There is risk in cash, it is called inflation, if you bought a car last year you lost 7% + depreciation of the car since you bought it. The SP500 is up 11% since last year.
This means you would have lost 7% to inflation, 11% to potential upside plus depreciation of your car. Assuming your car did not depreciate because of current car production shortages you lost 18% of your money buying cash vs 3%-4% interest on the loan.
YES. Hell yes. That's better-than-free money, adjusting for inflation. If you haven't maxed out your I-bond purchases yet, you can get 7.12% basically risk-free.
> If you haven't maxed out your I-bond purchases yet, you can get 7.12% basically risk-free
Those are being issued at 0% real. The initial rate is 7.12%, but that figure fluctuates with CPI-U. Betting that American inflation will keep raging at 2.5%+ isn’t a terrific bet.
That said, your broader point is valid. Money at 2.5% should not be paid back. There are good bonds yielding more, to saying nothing of dividend-paying stocks.
It's only high if the dealership isn't offering incentives in some way. That 0.9% APR is because BMW (or the dealership) is subsidizing it in kickbacks. Not every dealership/brand does that.
Yes. If I had 1M in the bank and went to buy a 500k house, and was offered like a 3% APR loan, would I take it? Yes. Reasons being:
1) I can make 5-6% return with my money. So I can pay the interest and still come out ahead.
2) That mortgage interest is tax deductible, so it costs a little bit less than 3%, maybe only 2.5% to me
3) Real estate market crashes and house is worth 200k? Especially in a no-recourse state, you can leave the keys and walk. The bank takes on the downside risk of your house, not you.
Argument #1 is a "should", not a "will", so there's definitely risk there. Considering the average stock market gain is something like 10% and we're sitting at way over that, it would stand to reason that if that average holds at some point we're going to get below average performance. It's a gamble.
Regarding #3 - doesn't that do a number on your credit? And how many states are non Recourse? As I understand it here in Canada those agencies that backed your loan (the bank or the CMHC) will attempt to recoup their losses by taking you to court if they have to.
3)
> Home mortgages—though generally recourse—are non-recourse in 12 states: Alaska, Arizona, California, Connecticut, Idaho, Minnesota, North Carolina, North Dakota, Oregon, Texas, Utah and Washington. If a homeowner defaults in one of these states, the lender can foreclose on the collateralized home but cannot go after the borrower’s other assets.
Generally taking a credit hit for a few 100k is a fine trade off. You can even buy a new house right before you walk away from your old house..
How many people actually do that? No one I know of talks about taking a loan for something they would have paid cash for, then turning around and putting the cash into their Robinhood/Fidelity/Schwab/etc. account. In fact, I haven't even read stories of people doing that, despite all this "advice".
All of these people saying "take a loan and you'll make money in the stock market" are wrong. You can't "make money" in stocks, from the perspective of choosing whether to take a loan, you can only "expect to make money". That's a huge difference.
And a number of experts say you shouldn't invest in stocks if you need the money in the next 5 years, so that's another strike against this advise.
I think the last few years have given people false confidence about the market. Sure the trend generally goes up, but if your loan came due in March 2020 that money wouldn't have been there.
Depends on the interest rate. When rates are low, borrowing money and having liquid assets can be a better choice (ie. putting the money into an index fund)
