What should the "return" on an MSD be?

Ask the Hackrs RV/MF
1

Rather new here and to MSD, but I’m thinking of leasing an Infinity and was not overwhelmed by the “return” by way of monthly savings if offered. Ok, but not as incredible and as much of a no-brainer as I’d been led to believe reading these forums. I think I came up with like 8% annual.

What should this “return” be and what are the factors behind said return?

Thanks in advance and if this has been discussed previously (likely, though I could not find in my search), perhaps a link to there will suffice.

1 Like
2

Yup that’s about right. 8-12% return on your investment is pretty damn decent. especially compared to an index fund.

1 Like
3

Thanks ChrispBacon.

I think that depends on the year - S&P ending:
2017 to date 11.59%
Dec. 31, 2016 11.96%
Dec. 31, 2015 1.38%
Dec. 31, 2014 13.69%
Dec. 31, 2013 32.39%
Dec. 31, 2012 16.00%

I’m not sure the lockup of the money for 36/39mos is worth it. Real estate has done well also. The past is no indication of the future, I agree, but I think putting down for MSD’s should at least be contemplated. I don’t see it as the “no-brainer” it’s described on this site’s home pages and in the discussions I’ve come across.

4

It’s a guaranteed return on your money whereas the stock market (where we are in one of our longest bull runs in history) has more risk.

5

Yes it’s a completely risk free investment. The T-Bill rate which is often considered as the risk free rate gives you only 1-1.25% while MSDs give 8-12% for a very small investment.

2 Likes
6

It’s not “risk-free” - lower risk than some things, but you’re taking on the credit-worthiness of the finance company, whatever that company might be. Like buying a finance company corporate bond. Though yes, 8-12% is more than a finance company 3yr bond yields.

It’s a good return. Depends one’s investment needs and appetite I’d say.

Thanks all for your input.

1 Like
7

lol ur saying that toyota financial services (a captive lender), mercedes benz financial, or nissan financial is gunna go bankrupt and take your security deposit with them?

8

We all know what happened to AIG, for example. Or Bear Sterns or GM or Chrysler. So anything is possible.

1 Like
9

Hindsight is 20/20 but from the regulatory filings, it was clear there was something wrong with AIG and Bear Sterns. The execs promised they would fix it and there was nothing to worry about which is how they tricked it but I don’t see that kind of worry at all with Toyota.

Now, I don’t claim that I’m paying attention to all the 10-Q and 10-K filings, but it’s interesting to note that they disclosed by law all the issues they were having.

AIG Story:
November 7, 2007: In an SEC filing, AIG reports $352 million in unrealized losses from its credit-default swap portfolio, but says it’s “highly unlikely” AIG would really lose any money on the deals.

December 5, 2007: In an SEC filing, AIG discloses $1.05 billion to $1.15 billion in further unrealized losses to its swaps portfolio, a total of approximately $1.5 billion for 2007.

During a conference call with investors, CEO Martin Sullivan explains that the probability that AIG’s credit-default swap portfolio will sustain an “economic loss” is “close to zero.”

AIG’s risk-modeling system had proven “very reliable,” Sullivan said, and since the transactions were so “conservatively structured,” AIG had “a very high level of comfort” with its risk models.

Federal investigators are probing whether Sullivan and other AIG executives misled investors at this meeting, according to the Wall Street Journal.ebruary 11, 2008: AIG discloses in a regulatory filing that its auditor, PricewaterhouseCoopers, has found a problem: a “material weakness” in its valuation of the swaps. AIG therefore needed to “clarify and expand” its prior disclosures.

AIG puts the unrealized losses of its swaps portfolio at $5.96 billion through November 2007.

10

Oh, really? LOL Why then they all crashed or were bailed out? How about Madoff? chrispbacon knew something others didn’t.

p.s. No need to quote Wiki

11

My recent lease, I put down $5,000 MSD. That will save $2100 over 3 years, which is an annualized return of 12.4%, tax free and virtually risk free. Unless my finance company goes belly up - and anything is possible of course - I’m pretty much guaranteed to get the money back.

There is a 99.9% chance Mercedes Benz won’t be out of business in 3 years. But there is less than a 99.9% chance that I can get 12.4% (tax free which is about 18% pre-tax) return guaranteed somewhere else.

12

No, I’m saying it is NOT “risk-free”

http://m.benzinga.com/article/9204375?utm_referrer=https%3A%2F%2Fwww.google.com%2F

So my point is that I would probably rather get less return while being liquid, or get more return in something that is also “not going to go bankrupt” (and I might get some equity upside with that investment…)

AIG was high investment grade, and those problems you note being reported “before” they went down were certainly AFTER one’s money would have been locked up for 36 or 39 months.

LOL yourself

13

Do you really think Toyota or Mercedes or VW (which owns Audi) will go bankrupt? If so, then don’t use MSDs. Otherwise there is no risk. Invest in the non-risky stock market or real estate market, cuz nobody ever loses money there, right? :roll_eyes:

And even if let’s say Toyota were to go under, your MSDs wouldn’t automatically be forfeited. Bond holders are always first in line to get paid in a bankruptcy. And I think technically a refundable MSD would act like a bond in terms of getting paid back. It certainly would put you ahead of common shareholders.

So the risk is the 1 in 1000 that Toyota goes under and then after that happens, the risk that after liquidating all of Toyota’s assets there isn’t enough money to pay your MSD back.

Could it happen? Sure. Anything can happen. Is there a strong likelihood of it happening? Not even close.

1 Like
14

If Toyota or VW went under, would you still have to make the vehicle lease payments?

15

Nobody said there was a “strong likelihood of it happening”. I said it was “not risk-free”.

VW lost $6.2 billion in 2015. GM and Chrysler needed a government bailout. In the 20th century 200 car companies went in and out of business.

Anyhow, the finance companies are separate entities and run on very slim margins to serve the automakers themselves. They all made long and low quality loans to make to make money after the crisis, thinking that by now we’d be up and running at 4% GDP again. The loans were a bad idea on their own, but it’s also bc the economy has not roared back we are seeing these headlines today.

That said, no, I don’t think it’s likely an MSD is not going to be paid back. I just don’t think I’ll lock up my money there, and that it is worth others to consider and think about, rather than believing is the greatest idea of all time.

Apple at 20% per year and Amazon at close to 35% were pretty good ideas too.