after the loan. "Foolish" would have been cutting the savings rate to zero, or going negative - which some people do.

Compared to that, the GTS I'm buying (next week, presumably) is a much smaller purchase - in terms of both cost vs. net worth and cost vs. income.

Once your income gets above a certain point, things change. You can, of course, let all your expenses balloon as your income rises, but you don't have to. We live pretty comfortably on about 25% of our take-home household income, including things like trips abroad every year or two. It really starts making more sense to talk about dollar amounts, because talking about percentages once you're past that point assumes you don't have your other expenses under control.

Net worth only really enters into it once you're depending on investments for income, rather than a salary. Which, admittedly, is where I am, at least partially. My wife is still drawing a salary, but 70% of our income is from investments. Actually rather much more than that this year, but I'm talking about a rough estimate based on my returns for the last 17 years.

Budgeting in retirement is tricky, since you have to take into account things like market downturns. Generally speaking, the Safe Withdrawal Rate is 4%, not the 9%-10% I usually average, because you need a buffer to survive an outright crash. It helps considerably in my case that my wife wants to continue in her job for a while, and that our normal expenses are less than her take-home salary.

Nor can you just look at the cost of the car, since that doesn't take into account how often you change cars, and the incremental expense for the change. My record in that department has been... not good recently, since this is my 2nd new car in 3 years. Incidentally, this ties into my intended topic for this thread, since I don't like reconciling that against what I considered "normal" until recently, which was keeping a car for 16 years.

How much does a GTS really cost? Not $150k unless you buy one every year and throw it away. My incremental cost this time is $80k, but my C4S wasn't a $156k MSRP car. First year depreciation will be something like $40k-$50k, and rather less the second year.

Right now, we can sustain that kind of outlay every year and still save money, but only because my wife is still bringing in a salary. Even though it's significantly less than our investment income, it's a much more stable source of income.

It would be a big, big chunk of our discretionary spending, but that fact alone wouldn't make it foolish. That's the thing about discretionary spending: it's discretionary. If you want to spend money from income on toys, that's your decision. It's when you start dipping into savings rather than spending income that it's a problem.

There's just no smart rule you can make about "percentage of liquid net worth on a toy" in retirement, because you have to specify a lot of clarifying conditions. Keeping a car for 16 years is a lot less expensive than keeping one for 5 years or (mea culpa) 18 months.

Gus_Smedstad

I've gotten more comfortable with the decision, though I'll continue to question it for a while. I haven't, after all, gotten to drive the car yet, and I've been without my C4S for nearly 4 months, which hasn't helped. What does help is that my investments have grown by over twice the incremental cost of the upgrade in those same four months. Knowing that I'll still be well ahead of where I was in late August after I write the check helps salve my misgivings.

Though given how the market has ballooned in response to the forthcoming tax bill, I can't help but think it's a bit of Greenspan's proverbial irrational exuberance. We'll see if it's justified when we start seeing company financials a year from now.

MJG911

my 401k is up 18% this year, but over its 21 year life its more like 7%

.2PDK

Bingo, we are at about 15% of our take home income (I'm still working, large investment accounts and no kids) and even though I could rationalize my 991 purchase (dollar amount method) I still felt a tad uneasy about the purchase (which by the way was only about 80k USD).

The point being everyone handles their emotions differently when making any purchases...

love2drive

$210K income is not enough to buy a $150K car responsibly. It would no doubt put you in financial jeopardy or undo stress.
My advice would be to buy a used one for no more than $100K with CPO. Then sell it after a few years and get another one just before CPO
is up. You can pick up a 2015 CPO GTS for about 100K with less than 5K miles on the clock.

Just my perspective. But you do you by all means.

.2PDK

Timing corrections is tough, if we get a 5-10% correction with no underlying economic catastrophe I'll be buying as I already have too much cash on the sidelines (my bad).

If we continue to rise into the spring I'll be raising cash.

Always good to have a plan, sticking to it is rather difficult...

LexVan

This would be a non issue if you live 100% debt free. IMO.

Gus_Smedstad

Facepalm. Lots of bad assumptions in there. Look, just read what I wrote 4 posts before you piped in. Oh, heck, if you'd just read the original post and thought about it, you wouldn't be saying this. Short version, I'm paying cash, and it won't "put me in financial jeopardy" since I have enough investments to do the same transaction 10x over without even touching tax-advantaged accounts.

I probably should just ignore these misguided "you can't afford it" posts, since my original intent was to talk about reconciling decades of spending habits vs. this purchase, but something like this so soon after I addressed the topic at length is a tad irritating.

It's rough. It's a truism that you can't really time the market. There's just no telling when an irrational boom will end, or when a bear market will recover. While I think the market is overvalued, I've been thinking that for quite a while now, and if I'd moved to cash I'd have missed out on the ridiculous boom we've had in just the last couple of months. The most you can do is evaluate individual stocks now, price vs. what you should logically get back from cash flow.

I'm kind of an aggressive investor by nature, in the sense that I think the usual rule-of-thumb allocation vs. age rules are dumb, and my instinct is to be as close to 100% equities as I can manage. Despite that, I've got about 5 years of expenses in bond funds right now, just because finding attractively priced equities has been difficult recently. That's how much you're supposed to have in retirement, incidentally, but not my usual practice.

Dewinator

Regardless of how you do the math, I bet you’d come up with a higher percentage for “911 owners that can legitimately afford to drive 911s” than for “children owners that can legitimately afford to have children”.

.2PDK

Guaranteed.

koala

I'm with ya. I'm 33, I'd rather any large sums of money stay invested in my business where the rate of return is far greater than avoiding a bit of interest on a car loan.