Car Finance Investment Fund
Discussion
Bit of a thought experiment but...
Would it be a reasonable idea to set aside an investment pot to cover car expenditure.
For example, let's say we wanted to run a £20k car
Rather than pay cash for the car, we could set aside in a separate investment account a sum of £20k, and invest in various funds to try to achieve the objective of funding the cars depreciation / finance
Of course it would be very hard to realistically measure risk in this setup, but on the whole seems like a reasonable idea.
If the pot grows in the future to £30k, then trade up to a £30k car etc etc
The monthly finance could then be directly drawn from this account so you would have real time feedback on how it is performing.
Any clear downsides or things to consider?
Would it be a reasonable idea to set aside an investment pot to cover car expenditure.
For example, let's say we wanted to run a £20k car
Rather than pay cash for the car, we could set aside in a separate investment account a sum of £20k, and invest in various funds to try to achieve the objective of funding the cars depreciation / finance
Of course it would be very hard to realistically measure risk in this setup, but on the whole seems like a reasonable idea.
If the pot grows in the future to £30k, then trade up to a £30k car etc etc
The monthly finance could then be directly drawn from this account so you would have real time feedback on how it is performing.
Any clear downsides or things to consider?
Car finance is running at what APR currently? Remembering this is from net income, where as returns on investments will need tax taking off, unless ISA for example.
Depreciation over 3 years? Running to what, 30%? So ignoring costs of finance you need to find 10% net pa return, after costs. So finance on top, shall we say 5%? So 15% per annum net, with little risk, if you’re wanting to definitely be able to ‘pay’ for it over 3 years?
If you find me a fund that can do that I’m all ears.
Depreciation over 3 years? Running to what, 30%? So ignoring costs of finance you need to find 10% net pa return, after costs. So finance on top, shall we say 5%? So 15% per annum net, with little risk, if you’re wanting to definitely be able to ‘pay’ for it over 3 years?
If you find me a fund that can do that I’m all ears.
trowelhead said:
Rather than pay cash for the car, we could set aside in a separate investment account a sum of £20k
I might be missing something, but if you put the £20k lump sum you were going to spend into a different account, how are you paying for the car in the first place?If your than taking out a £20k loan, don't you than have to cover interest payments on top first, before even starting to try and bridge depreciation etc?
So your than effectively saying you can generate more income from a £20k investment product than banks can make money from you for lending you £20k in the first place.....If you do have access to such an investment product don't go telling everyone else what it is on the internet, as essentially you have a magical money tree which everyone will want a bit off!
Edited by gangzoom on Wednesday 23 October 05:47
I think the hypothesis is; use monthly income from investments to pay monthly payments of car (PCP/HP).
Problem is; it does not work with the figures presented.
Say you have a £500/month car payment (excl. all other costs) = £6,000 per annum.
Given a net return of 10% (which is bullish) you’d need principal of £60,000.
The challenge with taking the monthly payout is that the principal has very little chance to grow and allow for deposit of next car / move up in car.
Worst of all; what do you do (like the thread on this page) when your funds depreciate?
Problem is; it does not work with the figures presented.
Say you have a £500/month car payment (excl. all other costs) = £6,000 per annum.
Given a net return of 10% (which is bullish) you’d need principal of £60,000.
The challenge with taking the monthly payout is that the principal has very little chance to grow and allow for deposit of next car / move up in car.
Worst of all; what do you do (like the thread on this page) when your funds depreciate?
gangzoom said:
trowelhead said:
Rather than pay cash for the car, we could set aside in a separate investment account a sum of £20k
I might be missing something, but if you put the £20k lump sum you were going to spend into a different account, how are you paying for the car in the first place?If your than taking out a £20k loan, don't you than have to cover interest payments on top first, before even starting to try and bridge depreciation etc?
So your than effectively saying you can generate more income from a £20k investment product than banks can make money from you for lending you £20k in the first place.....If you do have access to such an investment product don't go telling everyone else what it is on the internet, as essentially you have a magical money tree which everyone will want a bit off!
Edited by gangzoom on Wednesday 23 October 05:47
Even a basic fund like vanguard ftse developed world ex-UK equity has returned 88.55% over the past 5 years and 30% over the past 3 years, which would tie in more closely with a lease agreement.
There is no magic, just more risk.
I 8 a 4RE said:
I think the hypothesis is; use monthly income from investments to pay monthly payments of car (PCP/HP).
Problem is; it does not work with the figures presented.
Say you have a £500/month car payment (excl. all other costs) = £6,000 per annum.
Given a net return of 10% (which is bullish) you’d need principal of £60,000.
