Financing

Uplate said:
I would have to say that getting a boat loan at 3.7% is a remarkable deal ... Congrats on swinging that deal.

As far as the annuity, does your 5.2% factor in inflation? I just had a 3 hour meeting with my financial advisor today and he showed me how most plans and long term goals do not factor in inflation and how you can loose $$ over time or in the end make very little because inflation is not factored in to the mix...
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Uplate,
First of all my boat loan carries a 6.37% annual rate which was good as of this past Spring. The 3.7% is my average interest rate calculated by taking to the total amount of interest paid on the principal for 15 years, dividing it by the principal of the loan and then dividing that by 15.

Your financial adviser is giving you very good advice but in my circumstance doesn't apply since the annuity is only for 5 years and is a small portion of my portfolio. Also the loan rate is not adjusted for inflation so that issue is a wash. I used it to illustrate my point to since it earns more total interest on close to the same principal than I would pay on the boat loan to challenge his premise that one should only pay cash for boats.

comsnark said:
...In my opinion, annuities tend to be *horrible* investment vehicles. The only things worse than annuities *as an investment* is either (1) insurance or (2) a boat. From my limited experience, annuities tend to be engineered by financial experts for *their advantage* not *your* advantage.
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I don't share your opinion when you factor in risk versus return. Compared to other low risk investments available at the time (Dec 2008), even with an "actuarial discount," this was a no brainer since it only carries a 5 year term. I agree,that a boat is not an investment but a depreciating asset which is why I financed it over 15 years.
 
O.K. 320 Bob,

So I have already appoligized for any insults. That was not my intention.

It sounds like you have the illustrations and values available. So if you would humor me for a moment what is the net increase in value of your annuity at the end of the five year period ? Now measure your net after tax benefit of your loan payments for that same period ? I believe that the cash differential is fairly insignificant in terms of added net positive value. This is why I believe that even with the modest positive growth if there is one that even with almost no risk it may not be worth it.

I am not looking at percentages but dollar value increase. As an example one can invest currently with GE Credit on overnight credit at 1.60 % with no FDIC insurance and 1.20 % with Dollar Savings with insurance so if you were to invest 250 K the net increrase is only $ 1000.

So Is the risk of not being insured worth it ? Some might say yes but I am not sure.

Another example might be that you borrow on a home eqiuty loan and take the net cash out to put in a true and tested stock or to buy and flip a property and poof the market gets whacked. The net impact is problematic.

That was my point.

I understand that you annuity is only a small part of your net worth. But aren't you really playing the arbitrage ? There is some level of risk in that I think.
 
All this talk is making me feel bad for financing my little 185. Why do you all want to make me feel bad about something that brings so much joy to me and my family? Why?
 
jrm005 said:
All this talk is making me feel bad for financing my little 185. Why do you all want to make me feel bad about something that brings so much joy to me and my family? Why?
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There is nothing wrong with financing your boat. If it makes you happy and you can afford it then Go For IT.

I find this thread interesting as it explores other aspects of why and why not to do it. And how your money might work for you in different ways. Certainly there are big ticket items we all have financed before.
 
Bill Z said:
O.K. 320 Bob,

So I have already appoligized for any insults. That was not my intention.

It sounds like you have the illustrations and values available. So if you would humor me for a moment what is the net increase in value of your annuity at the end of the five year period ? Now measure your net after tax benefit of your loan payments for that same period ? I believe that the cash differential is fairly insignificant in terms of added net positive value. This is why I believe that even with the modest positive growth if there is one that even with almost no risk it may not be worth it...So Is the risk of not being insured worth it ? Some might say yes but I am not sure...I understand that you annuity is only a small part of your net worth. But aren't you really playing the arbitrage ? There is some level of risk in that I think.
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BillZ, I'll humor you this one last and final time. The accumulated cash return after 5 years of the annuity is $26,000 while the interest paid on the boat loan is $25,650 or slightly over 50% of all the interest to be paid. If I take the annuity pay out as a lump sum I'll pay ordinary income taxes on the $26,000 but still have the original principal plus the after tax return of $17,500 to reinvest at say a return of 4% for the remaining 10 years of the loan. This would yield close to $47,000 compared with the remaining interest on the loan of $24,650. The average interest rate on the loan for the 10 years remaining is now 2.7%.

Another thing that is not too well known is even though an annuity is not FDIC insured most states have insurance funds to cover losses that in the case of IL may be as much $250,000.

If you still believe after this that one should only pay cash for a boat then we will have to simply agree to disagree and be done with it.
 
fwebster said:
Are you trying to run up your post count or just being obnoxious........? This is (was) a family oriented site. Judging by your posts today, you apparently didn't get that memo.
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Yes Frank - I guess I just had a bad day - My posts are generally relevent and in line with things I know somthing about or have had direct experience with - I am sick of the I'll informed advice and grandstanding though - is the fact that someone always pays cash really relevant to the OPs question? - Who's trying to up their post count? Again, I will try harder to keep it clean and relevent
 
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