Investing truck downpayment

[Bulldog0156]

I'm looking at buying a new pickup in another year or so depending on what Toyota does with their 2022 model tundra. I've got a decent bit of change for the downpayment just sitting in my checking account right now and I don't like seeing it in there. I was thinking of investing it until I need it, just so it doesn't burn a hole in my pocket. I'm not huge into investing; I pretty much just started this last year and am still not super great with all the lingo, but I'm looking at probably an ETF bond fund or something that is relatively low risk that I would get some return on investment from (even if it isn't a ton). Just wondering what the more well versed folks in the group think about rolling the dice on investing a vehicle downpayment?

 

[TN2shot07]

Definitely some smarter people regarding this subject on here than me. My general rule is that less than 3 years isn’t something I’m investing toward, just saving. The risk is too high for me to lose and not recover it short term, especially with the uncertainty coming up. I’d find a high yield savings account or money market and park it there. I’m also not investing in any kind of bond when interest rates are rock bottom and can only go up.

 

[Brandon270]

I'm looking at buying a new pickup in another year or so depending on what Toyota does with their 2022 model tundra. I've got a decent bit of change for the downpayment just sitting in my checking account right now and I don't like seeing it in there. I was thinking of investing it until I need it, just so it doesn't burn a hole in my pocket. I'm not huge into investing; I pretty much just started this last year and am still not super great with all the lingo, but I'm looking at probably an ETF bond fund or something that is relatively low risk that I would get some return on investment from (even if it isn't a ton). Just wondering what the more well versed folks in the group think about rolling the dice on investing a vehicle downpayment?

I'm not a professional investment pro, but everything I hear and read is if you need the money in 2-3 years or less it's best to just keep it parked in a savings account. Even bond funds can drop within that time frame. There's too much unknown and chance of loss in that short amount of time.

Good luck on your purchase, I hope to get a tundra myself in a couple years.

 

[Wildabeest]

Agree with others. Money market account at a bank is your best bet if you’re going to need it within 2-3 years. Lots of banks are offering cash bonuses and/or guaranteed above market interest rates for a limited duration when open a new account - so check around. I recently got a promotion from CapitalOne where they were offering guaranteed 1% interest rate for the first 6 months and $500 cash bonus on a $50k deposit if you left it in there for 6 months. The bonus was tiered based on the $ amt, but I don’t remember what the lower thresholds and amounts were.

The more important financial advice is don’t buy a brand new truck. Huge depreciation the second you drive it off the lot. Less of an issue with Toyota, but it’s still not the smartest thing from a pure financial perspective. I don’t follow my own advice in that regard though, so take it for what it’s worth.

 

[Southern Elk]

You could put it in a savings account or a CD and earn some interest. It won’t be much, but better than leaving it in a checking account and it will be less accessible, since you’re worried you might spend it.

 

[npaden]

Agree with the others on just putting it in a money market. Right now it won’t earn much but better than nothing.

Disagree about buying a used truck instead of a new truck. I guess there could be a good deal out there but the last couple times I’ve bought a truck I have found that if you shop hard for a new truck and wait for the year end sales it is hard to find a used truck at a better price.

Stick some numbers in a spreadsheet and price out the annual cost of ownership and mileage and it is a very rare deal to find a used truck cheaper than a new one. That has been my experience anyway.

 

[Bulldog0156]

I'm going to be getting a new truck, just waiting to see if Toyota is going to make a hybrid.

 

[Pucky Freak]

If you only have enough for a vehicle downpayment, you can’t afford the vehicle. You’ll overpay because you’re using Monopoly money. It’s a consumable product that’s worth less than you pay for it. When you play games with APR’s and focus on irrelevant things like investing to grow your down payment amount by a couple hundreds, you miss the huge picture of making wise financial decisions that make you a winner long term.

Determine when you’ll be buying a vehicle, and how much you’ll be paying for it. Divide the amount by the number of months from now until then, and sock that monthly amount away until you have the full balance. Don’t be a slave to Toyota Financial. Those execs are chillin in beach mansions. Be smart like them and have other people paying you rather than the other way around.

 

[sneakypete]

If you only have enough for a vehicle downpayment, you can’t afford the vehicle. You’ll overpay because you’re using Monopoly money. It’s a consumable product that’s worth less than you pay for it. When you play games with APR’s and focus on irrelevant things like investing to grow your down payment amount by a couple hundreds, you miss the huge picture of making wise financial decisions that make you a winner long term.

