The financial reality of Ferrari ownership...

While I agree on the point of balancing your savings vs having some fun in life, I will only add this: Buying a used car out of warranty at the "upper end" of your budget for such, is a risky proposition. Be sure to leave yourself a reserve of funds for unexpected repairs... Think that $20k+ of repairs don't happen on Ferrari?

 

You cannot rationalize a Fcar purchase. Its not a rational decision, its an emotional one. The decison to buy a Fcar is not binary. What I mean is you have not flushed that money down the toilet never to be seen again. You can scratch your itch and buy a well sorted car, try out Fcar ownership and all that comes with it and if its not for you, sell the car in 6 months for what you paid for it or slightly less, tick that one off the bucket list and move on.

 

I for went X for F and NEVER regretted it . Wondered why I didn't go it sooner ...if you think about it too much you will never do it.

 

Well, I mean it's a 360 he's talking about, so we're saying, maybe $70k for a good example coupe. If he trades in his 330 as the downpayment, now we're down 50k financed, so 5 months at 6% would be around $1k/month. $12k/year post-tax so maybe $20k/year pre-tax and he gets to keep his $190k in the bank if he likes. I think the guy is in great shape. Assuming he keeps on pulling $150k/year, he'll have $130k/year pretax to work with, which is more than he'll ever need if his kids are grown up. Come to think of it, don't bother financing, just refinance the house over 30 years if the current interest rate is close to what he has on the rest, and then he can deduct the interest. Then we're talking about 3% loan spread over 30 years, that's just $200/month. Some people pay more for cable television.

I think this decision is a no-brainer.

Another way to think about it is that, where I live in CA, a rundown shack will cost you $500k, and people who own homes like that drive 10 year old Hondas and have incomes in the $60k range (dual income $120k). A normal house will run you $1mm, and those folks have incomes in the low $100k range (dual income $160k). If you want to talk about fiscal responsibility, look at those people! This guy has a house that he's living happily in for $300k that's near paid off, and makes as much as people who are leveraged to the hilt over here. Living wherever he's living, everybody should get a Ferrari 360 for free just for being responsible with the price of their homes!

 

+1. I have to agree. You are putting way too much into a depreciating toy. U really need to make sure your investments, 401k, House(which seems like its covered), 529's are covered prior to blowing money on cars.

Btw - another recommendation since you asked: Quit waisting money modding your cars. Sure its fun and all but its a poor ROI and makes the car harder to sell.

 

On his death bed 45 years from now, I'm sure he won't look back and think to himself "I'm so glad I didn't buy that Ferrari when I was 45 so that I can have an extra $250k of inflation adjusted cash in my investment accounts"

Money is just a few digital bits in the bank's computer system until you turn it into something real. Don't get caught up in the hype of having an enormous nest egg. 50% of it will just get handed over to the government when you die anyway, which a governor will spend on a prostitute, and the other 50% your kids will spend on a Ferrari

 

If you love cars, you can find a way to buy a Ferrari. You number crunchers must not love them as much as I do. I traded a Porsche 911S for my first Ferrari, a Dino 246 GT, in 1975. The car was about 18 months income at that time ($10,600) as a 27 year old, married USAF 1Lt, but was worth it to me and my wife.

Although a Ferrari is a depreciating asset, like any car, it is still an asset that can be liquidated, at a loss (unless you buy a classic), any time you need the money.

So go for it. Having gone through 4 Ferraris, 4 Porsches, and 10 Corvettes that the number crunchers would say I could not afford, I have enjoyed them way more than any investment I could not drive.

Taz
Terry Phillips

 

As I learned at a very young, follow a good role model.

If someone would like to give me solid advice on ROI, I'm all ears. All the solid advice I've had had turned into negative returns.....

As far as the car modding goes, it's a passion, my only real passion. I agree it makes it harder to sell and is a total waste of money but it makes me very happy. I can always put it back to stock if I want to get more out out of the sale of the car as I've done all the work myself.

So what is an ample amount of $$$ to put into a depreciating toy with my financial means in your opinion? I realized I've made myself vulnerable here by disclosing so much information but could you afford me with some suggestions at to how to achieve success on all fronts?

I do not have kids, will not have kids, so a 529 plan is not needed unless a 529 plan can be traded in for a 458 Italia plan

 

Just a quick note to think about. A friend of mine in his late 20's is a fairly good investor. He started with a regular old job with a sub-$100k salary, and over the past few years has turned that $100k into around $5mm. He's readily able to compound at about 30%/year at these values.

His current situation is that he lives with his parents and doesn't own a car.

Why might you ask? Well, his biggest problem is his youth and his ability. With easily 50-60 years ahead of him to compound at 10-30%, likely to diminish as his net worth becomes more difficult to manage, he's realized that every dollar he spends now will be worth $1000 inflation adjusted by the time he dies.

Every day, he goes out and he runs these numbers, he buys a pencil and shakes his head, knowing that he spent $1000 of future value on a stupid pencil. He looks at $500/month rent, and thinks of it as $500k/month of future value thrown away every month.

