Quote:
Originally Posted by Hog's Gone Fishin
I read a good random thought the other day:
If you're going to buy a $50,000 car and want to pay cash to avoid interest that's fine
At the end of 5 years you have a car that's worth $20,000 that fully paid for
If you instead put $50,000 into a stock paying a monthly dividend at 8% and use the dividend to make a loan payment on the car then at the end of 5 years you'll have your $20,000 car paid for and $30,000 left in your stock investment for a total of $50,000
Paying cash for shit might not always be the best thing to do
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Math doesn't add up, although I agree on not paying cash for a depreciating asset like a car when interest rates are low.
Dividends are paid off the stock price. So getting an 8% dividend is not like it's extra cash. After a stock goes ex-dividend, the share price typically drops by the amount of the dividend paid to reflect the fact that new shareholders are not entitled to that payment.
So while you're getting a "dividend," you capital tied up in the share price is dropping too. Couple that with a stock that still changes value like any other stock and that $50k you put in this year, could easily only be worth $30k just from a bear market alone.
Too many people think dividends are free money, and most are not.