Here is a thought to try on: it makes sense to borrow out of 401k as a auto loan. You get the lowest available rate, which u pay to yourself, rite? And its a loan against tax deferred earnings! PRE TAX, rite? Plus, unlike a normal auto loan, u aint gotta get full collission insurance. PLUS it don't even show up on your credit report in any shape or form. So then the next logical question is why aint it standard operating procedure if its o so good all around?! Why isn't your cpa telling u about it? Dunno.
One possible reason is the opportunity cost. As in how much u losing in market gains as the result of having that money out of the account? Incalculable. Or is it.
I suppose one could take some sort of Ibbots long term average return, and do a pv using that return, spread over the duration of the loan.
And also, perhaps more importantly, its an unknown, so rather like actually taking out a variable rate loan, which tracks the capital gains on your portfolio.
So. Essentially, assuming some sort of macro arbitrage, the difference in the rates between the auto loan ud get PLUS the cost of full collission coverage (and this could actually be the deciding factor: your particular premium situation) is in fact the risk premium associated w variable v fixed rate loan.
- zoya (mobile)