Psychologically he's obsessed with this concept of saving for the future, and future value.

Fact of the matter is, some things are worth a whole lot more now than they will later on. Food on the table today is worth a whole lot more than food on the table 7 days from now when you're starved and dead. A Ferrari in the garage now is worth a whole lot more than one in the garage 25 years from now when you can't drive at night because you can hardly see, and don't like driving during the day because you also can hardly see.

No matter how well off you are, you just have to get a grasp on what things are worth to you. Ignore the prices, those are there just as thresholds to determine whether it's value to you is higher than its price to you.

To be honest, the last car I bought I easily would have paid 5x more for it than what the market value was. Thank goodness the dealer didn't know that as I haggled for 15% off the sticker

 

I probably shouldn't muddy the waters by arguing points, but if anything has been learned over the past two years it is that a house can also be a depreciating asset. Once interest rates are forced to raise we will see how housing in expensive areas fare. My guess is you will at best see a stagnation for a period of years for all but the most prime areas of real estate. At worst another severe leg down, even with today's depressed prices some areas remain overvalued simply because there are not buyers qualified in the numbers to support the large number of houses for sale.

This in some ways played out in the Ferrari (and Lamborghini, and Porsche, and...) used car market in early 2009. Prices seemed to take an immediate hit after the financial meltdown of Sept 2008. In most cases they have not recovered to "normal" expected levels. Keep in mind this is for the production models, not the most collectible of examples which have fared much better (just like RE).

Housing may be a better "bet", but certainly not the sure thing it was four years ago. Ditto the stock market, a rigged game designed to clean out non-professional investors. that much has been made clear in the last two years.

 

What type of car do you have?

 

I'd always gone on the rule of 72 idea that your money would double every seven years (at 10% i think) over a period of decades (on average) but with this last decade of funny money from the Fed and games played by banks that we the taxpayers are not only paying for but losing our gains in wealth for i'm worried that the rule may no longer apply.

Basically i'm worried that the magic of compounding will be diminished over the next few decades and not only will your money not grow as it did in past decades but inflation will take a big bite out of it.

Remember that from 1968 to 1983 your money in the stock market didn't grow. Where to turn?..the housing market?..commodities? Used to be a time when money saved was truly money earned and money saved was worth more over time (imagine that). We may be in the middle of a similar period so you'd need to save more to try to make up the difference.

 

Realistically this depends entirely on your ability to appreciate money.

If you can compound at 30%/year, you should definitely buy the car, because come retirement you'll be a multimillionaire anyway.

If you can compound at 15%/year, you should finance the car, since you can beat the 6% interest by a substantial margin.

If you can compound at 5%/year, you should probably not be managing your own money because it would be better off in an index fund. However, you should still finance the car, since an index fund will likely offset the interest paid on the vehicle in the coming years (you don't have to believe in this tidbit of stock advice if you don't want to).

If you for some godawful reason compound at less than 3%/year, just pay cash for the car, you'll end up getting inflated to death anyway.

The stock market as a whole, for those who lack the gift of investing, isn't particularly cheap right now. I wouldn't expect your money to double or triple in the next year or two. You might even lose money if there's political revolution in China The bad news about this is that investing for the standard investor may not be too fruitful, however the GOOD news about this is that this is a good time to spend money, since it's cheap.

If I were in your shoes, if interest rates now are within .5% of what your current mortgage rate is, I'd refinance out the $50k for the car purchase, trade in the 330 (the $2k-$3k you spend on modding it each year will go to maintenance on the 360), and extend the mortgage to 30 years. Fact of the matter is, nobody ever owns their home. A home will always be a recurring cost, whether it be repairs, property tax, electricity, garbage, HOA fees etc. you will always be shelling out money every month of every year to stay there. Think about it like that, and you'll understand where I'm coming from. Additionally fixed rate, tax deductible interest payments are best when you are working and have high income, and rates today are as low as they've been in a decade. If you aren't good with stocks, the best way to go forward is to steadily put money into an index fund each month regardless of the state of the stock market. Blind investing typically works well for folks who don't want to put in much effort. Since you're still relatively young, having 20 years out before retirement affords you the luxury of putting money into the stock market and holding through recessions (which there will likely be 2 or 3 more big ones in the next 20 years, their frequency has increased since the introduction of the internet i.e. faster distribution/response of media)

