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Dave Ramsey's advice to pay off a car loan, rather than invest
Posted on 12/31/19 at 1:49 pm
Posted on 12/31/19 at 1:49 pm
So basically the idea is that, sure, you can beat the 4% interest on the loan with 8-10% investing in the market, but you have to account for the risk that your market investments could return less than 4%, or even go down.
Is that basically the gist of it? And if so, wouldn't a high-yielding dividend fund (or basket of high-yielding dividend stocks) drastically reduce that risk while still returning 6-10%?
Is that basically the gist of it? And if so, wouldn't a high-yielding dividend fund (or basket of high-yielding dividend stocks) drastically reduce that risk while still returning 6-10%?
18
Posted on 12/31/19 at 1:53 pm to RidiculousHype
quote:No. It's based on human behavior, not mathematical calculations.
So basically the idea is that, sure, you can beat the 4% interest on the loan with 8-10% investing in the market, but you have to account for the risk that your market investments could return less than 4%, or even go down.
Posted on 12/31/19 at 2:06 pm to PearlJam
nm
This post was edited on 5/21/20 at 2:00 pm
Posted on 12/31/19 at 2:07 pm to RidiculousHype
I don't know about Dave Ramsey but I also base it on you having a highly depreciating asset. So in an emergency there is no guarantee you could sell your vehicle for what you owe on it. Also, you will always need a vehicle so you wouldn't even want to lose it in an emergency.
Posted on 12/31/19 at 2:21 pm to RidiculousHype
quote:
Is that basically the gist of it?
No. The "gist" of it is that it is a psychological advantage to not be in consumer debt. That is the correct advice for 90+% of Americans.
If you are investing and exceeding your debt service with returns, with liquid reserves to pay off all your consumer debt at any moment and you are strategically doing all this for this reason, Ramsey's advice is not particularly your cup of tea.
But for most Americans living paycheck-to-paycheck, it is brilliant, life changing advice.
This post was edited on 12/31/19 at 2:22 pm
Posted on 12/31/19 at 2:23 pm to sacrathetic
quote:
No. It's based on human behavior, not mathematical calculations.
Makes sense.
quote:
It's so frustrating reading financial message boards (not just this one, most of them are like this) because the hive mind in them usually dismisses the human nature aspect of financial decisions.
So let's delve into that a bit... if someone owes $10k on a car loan at 4%, and has the cash to pay it off, taking into account the human behavior side of things, you'd pay it off because there's a good chance you'll screw up the $10k investment if you don't.
And if I was giving advice to the general public, I'd say the same thing Dave says.
Posted on 12/31/19 at 2:26 pm to RidiculousHype
quote:
if someone owes $10k on a car loan at 4%, and has the cash to pay it off, taking into account the human behavior side of things, you'd pay it off because there's a good chance you'll screw up the $10k investment if you don't.
Right - and once you're out of debt and have a budget down to the penny, he certainly encourages saving that debt service. So, instead of investing the cash and paying the car note, you pay off the car and invest/save the car note.
The roads lead to the same place. In one situation you're leveraged, in another you're not. And "leveraged" into a private automobile is bad debt, IMHO.
This post was edited on 12/31/19 at 2:27 pm
Posted on 12/31/19 at 2:27 pm to RidiculousHype
nm
This post was edited on 5/21/20 at 2:00 pm
Posted on 12/31/19 at 2:59 pm to RidiculousHype
Ramsey's advice is for people that don't make good financial decisions. Following his advice will be more likely to keep you out of trouble instead of maximizing your investment potential.
Posted on 12/31/19 at 3:23 pm to sacrathetic
quote:
That statement can't be proven mathematically, but those with wisdom know in their hearts that it's true.
Posted on 12/31/19 at 4:24 pm to Ace Midnight
quote:
But for most Americans living paycheck-to-paycheck, it is brilliant, life changing advice.
Yep, and if 90% of American's would follow it, they would be in overall better financial shape, the MT gurus notwithstanding.
Posted on 12/31/19 at 5:05 pm to TigerTatorTots
It’s good advice for debtaholics, not someone with a high financial acumen.
Posted on 12/31/19 at 5:10 pm to Paul Allen
This is the most reasonable DR thread I’ve seen on this board. He does a lot more good than recommending all the ways the money board would maximize their money to the general public
Posted on 12/31/19 at 5:31 pm to Upperdecker
Last day of the year softening I guess
Posted on 12/31/19 at 6:34 pm to RidiculousHype
quote:
So basically the idea is that, sure, you can beat the 4% interest on the loan with 8-10% investing in the market, but you have to account for the risk that your market investments could return less than 4%, or even go down.
Is that basically the gist of it? And if so, wouldn't a high-yielding dividend fund (or basket of high-yielding dividend stocks) drastically reduce that risk while still returning 6-10%?
No he just wants you to get rid of debt plain and simple has nothing to do with investing and getting a better return
Posted on 1/1/20 at 3:50 am to RidiculousHype
nm, not getting into this pissing contest again
This post was edited on 1/1/20 at 3:53 am
Posted on 1/1/20 at 12:00 pm to RidiculousHype
quote:
And if so, wouldn't a high-yielding dividend fund (or basket of high-yielding dividend stocks) drastically reduce that risk while still returning 6-10%?
Point me in the direction that returns 6-10%, with drastically reduced risk.
If anything high yiekding stocks are inherently more risky than typical indexing
Posted on 1/1/20 at 1:49 pm to RidiculousHype
quote:
So let's delve into that a bit... if someone owes $10k on a car loan at 4%, and has the cash to pay it off, taking into account the human behavior side of things, you'd pay it off because there's a good chance you'll screw up the $10k investment if you don't.
I think it's more of if a person has the 10k to pay off the car, they probably wouldn't actually invest it, they'd blow it on random shite instead.
Investing is the rational thing to do, but people are irrational. Paying off the debt if better than keeping it in cash or just spending it, which is what the vast majority of people would do.
Posted on 1/1/20 at 3:41 pm to RidiculousHype
The paid off mortgage has replaced the BMW as the status symbol in America. Dave Ramsey’s financial advice is based on human behavior, not math. The finances after all debts have been paid off.
I’m 12 months from being 100% debt free.
I’m 12 months from being 100% debt free.
Posted on 1/1/20 at 4:36 pm to LatinTiger30
quote:
I’m 12 months from being 100% debt free.
You'll love it when you get there! Congrats!
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