Help me out. I'm not a whiz when it comes to investment so explain how 6% interest on $3450 is $22,000. You also pay taxes on the interest every year when filing your taxes. According to my math, 6% of 3450 is $207 a year. There are 31 years between now and 2042 so $207 annual interest times 31 years is $6417 interest.
The interest compounds meaning you earn interest on your interest.
In Year 0 you start with $3450
In Year 1 you earn $207 bringing your account balance to $3657
In Year 2 you earn $219 bringing your balance to $3876
In Year 3 you earn $232 bringing your balance to $4109
...and the numbers keep going up from there.
Most investment vehicles do not have a fixed rate of interest so you may earn 12% one year and take a small loss the next. But over 30+ years those peaks and valleys will even out. Over the last 25-years the Dow averaged an
11% annual return. That's almost double the 6% I used in this illustration.
(Note that I didn't pick that period just because it returned favorable numbers...that just happens to be the figure I was able to locate most quickly.)
And that 11% came despite things like Enron, Worldcomm, the post-9/11 market dip, the 2008 market dip, etc.
Yes you do typically have to pay interest but that comes when you pull your money out of the investment--it's not an annual charge.
Another scenario mentioned was paying $90 something dollars a point in 2042 instead. Really?? Since DVC began in early 1990 the cost per point has gone from $54 a point to $112 per point now. That means more than double the cost in 15 years.
But I wasn't talking about buying a brand new 50-year contract in 2042. In 2042 (when the initial OKW ownership would end), contracts at SSR will have 12 years left. Extended OKW contracts will have 15 years left. BLT contracts will have 18 years left.
What I was referring to is buying a
SHORT TERM CONTRACT in 2041/42 with the proceeds of your investment.
Your end goal is to have OKW ownership until 2057. Here are the two approaches:
1. Pay $15 per point now to extend.
2. Invest the $15 per point. Assuming the 6% rate of return you would have approximately $96 per point in your investments (perhaps much more if you get a higher rate of return.) After taxes let's say you have $70 per point left to play with.
The question is whether--in 2042--you can buy an
OKW extended contract with just 15 years remaining for $70 per point. We don't yet have an inkling of how short term contracts will be priced but I'm betting you would have no problem buying a contract with those dollars and pocketing the difference.
YMMV