The challenge with taking the monthly payout is that the principal has very little chance to grow and allow for deposit of next car / move up in car.
Worst of all; what do you do (like the thread on this page) when your funds depreciate?
Hit. Nail. On Head. This can work, but you need larger stash of capital than the car's price not 1:1 ratio unless you're taking a significant risk. Problem is; it does not work with the figures presented.
Say you have a £500/month car payment (excl. all other costs) = £6,000 per annum.
Given a net return of 10% (which is bullish) you’d need principal of £60,000.
The challenge with taking the monthly payout is that the principal has very little chance to grow and allow for deposit of next car / move up in car.
Worst of all; what do you do (like the thread on this page) when your funds depreciate?
Mezger said:
Hit. Nail. On Head. This can work, but you need larger stash of capital than the car's price not 1:1 ratio unless you're taking a significant risk.
Agreed. One thing that does need to be taken into account is that a broker might be able to arrange a much better purchase deal (bulk discount etc), so reducing the cost of depreciation that needs to be funded via the lease option, compared with the private purchase.gangzoom said:
btdk5 said:
If it didn’t work why would anyone leverage?
...........just more risk.
And if the risk wasn't that high why does anyone still have jobs, why don't we all just borrow money to invest and make bigger returns? ...........just more risk.
btdk5 said:
Probably because they don't have the capital or assets to make it worthwhile and they don’t know what they’re doing.
Why would you need capital? If you can generate more money from an investment product than interest on an loan than surely you have a magical money tree.Just borrow the capital and keep growing your portfolio?
gangzoom said:
btdk5 said:
Probably because they don't have the capital or assets to make it worthwhile and they don’t know what they’re doing.
Why would you need capital? If you can generate more money from an investment product than interest on an loan than surely you have a magical money tree.Just borrow the capital and keep growing your portfolio?
You don’t understand it or aren’t prepared to take the risk to do it. Neither are most people. That doesn’t mean it’s not possible.
Sheepshanks said:
There was someone on here who advocated buying cheap flats in Glasgow and then using the rental income to lease a car.
The property has to be high yielding, doesn't have to be flats, or necessarily in Glasgow, and the benefit is most obvious if buying on HP, but yes. I've done this. The rents pay the car's running costs inc HP and after a few years the capital in the properties has increased so you've actually got more than you started with. Over a few years rental income increases too, although the car's running costs remain pretty static.
Optionally, you can use the capital to buy the car outright instead. And after a few years (if you sell it) you can have less than you started with. Some people prefer this. (Don't really know why.)
trowelhead said:
Rather than pay cash for the car, we could set aside in a separate investment account a sum of £20k, and invest in various funds to try to achieve the objective of funding the cars depreciation / finance
This is something that people on PH often claim to be doing. For some reason the forum has developed a culture where it is embarrassing to lease / finance a car, so people justify it by saying that they had higher-returning opportunities for the liquidity elsewhere. No idea whether it’s true or not.
ellroy said:
Car finance is running at what APR currently? Remembering this is from net income, where as returns on investments will need tax taking off, unless ISA for example.
Depreciation over 3 years? Running to what, 30%? So ignoring costs of finance you need to find 10% net pa return, after costs. So finance on top, shall we say 5%? So 15% per annum net, with little risk, if you’re wanting to definitely be able to ‘pay’ for it over 3 years?
If you find me a fund that can do that I’m all ears.
About 4.4% cheapest as far as i am aware. Would need to be done in an ISA. Global world tracker, and yes there is plenty of riskDepreciation over 3 years? Running to what, 30%? So ignoring costs of finance you need to find 10% net pa return, after costs. So finance on top, shall we say 5%? So 15% per annum net, with little risk, if you’re wanting to definitely be able to ‘pay’ for it over 3 years?
If you find me a fund that can do that I’m all ears.
gangzoom said:
trowelhead said:
Rather than pay cash for the car, we could set aside in a separate investment account a sum of £20k
I might be missing something, but if you put the £20k lump sum you were going to spend into a different account, how are you paying for the car in the first place?If your than taking out a £20k loan, don't you than have to cover interest payments on top first, before even starting to try and bridge depreciation etc?
So your than effectively saying you can generate more income from a £20k investment product than banks can make money from you for lending you £20k in the first place.....If you do have access to such an investment product don't go telling everyone else what it is on the internet, as essentially you have a magical money tree which everyone will want a bit off!
Edited by gangzoom on Wednesday 23 October 05:47
Just to be clear - i'm not trying to do this - just putting some numbers behind it to see if could make sense
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