Determine when you’ll be buying a vehicle, and how much you’ll be paying for it. Divide the amount by the number of months from now until then, and sock that monthly amount away until you have the full balance. Don’t be a slave to Toyota Financial. Those execs are chillin in beach mansions. Be smart like them and have other people paying you rather than the other way around.

Great advice!

 

[SAJ-99]

Determine when you’ll be buying a vehicle, and how much you’ll be paying for it. Divide the amount by the number of months from now until then, and sock that monthly amount away until you have the full balance. Don’t be a slave to Toyota Financial. Those execs are chillin in beach mansions. Be smart like them and have other people paying you rather than the other way around.

I think conceptually this is great, but practically impossible for most people. He has to pick a time (3/5/7yrs?) and then know what that vehicle will cost in the future. Then he has to figure out where he is going to “sock” that money away at. Interest rates are still below inflation so the money declines in purchasing power. Equities? They are volatile. Add to that he has to have a vehicle over that time frame and it has maintenance costs. I think the translation of your advice is don’t buy more truck than you can afford or need.

 

[Addicting]

Lake Michigan Credit Union has a 3% max checking on up to 15k. You have to make 10 purchases a month and log into the account 5 times.

Zero risk and almost keeps up with inflation. Just go to Walmart once a month and buy 10 Ramon noodles packages individually. 25 cents per transaction for a total of $2.50 per month to make up to $450 per year in interest.

 

[belshawelk]

get a good CD with good rate and one you can add too.

 

[Bulldog0156]

If you only have enough for a vehicle downpayment, you can’t afford the vehicle. You’ll overpay because you’re using Monopoly money. It’s a consumable product that’s worth less than you pay for it. When you play games with APR’s and focus on irrelevant things like investing to grow your down payment amount by a couple hundreds, you miss the huge picture of making wise financial decisions that make you a winner long term.

Determine when you’ll be buying a vehicle, and how much you’ll be paying for it. Divide the amount by the number of months from now until then, and sock that monthly amount away until you have the full balance. Don’t be a slave to Toyota Financial. Those execs are chillin in beach mansions. Be smart like them and have other people paying you rather than the other way around.

I probably mischaracterized what I meant by "downpayment." I'm going to pay the majority of the cost of the vehicle in cash and take a small loan on the rest. New is a luxury that I can afford and justify at this time, probably the only time in my life I will do it.

 

[AvidIndoorsman]

@ElkFever2 the smart execs pay for everything with debt. Welcome to capitalism. EBITDA to debt rates in OG for instance are often 3x to 10x, my current company is considered exceptional as our ratio is 1:1. These companies with 10x ratios go bankrupt, restructure, and move forward no one gets fired Corp salaries might go up and nothing changes. Chaparral has filed twice in 2 years .

David Ramsey finance just isn’t how our world works. I think the personal equivalent would be to buy the truck with a 0% APR credit card, transfer the balance to new cards with 0% interest and 0% balance transfers for the next couple of years, trade it in eventually and keep the pattern going. Die having never paid for a car but with 500k in debt, who cares your dead.

 

[Pucky Freak]

I probably mischaracterized what I meant by "downpayment." I'm going to pay the majority of the cost of the vehicle in cash and take a small loan on the rest. New is a luxury that I can afford and justify at this time, probably the only time in my life I will do it.

I got ya. Now stay with me for 1 sec. Let’s say the sticker price is $50k. 3 years it’s worth $28k. For the cost of $22k in depreciation you purchased an experience. Nothing wrong with that. Some folks can easily afford it, and enjoy what they bought.

The part that doesn’t make sense in your question is you are asking how to maximize a vehicle savings fund, which will yield you a few hundred dollars over 2-3 years, then you’re going to turn around and blow $22k + a loan origination fee and some interest on an experience. The interest you earned is <2% of the equation here.

It’s a bit like asking what sort of shoes you should get when you jump off a bridge. Now, a few folks out there probably jump off bridges for fun and know what they’re doing. Maybe they are barefoot, but if they do wear shoes it really doesn’t matter what kind they are in the grand scheme of things.

 

[Pucky Freak]

@ElkFever2 the smart execs pay for everything with debt. Welcome to capitalism. EBITDA to debt rates in OG for instance are often 3x to 10x, my current company is considered exceptional as our ratio is 1:1. These companies with 10x ratios go bankrupt, restructure, and move forward no one gets fired Corp salaries might go up and nothing changes. Chaparral has filed twice in 2 years .

David Ramsey finance just isn’t how our wolf works. I think the personal equivalent would be to buy the truck with a 0% APR credit card, transfer the balance to new cards with 0% interest and 0% balance transfers for the next couple of years, trade it in eventually and keep the pattern going. Die having never paid for a car but with 500k in debt, who cares your dead.

