Author Topic: "Loaning" yourself money from investments  (Read 3957 times)

MySurvivingBones

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"Loaning" yourself money from investments
« on: March 04, 2014, 09:39:11 PM »
Hello fellow Mustachians!

I've got some crazy idea in my head and I can't figure out if it's from here or out of my ass.  How feasible is it to "loan" yourself money from your investments which you then pay back?  The main idea is to avoid any losses getting financed or a loan from the bank.  Here's the back (hypothetical) story:

I'm currently making roughly $25,000.  I have investments of roughly $70,000, which increase by about 2.5% a year.  I want to buy a car that's $15,000.  Option one is to save up $5,000 each year for three years while investing $5,000, which by my calculations comes out at the end of year three with just over $90,000 in investments.  Option two is to "loan" myself $15,000 (which means withdrawing $15,000 from my investments), buying the car right now, and then paying myself back (reinvesting) at a rate of $10,000 a year (which I would normally try to do even without buying a car).  I calculate that at the end of year three my investments would stand at--you guessed it-- just over $90,000.

Am I actually talking sense, or should I burnish my stoicism skills by deferring the pleasure of buying a car right away?

KingCoin

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Re: "Loaning" yourself money from investments
« Reply #1 on: March 04, 2014, 10:07:42 PM »
You're doing the math wrong. By buying the car upfront, you're shunting money away from income earning assets into a depreciating asset. By buying it at the end of the period, you're maximizing the time your investments work for you.

Also, 2.5%? You need better investments. You're barely keeping up with inflation.

MySurvivingBones

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Re: "Loaning" yourself money from investments
« Reply #2 on: March 04, 2014, 10:56:23 PM »
Thanks for humoring my cockamamie idea.  I'm realizing now I more likely pulled it out of my ass than anything else.  Also, I probably didn't make it quite clear that this was a hypothetical situation.

If you need me, I'll be in the corner punching myself in the face and burnishing my stoicism skills.  >_<

warfreak2

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Re: "Loaning" yourself money from investments
« Reply #3 on: March 05, 2014, 05:37:31 AM »
Buying a car isn't pleasurable.

ender

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Re: "Loaning" yourself money from investments
« Reply #4 on: March 05, 2014, 05:44:25 AM »
You want to buy a car which is $15k when you only make $25k?

That's one heck of an expensive vehicle for that income.

Mori

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Re: "Loaning" yourself money from investments
« Reply #5 on: March 05, 2014, 02:16:12 PM »
1) Do you have a car now? Is it on its last legs and that's why you want to get rid of it?

2) Are you really "loaning" yourself the money if you are just reinvesting at the rate you always aim for? Shouldn't it be 15k if you are aiming to pay yourself back?

3) How will the "new car" effect your insurance rates? Gas expenses? Is it really just the 15k?

4) No better cars on Craigslist or the used car dealer to be found?

You don't have to be stoic, but I want to see more detail and better math. :)

ETA:

5) Any reason that a 0% financing offer wouldn't be a better use of your funding? What's your credit like?
« Last Edit: March 05, 2014, 02:18:43 PM by Mori »

arebelspy

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Re: "Loaning" yourself money from investments
« Reply #6 on: March 05, 2014, 02:20:00 PM »
This is a common scheme insurance salesmen and annuity salesmen try to push.

I've seen it referred to as a number of things, most recently the Infinite Banking concept.

Bottom line: no, there's no clever hack related to this.  If they can confuse you enough though, you may think there is.
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ThermionicScott

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Re: "Loaning" yourself money from investments
« Reply #7 on: March 05, 2014, 03:07:26 PM »
You want to buy a car which is $15k when you only make $25k?

That's one heck of an expensive vehicle for that income.

+1.  I like MMM's guideline of limiting your car's value to 2% of your net worth.  At lower levels, one could play with that ratio a little to allow for a car that isn't too unreliable/ugly.

Thegoblinchief

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Re: "Loaning" yourself money from investments
« Reply #8 on: March 05, 2014, 03:30:10 PM »
Don't do it. Especially not for a car that's worth $10K than both of my cars put together.

Also, obligatory: have you tried biking?

payitoff

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Re: "Loaning" yourself money from investments
« Reply #9 on: March 05, 2014, 03:46:45 PM »
not sure if this is a hypothetical question, but if not, do you really like the car? do you see yourself driving it for a very long time? if youre credit is good, just finance it and pay it off sooner, this way you are still contributing to your savings and not jeopardizing the chances of your $15k earning interest.  if you can only set aside $10k a year for investments, holding it off for a year to pay off that car sooner i think will be ok, as long as you really like the car and drive it for a really long time.


dragoncar

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Re: "Loaning" yourself money from investments
« Reply #10 on: March 05, 2014, 04:14:13 PM »
not sure if this is a hypothetical question, but if not, do you really like the car? do you see yourself driving it for a very long time? if youre credit is good, just finance it and pay it off sooner, this way you are still contributing to your savings and not jeopardizing the chances of your $15k earning interest.  if you can only set aside $10k a year for investments, holding it off for a year to pay off that car sooner i think will be ok, as long as you really like the car and drive it for a really long time.

It's hypothetical.