Re: Financial question (interest accumulation)

[Jerry Chyo <jerryc@xxxxxxxxxxxx>]

Several folks have responded to:
>:> :I disagree with you that paying interest on a car is not a good and 
>:> :sound financial decision. If you have the cash to spend on
>:> :purchasing a car, shouldn't you keep that cash and finance the car
>:> :as long as the car loan has an interest rate LOWER than your return
>:> :on investment.
>:> :blah, blah -- cut
>:> :
>:> :...which has been averaging ~20%, PROBABLY WILL NOT continue...

There have been responses re: taxes, fee's and risk.  

Taxes:  If you are like most people nowadays's you will be putting your
money into some type of mutual fund.  These 15-20% earnings numbers are not
usually what you get taxed on (that's appreciation).  You get taxed on the
funds activity.  During the past few years when things were doing
relatively well, you came out ahead in your taxes.  You only paid for the
interest, dividend and capital gains incurred/received by the fund.  Any
appreciation is paid when you sell.  Hint: Don't sell.

Things are a little different this past year forward.  The funds haven't
been making the same types of returns, and many have actually depreciated
(lost value).  You still get taxed on the interest, dividends and capital
gains, but you can't take the depreciation until you sell.  The tax
arguments have been a little misleading.

Fee's:  Don't invest in a fund that charges all these stupid fee's.  They
don't earn more than no-load funds (statistical analysis by Smith Barney,
not me) and typically a good fund will allow you a certain number of
transaction per month before hitting you with any activity fee's.

Risk:  Personal item.  Low risk to me may very well be high risk to you.
There is risk in everything, even your 2% savings at your local bank.  And
you don't need to remind me of the $100,000 FLIC "safety net".  There have
been plenty of instances when this wasn't paid, so although the risk is
small, it's still risk.

Some folks feel that the day's of 20% returns are over.  They never were
really here.  We are experiencing a bit of a down period right now, but its
typical for this time of the year (check history. Theres almost always a
late summer lull).  If you are patient AND get a good rate on your money
when borrowing, chances are you can do better in the market if you are
aggressive.  If you don't like risk, pay cash.

What it boils down to is a combo of all.  The past few years I have been
advising certain clients to keep their 6.5% mortgage and leave their
investments that are earning them 10% after tax alone.  It's still an
individual thing.  Let your CPA figure it out for you if you're talking big
numbers.  It'll be worth the $250.

My $0.03 (before taxes and fee's).

Jerry Chyo
'88 M5
'72 tii

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