Toyota financial exists because consumers willingly fork over millions of $ to them in a 100% unnecessary transaction. If everyone bought new cars with cash this division of Toyota would not be there. The auto industry is a marketing genius. They convince millions of Americans that buying new cars, and financing the purchase, is necessary, fun, normal, and inevitable. If you want to be rich like them, convince people to give you money that doesn’t need to be repaid.

I understand that corporate America is heavily debt-leveraged, with the top 1% eating lunch at the expense of everyone else. There’s little incentive for them to not have massive debts, because of how our political system is structured.

My concern here is that the Good Life for individuals is not mimicking the habits of corporate America by financing everything. I know a whole lot of people buried in debt and not one of them is happy. The inflated lifestyle they sought became a curse.

 

[Pucky Freak]

I think conceptually this is great, but practically impossible for most people. He has to pick a time (3/5/7yrs?) and then know what that vehicle will cost in the future. Then he has to figure out where he is going to “sock” that money away at. Interest rates are still below inflation so the money declines in purchasing power. Equities? They are volatile. Add to that he has to have a vehicle over that time frame and it has maintenance costs. I think the translation of your advice is don’t buy more truck than you can afford or need.

Practically impossible? A lot of people figure out how to make a monthly $700 truck payment. Just pay yourself the same amount, but before you make the vehicle transaction.

 

[SAJ-99]

Practically impossible? A lot of people figure out how to make a monthly $700 truck payment. Just pay yourself the same amount, but before you make the vehicle transaction.

This thread has gone down the proverbial rabbit hole of purchasing a car- new or used, finance vs cash, depreciation etc. His question was whether or not he should invest the cash he currently has knowing he will use it on to buy a truck in the future. The short answer is yes, probably, but with a BIG warning. If a person is able to save $700/mo (in your example) they are probably financially able to handle the volatility of investments. Emotionally? impossible to say how he would react if two months before the big purchase the investment portfolio lost 10% and he didn't have enough money. There is an opportunity cost to investing. Stashing the cash in checking or in a pillow case in your closet means it is not being put to good use and earning a return.

The only thing I disagree with is the vehicle is not an "experience". It is a tool that people use for transportation. The stats show that almost 40% of Americans don't have $400 in the bank. Some of those people may still have a $700 truck payment, so your point is valid. But people still need transportation and some may need to finance that purchase. There is nothing wrong with borrowing money. It goes back to the alternate uses of that money. If your investment portfolio returns a modest 6% over 5 years and you financed the truck at 1.9%, you are better off financing the truck than paying cash.

https://www.federalreserve.gov/publ...-economic-well-being-us-households-201905.pdf

 

[Tiredofthebickering]

@SAJ-99 already covered it a little bit but I'll say this anyway.

My truck is financed at less than 3%. So long as I can beat a 3% return on the money I held back and invested instead of using for a down-payment (or purchasing all cash) I come out ahead.

I was saying this to someone recently regarding taking cash out of your house. He just saw it as a waste and couldn't imagine why anyone would do it. With mortgage rates so low, you only have to beat a 3% return to make it worthwhile. Last time we did it we used some of the money for the down payment on an investment property. The mortgage is getting paid by someone else and the property is appreciating.

If you are over a year out, and have a stomach for at least some risk, I would imagine you could manage a better return in the stock market than nearly any checking, saving, or CD.

 

[TN2shot07]

@SAJ-99 already covered it a little bit but I'll say this anyway.

My truck is financed at less than 3%. So long as I can beat a 3% return on the money I held back and invested instead of using for a down-payment (or purchasing all cash) I come out ahead.

I was saying this to someone recently regarding taking cash out of your house. He just saw it as a waste and couldn't imagine why anyone would do it. With mortgage rates so low, you only have to beat a 3% return to make it worthwhile. Last time we did it we used some of the money for the down payment on an investment property. The mortgage is getting paid by someone else and the property is appreciating.

If you are over a year out, and have a stomach for at least some risk, I would imagine you could manage a better return in the stock market than nearly any checking, saving, or CD.

Everyone has a different appetite for risk. It’s an easy assumption to say I can out earn the interest I’m paying but there is a peace of mind knowing that if something goes wrong they don’t repo paid for trucks or foreclose on houses without a mortgage. Also, if your rentals are paid for instead of leveraged when you go without a renter or COVID makes it where you can’t get a squatter out it doesn’t put you in near as bad a spot.