Originally Posted by FlyMeAway
On the first point: if you read my post, the example I gave was having $400k in cash and buying
a $300k boat. Even if you have $1M in cash and are buying
a $300k boat, it still makes sense to finance -- and many very financially savvy people do just that.
On the second point, you are dead wrong. Financing
almost always *decreases* your risk substantially. That is why you finance. Put another way: $400k in cash, a $200k loan, and a $200k boat is a lot less risky
financial situation, by any objective measure of risk, than $200k in cash and a $200k boat debt-free.
The whole point of taking out a loan, generally, is that you are paying the bank money
to share some of the risk. It is by its very definition
less risky, which is why in the long run (assuming your cash does nothing) it is more expensive.
If your nest egg is $1million, tying up almost 1/3 of it in a boat is a bad idea. This goes to your second point. People don't register buying on credit the same as paying cash. So if financial advisors convince them that it's "smart" to take out loans, they may blindly assume it's a good idea to buy a boat far more expensive than they can really afford. If they have to pull cash out to pay, they are far more likely to back off and buy something more modest that they can actually afford.
To your general point of it reducing risk, you bought the boat, the risk of damage or loss with the boat is the same regardless of if you pay cash or take on debt. In addition, you owe the money
with interest to the bank regardless of what happens to the boat. So you actually do take on more risk by taking on a loan. The only way your logic works is if you are buying more boat than you can afford or you are trying to do something nefarious.
As someone else mentioned, when you hear silly words like "savy" run away. Run away fast.