Well, four months after the experiment started, I ended it last week. Yep, I paid off my Jeep Wrangler loan and now I want to discuss the results of my experiment. I spoke back in September about how an opportunity came about when my brother was selling his Jeep Wrangler. I split up the story into part one and part two. I have been a fan of my brother’s Jeep for some time. He knows what he is doing and his Jeep was awesome. I had just spent a year fixing up another Jeep and it was just not where I wanted it. It was going to cost me thousands more to get it to where I wanted it. On top of that, the bones of the Jeep were just showing too much wear. It was a 1990 and had seen better days.
I had decided to sell my Jeep in order to search for another one that had some better bones. I sold my Jeep in 24 hours after listing it on Craigslist. It was an easy sell and I had made money on it. I bought my Jeep in non-working order and was able to make a profit of about $1,500. That worked for me. that same week was when I found out my brother was selling his Jeep. I knew I had to take advantage of it. The price was a little higher than I wanted to spend, but I had to take into account the amount of work I would need to do and parts I would need to buy. I didn’t have to do anything with my brother’s Jeep. His was lifted and already kicking ass. It was an easy sell for me and him!
I Chose To Finance The Purchase
I had more than enough cash to pay for the Jeep outright. That being said, after I started looking around, I noticed that I could finance it for very little. The interest rate that I got was so low, that it just made sense. Well, after I wrote about the opportunity and how I was going to pay, I got some hate mail. People were upset that I ran a blog focused on debt and I was incurring more. I guess I can understand their frustration, but they didn’t read the many things in the posts about why auto financing was right for me. I chose to finance the Jeep because I wanted to have my cash liquid. I wanted to do some things with it. One of those things was to try an investment experiment.
The investing experiment was pretty easy. Here is how I did it. I financed the Jeep for $7,000 at an extremely low rate. I took $7,000 and put it into my new Scottrade account. I then took another $7,000 and put it into my high interest credit union checking account. Now, you are saying “high interest? Really Grayson?” It does sound like a little misleading since there are no real high-interest checking accounts, unless you go to a local credit union. There is a credit union here that gives you 3.5% interest when you do 12 transactions per month. I do just enough to make that limit and do nothing else. I put enough money in to cover those transactions to make sure that my $7,000 stays constant.
Since I was making more in my credit union checking account, I knew that I could afford to run the investing experiment. That was my fail-safe. If my investments crashed, then I would still have made money. That is the beauty of having a high credit score.
[box type=”success” align=”aligncenter” ]I recommend checking your credit score. You can get a free trial of TransUnion’s credit reporting. I use them and it is easy. On top of that, I get my FICO score for free with my Arrival World Mastercard.[/box]
I opened my Scottrade account and invested into some exchange-traded funds (ETFs). They are easy enough and I can create some diversity. I have been happy with the ETFs that are in my Betterment account and I am at 11.5% returns this year. I had planned to run the experiment for at least a year, but something came up.
My Debt-to-Income Ratio
As I have discussed in my 2014 goals post that my wife and I are looking to sell our home and buy a new one. It is going to be a lot of work. We are focusing on selling our current home first. We will then focus on buying a new home. We both have high credit scores, but with the loan, my debt-to-income ratio (DTI) was just a little higher than I liked it. If you have a high DTI, then it can be hard to get a mortgage. I don’t have a high one, but having a loan on it just makes it higher. So, because I want to get the best mortgage rate possible, I paid off the loan.
Alright, I am sure you want to know the results of my experiment, right? OK, here they are.
4 Months of Loan Interest: $24.49
4 Months of Investing Returns: $434
Ah, yes, my investment experiment was a success in my book. I made $409 in four months by just keeping my money in the stock market. I can’t and won’t complain with that. So, for those that got all uppity with me about my decision, I think that you can now say that I made a smart move. Even if I didn’t make a profit, I had a fail-safe that still made financing a smart move. I said it before and I will say it again, you can use credit to your advantage and many of the richest people in the world have done it. It just take discipline and understanding of what you are doing. I fought debt once and have learned a lot. Now I am growing my wealth and am not afraid of using credit wisely to do it.
Update: Let me indicate one thing that as been brought up in the comments and through emails. I never have and never will suggest that my experiment is how it should be done or is what you can expect when you invest. I realize that four months is a short time period when investing, but I still made money. That is what makes it a success. Even if I lost the money, all of it, I still would have made money with the cash stored away in my checking account. If you read my original posts, which I linked in the beginning, then you will know that I told people that financing at a super low rate allows you options with your available money. You can do whatever you want with that cash. I wanted to test the stock market. That was the option I chose.
[box type=”warning” align=”aligncenter” ]Just as a gentle reminder, I don’t recommend doing this if you are struggling with debt. I learned how to use credit wisely and understand my situation much better than anyone else. I also understand my mentality.[/box]
So, what do you think of my experiment?