Price Protection Order - Why should I take Options over Finance?

[daemonic3]

So why wouldn’t you let someone else pay you 6% return (or much much more) on your 401(k), while you borrow someone else’s money and pay them 1.9%?

Since I can't tell if this is a condescending jab at me or a genuine question, I'll answer as a genuine question for my situation (again, everyone's is different). We're going into the weeds off topic, but here is my example

1) I don't plan to keep the loan for 60 months, the intent is to pay it off before EOY using other sources (barring an unforeseen emergency/disaster)
2) I am already maxed every year on allowed 401k contributions in both pre-tax and roth, and company match. I cannot contribute more into my 401k or IRA if I wanted to, *except* loan payback with interest as a nice side effect
3) There is no guaranteed 6% return, it could be more, flat, or negative. I would *think* we're in a valley and it can only go up, but it could stay flat for many many months. The max loan is $50k, it is not the entire 401k amount, which is much more due to how long I've been working. It actually diversifies me a bit almost like a "cash" holding in case the market continues to tank (it is WAY down this calendar year) or stay flat. Again, for me personally, I have *other* market holdings that will get returns as the market corrects itself

Anyway, the OP @Vulnox has done his homework and risk assessment already. And the risks have been mentioned about taking a 401k loan in this market dip. But since these message boards live on in perpetuity, I hope I've shown there is another option that some people aren't always aware exists, and they can analyze their own financial situation.

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[GreaseMonkey]

Since I can't tell if this is a condescending jab at me or a genuine question, I'll answer as a genuine question for my situation (again, everyone's is different). We're going into the weeds off topic, but here is my example

1) I don't plan to keep the loan for 60 months, the intent is to pay it off before EOY using other sources (barring an unforeseen emergency/disaster)
2) I am already maxed every year on allowed 401k contributions in both pre-tax and roth, and company match. I cannot contribute more into my 401k or IRA if I wanted to, *except* loan payback with interest as a nice side effect
3) There is no guaranteed 6% return, it could be more, flat, or negative. I would *think* we're in a valley and it can only go up, but it could stay flat for many many months. The max loan is $50k, it is not the entire 401k amount, which is much more due to how long I've been working. It actually diversifies me a bit almost like a "cash" holding in case the market continues to tank (it is WAY down this calendar year) or stay flat. Again, for me personally, I have *other* market holdings that will get returns as the market corrects itself

Anyway, the OP @Vulnox has done his homework and risk assessment already. And the risks have been mentioned about taking a 401k loan in this market dip. But since these message boards live on in perpetuity, I hope I've shown there is another option that some people aren't always aware exists, and they can analyze their own financial situation.

Folks, please consult a financial advisor with fiduciary duty towards you before borrowing against your 401(k) to buy a depreciating asset. I’ll just leave it at that.

 

[yngwenli]

Folks, please consult a financial advisor with fiduciary duty towards you before borrowing against your 401(k) to buy a depreciating asset. I’ll just leave it at that.

Not to make this discussion any worst, financial advisors aren't the end all, be all neither (I've worked in the industry so I'd like to say I know and have talked/worked with MANY financial advisors who were also fiduciaries).

There is nothing which guarantees a 401k will go up generally and as always, it's wise to know all your options and aspects of everything, but there are many worst sources of funding than a 401k loan for sure. Even 0% CCs aren't the worst if someone knows how to manage that.

Other benefits not mentioned is that it's not on any credit report tied to you. There is no underwriting or anything so it's fast and quick. You can set your own interest based on the market so you can give yourself good/bad rates as long as it's not crazy.

Similar to say, someone buying a home, having $$ needed for something soon invested is not wise anyways so if a person needed funds and it was in cash, they aren't really or shouldn't invest it anyways so it's making low returns as it is.

 

[Vulnox]

Anyway, trying to get back on topic, my only remaining question is I guess what do most do with the federal rebate when it comes in. Someone mentioned earlier you may be able to call Ford if on the Options plan and have them re-amortize the payments if you put the rebate towards it. Curious if anyone has done this and if it did make a difference.

Again just asking about Options, not standard finance.

 

[GreaseMonkey]

Not to make this discussion any worst, financial advisors aren't the end all, be all neither (I've worked in the industry so I'd like to say I know and have talked/worked with MANY financial advisors who were also fiduciaries).

There is nothing which guarantees a 401k will go up generally and as always, it's wise to know all your options and aspects of everything, but there are many worst sources of funding than a 401k loan for sure. Even 0% CCs aren't the worst if someone knows how to manage that.

Other benefits not mentioned is that it's not on any credit report tied to you. There is no underwriting or anything so it's fast and quick. You can set your own interest based on the market so you can give yourself good/bad rates as long as it's not crazy.

Similar to say, someone buying a home, having $$ needed for something soon invested is not wise anyways so if a person needed funds and it was in cash, they aren't really or shouldn't invest it anyways so it's making low returns as it is.

I don’t know what you are arguing here. That some financial advisors are not very smart? Or that investing in the market provides no guarantees of a good return? Or you can find even dumber ideas to finance a purchase of a depreciating asset? I agree with all these points.

Let’s move on.

 

[yngwenli]

I don’t know what you are arguing here. That some financial advisors are not very smart? Or that investing in the market provides no guarantees of a good return? Or you can find even dumber ideas to finance a purchase of a depreciating asset? I agree with all these points.

Let’s move on.

I am arguing that a 401k loan for a responsible person isn't the worst thing out there compared to other funding options if someone needed it. That's what I'm arguing.

It's not as black/white as you claim, but yes, let's move on and go back to PP and all that, but having been in the industry, people who paint a wide brush that any one thing is bad, this is good, aren't looking at every scenario possible out there. That's all.

If we're all multi-billionaires and can pay cash for everyone, maybe, but even billionaires have mortages (Zuck, I'm sure there are tons) so I tend to not like wide swath brushes painted since everyone's situation is different.

 

[GreaseMonkey]

I am arguing that a 401k loan for a responsible person isn't the worst thing out there compared to other funding options if someone needed it. That's what I'm arguing.

It's not as black/white as you claim, but yes, let's move on and go back to PP and all that, but having been in the industry, people who paint a wide brush that any one thing is bad, this is good, aren't looking at every scenario possible out there. That's all.

If we're all multi-billionaires and can pay cash for everyone, maybe, but even billionaires have mortages (Zuck, I'm sure there are tons) so I tend to not like wide swath brushes painted since everyone's situation is different.

Ok, but just so you know, “there probably is a dumber way to finance your car purchase” is not a confidence boosting comment from an ex-financial advisor…especially when the dumber way is to use a 0% offer on a credit card.

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