Excuse me? How would you know what return I'm getting on my money? I spend a number of hours each work day (it's not like I actually work ) reviewing the options available to me to ensure I maintain a good return on my investments. Last year I averaged 13.2% return on my 401K and another savings plan I have, in addition to my company's stock buy option which does guarantee a 15% return. Explain to me again why I should pull $25,000 or so out of this in order to buy a depreciable asset that I can get for 4% interest?
If you are keeping your money in a bank account instead of investing, you are wasting a huge opportunity to make more money. You can make 10% return with minimal effort and a lot of patience. No "bank account" will return that much.
You are comparing different things here. First, your company's stock purchase program is not an investment option for everyone, plus I consider it to be part of your compensation package from your company. As the 15% return is paid by your company (it does't come free). Second, your 13% return on your 401k are from the market (which has inherent risks, see 2000 - 2001). There are many different invesment instruments, fix-income vs equity etc. It's ultimately the invester has to decide what's a good mix. Although I do believe there should be some DEBT in people's portfolio, its in-accurate to generalize DEBT vs Investments. If you can REALLY "You can make 10% return with minimal effort and a lot of patience", you should be working on the street and making millions managing funds.
You still haven't answered my question. Tell me why it makes sense to take money from my 401k earning 13% to buy a car, when I can pay for that car on a monthly basis at 4%? Why would you consider my buying stock thru a company sponsored program as "compensation"? I put in 100% of the money for that plan. If the stock price more than 15% over what I locked in at, the company does not pay a dime. If not, then they lower the lock in price to meet the 15% guaratee. Of course not everyone is eligible, but I use it as an example. I'm looking at this as an individual, not as a fund manager. Are you saying it's impossible for individuals to earn 10%+ on their investments without being a "market genius who belongs on Wall Street"? I disagree. Sure, it doesn't happen overnight, and you do have to work at it thru research and diligence. But don't tell me only managers of million dollar funds can do it. Of course there are inherent risks, which is why patience is needed. I'll bet that 99% of the people in this thread aren't looking for a huge score in the market to offset the loss of paying cash for a car. Most everyone, like myself, are simply looking for a simple, long-term plan to gain the most from the money they make. I work with a few men who have successful plans for long term growth, whose habits and analysis I have adopted. I've seen it work for them, and it works for me. Now then, answer my question.
I am not talking about 401K, since it has it's advantages regardless how much return you got last year. I would always advise people to max their 401k. As far as employee stock purchase program go, they typically work like this (I don't know about your company): At as given date (usually twice a year), you can purchase company stock at a 15% discount to the market value. $100 stock would be brought at a cost of $85 to you. Again I would point out, the 15% discount is paid by your company (its not free). If you turn around and sell the stock right away, you realize the 15% gain (minus the short term cap gain tax). Of course once you brought the stock and hold it at $85, it's yours, it can go up or down like the usual stocks do. So when I talk about consider this as compensation, I am talking about the 15% you gained when the stock is purchased. As for 10%+ returns, not many people can average 10%+ returns over the years (individual or institutional). If you can do it, good for you. Not everyone can get that, and to advise people to take on debt and put the money in speculative investments is risky.
That'a not how our stock buy program works. We sign up for the program late in the year. On January 2nd, the closing price of our stock is locked in as your purchase price. You then can put as much or as little cash as you want (up to 15% of your pay) into a holding account. This money is kept thru-out the year until December 28 (or there about, I forget the exact date), when the market closes. If the price of our stock is 15% or more higher than the lock in price, your account is emptied to buy as many shares as you can at the price locked in on Jan 2. If the price on December 28 is less than 15% above the lock in price, your purchase price is lowered to meet the 15% guarantee. After purchase, you have the option of keeping the stocks or selling them at current price to realize your 15% return (or more if the price went up more than 15% during the year). You then have the option of liquidating or rolling that money into the next year's program. I'm not talking about speculative investments either. I'm talking about doing due diligence of safe mutual funds like what BK pointed out earlier, then following thru on those funds to ensure they continue to perform. If they don't then have alternative funds ready to move the money to. What "speculative" investments are you talking about? And please, if someone is looking to me on this board for information on whether to pay cash or not on a new car, then they have bigger issues. I'm just saying that being debt free is not always the best option. I'll bet you have your money tightly wrapped in a sock under your mattress, don't you?