The result? Most likely you'll end up with $120k remaining mortgage at around 5% interest that you can deduct off your taxes ($644/month, around $300 tax deductible, so in your income bracket, post-tax is around $550/month, or $6600/year). The realistic added cost of the car will be $210/month, with more than 50% of that tax deductible, so more like $170/month. Plan to tack on an extra $200/month for insurance+registration depending on your driving record. Your monthly payments will go down overall and since you're already cash flow positive, you'll be able to save more for retirement. The car will depreciate at around 5%-10%/year, and most of the cost will be on maintenance which will come out of the $2k-$3k you normally spend on the 330 anyway. You'll still have your retirement accounts, still have $190k in the bank (not sure what good that is, at least put it into an AXP online savings account, you'll get 1.3% APR there which doesn't seem like a lot, but it will cover your maintenance fees). Just remember to use the extra cash flow to keep plugging monthly into the stock market. If you make a $150k salary for 10 years, that's probably $100k post-tax, so $7800 goes into your mortgage/consolidated car payment/insurance, save $36k for retirement, and do whatever the heck you want with the remaining $54k. Every 5 years or so, you can realize the ~$20k depreciation loss on your Ferrari and upgrade to a newer model to minimize the risk of major engine rebuild costs (typically $50k for an engine, $20k for transmission) which will come out to be an extra $4k expenditure that can come out of your $54k of living expense money. By the time you're 65, you'll have around $700k non-inflation adjusted assuming you never invested any of your money in a stock index, or $1.5mm-$2mm if you did, and have gone through 5 Ferraris. Maybe even throw a Lamborghini or an Aston Martin in there on the way just for variety.

Anyway, you asked for specific advice, so there you go

 

I most recently picked up a 458 Italia (this last weekend actually).

 

Also in case you are curious where I'm coming from with random financial advice from mysterious people on the internet, something interesting to note is that people who are in the low millions range of net worth can sometimes be notoriously bad at money management (This of course is highly dependent upon the origin of wealth, if it's from business or investing, this statement is typically not true. If it's from saving for decades on a high salary, it's definitely possible that one can be well off, but still inefficient at managing money.) so take everything you hear from folks, even those who are well off, with a grain of salt. That being said, I was insanely broke in my early life, and my current resources come from business + investing, so hopefully my financial reasoning is not too far off the mark of what might be useful to you. Of course, at the end of the day, advice is just that, you should always do the numbers yourself and make sure you're comfortable with the outcome. Nobody will care more or spend more time on your finances than you

 

You bought a 458 Italia for 15% off MSRP ?????

 

15% off sticker (the sticker on the car, which was like $30k over MSRP), although end price was around MSRP. I wish it were 15% off MSRP

 

I took this advice several years back when my mortgage was at 20K and threw 100K into the market. That was the absolute worst move of my life. Ironically, buying my 330 for cash in 2001 proved to be a better move as I at least have the car and 9 years of fun!

If I knew how to get 30% compounded interest, I wouldn't be on this forum asking if it's time, it would be! Please share the secret if you know how so we can all have Ferrari's

 

Well, that's not quite the same advice. Pulling out 100k and putting it all in the market at once is a very "timed" investment. Monthly regular investments during good times and bad with respect to the stock market over time should give you less volatile results.

Of course, even still, by the time your'e 65 and pull that money out of the market (hopefully you haven't sold it yet) I suspect you'll be quite pleased In fact, if you put it in an index fund, you've probably still done quite well. I would imagine you'll be back to break even within a few years, if you aren't already.

But yes, that's why I gave the advice as I did. You have various hedged bets in play with my recommendation. The car is a hedge against inflation, your cash is a hedge against deflation, and your stocks are an anticipation of overall long term appreciation of business activity. The values are fairly evenly spread as well, all on a very low cost of capital (mortage interest). The advice you were given to pull a lump sum of money out of your mortgage and put it all at once into the stock market wasn't a great one. I would have done it in small monthly increments, however I suspect it will still beat holding cash by the time you reach retirement.

At 44 I wouldn't try putting money into the stock market for the purpose of short term (less than 5 years) appreciation.

 

Thanks for the input. I've never put money in the market with any short term objectives. And yes, it's always close to breaking even, that's my lifetime investing story. dollar cost averaging, blah blah blah, still net gain of nil.....

And you are dead on, it's hard to figure out how to make money with my own money. I come from no wealth what so ever. It seems like those who have great wealth are reluctant to share the secret.

 

I would imagine it's a very generational problem. I would imagine that you were only just able to start investing decent amounts of money in the last decade or so, which wasn't the best decade to invest. It's definitely not just you, and certainly not because of you that you've found it difficult to appreciate invested cash over the past 10 years. Most people in similar age brackets have probably experienced similar investing woes.

From a practical perspective, I'd still recommend waiting along and appreciating on the stock market for the next 20 years or so. What you've been doing is exactly what you should be doing, which is why you haven't really lost any money despite going through two of the greatest and most closely spaced crashes of several generations. From a psychological perspective, at the very least your quality of life rises and falls with everybody else. In the meantime, enjoy a Ferrari and continue to save steadily, if not for retirement, at least for the next Ferrari

I don't think there is a "big secret" of the wealthy. Everybody I know who is well off has gotten there from good fortune and good timing. The folks who can reliably make it big over and over again due to their financial or business genius are few and far between. Everybody else is just lying on one of two sides of a normal curve.

 

^^^^^Thanks for taking the time to contribute to this thread. May I pick your brain offline?

 

+100

As a truck driver I'm not suppose to be driving mi second Ferrari or have'd owned 4 Porsches either ...

DAMN! I enjoy the hell out of doing what I'm not suppose to ... Everytime I go to the garage mi 360 reminds me of how much a bad boy I am

 

Feel free to PM me, as long as it helps get you into a 360

 

I've told him the same thing