DVC better than 401k?

[going2wdw]

Okay financial wizards need some help. We just bought a new house and took some money out of our 401 to bridge the buying & selling process. We'll be selling our old house and getting the money back this month. Okay I know we should put it right back into the 401 but the market is so bad and we do "need" more DVC points. We lost about 1/3 of our investments that were in the 401k last quarter so it doesn't make me feel like I would be doing the completely wrong thing to not put the funds directly back into the 401k. It is a loan not a withdrawal so there are no tax implications. DH told me today that as long as it didn't impact his ability to retire he wouldn't mind. I know what our financial advisor would say 401k loans are frowned upon in any circumstances. So I'm asking what I know is a biased audience, should we put the money back into 401k funds or invest in more DVC points?

I did mention to DH the post on how much better DVC investments have performed over tech stocks. The fact that we could sell our BW points for more than we paid after less than a year doesn't hurt either.

Thanks everyone for your help.

 

[RobDoc]

While I consider DVC to have been a wonderful "investment" in our family- I certainly would never suggest it is a safe financial investment.

DVC has artificially supported the resale market with it's right of refusal - thus creating a floor for that market. How long they will continue to sustain that is unknown. The fact that current resales are at a high level doesn't/shouldn't suggest a safe assumption for the future.

As we get closer to 2042, there will reach a point where new and resales will become less desirable.

I'd sure be careful risking retirement money by thinking of DVC as a true investment.

I love DVC and would join again in a second, but think of it as entertainment/vacation money rather than an investment. We are $$$$ way ahead since joining in '93 and could certainly sell our contracts at a profit.... today... (we didn't pay over $62 for any of our points and less than $58 for all but an add-on), but then I'd have to do something else for vacations!

Good Luck with your decision!

 

[Doctor P]

Put the money back into the 401K. In the long term, stocks will likely be a better investment than most other alternatives including something like DVC (which really is not an investment, after all, and does not perform like one).

 

[SlyHubby]

I'll have to agree with everyone else thus far - based on your statement of needing "more" points, put the money back. If your DVC membership hasn't been paid off yet, and it is financed, then you might consider paying it off, paying the interest to your 401k rather than DVC (or whoever you financed through). Aside from that, I wouldn't think adding more points would be as important as the 401k funds.

 

[CarolMN]

Have to agree with everyone else. Put the money back into the 401K. If you are having trouble getting past your recent losses, try to think of it as an opportunity to "buy low". (They say the secret to getting rich in the stock market is "buy low, sell high". LOL)

Don't risk your retirement security. No one can tell you how long the price of DVC points will hold up in the resale market. At some point, that 2042 expiration will have an effect.

Best wishes.

 

[TiggerFreak]

Getting up on soapbox.

Put it back.

If I remember correctly you can take the money out without penalty (I think you still pay income tax) to help pay for your 1st house.
Otherwise it's either :
1. A loan you pay back to yourself while not earning any return on the outstanding balance.
2. A penalized early withdrawl, 10% penalty then you pay the income tax at your prevailing rate.

Either way you are taking a hit just for the sake of imediate gratificaiton.
Personally I don't see a 100 point contract with 10 years till it expires to be very appealing. But 7500 at 8% in 30 years could be around 75K.
Not even going to get into dues, etc....


Getting down from soapbox.


Any accountant types out there that can restore my memory.

TTFN
TIggerFreak

 

[going2wdw]

The money is a loan, we pay it back at 7% and the interest is also paid into our account. It will all go back into our 401k eventually and we will be paying most of the principle back now but not changing the payments so it will be paid back quickly.

Are we risking more than the difference between the 7% and the market return on our funds.

 

[mistermouse]

I'm not sure that you were expecting your potential add-on to be an "investment," as some have suggested, but rather a better use of what you may consider to be more or less "idle" funds at this time due to market conditions. While that argument is actually sound, so many other factors should weigh in on such an important decision.

The easy, logical and mostly painless solution is to immediately satisfy your 401K loan by returning the funds. However, if the 401K "loan" was minimal, you carry little/no major credit obligations, and you could repay the "loan" in a relatively short term - it may be an OK leverage of your assets. Not only will you be providing a 7% return to your 401K, the interest saved on the add-on could be significant.

These types of decisions are not risk-free: 1) if the market does move to the upside, you may miss a greater return, and 2) if your income falls, you may not be able to repay the loan and would have to absorb a significant tax hit (this would not affect your credit rating however).

The decision really comes down to your own personal aversion to risk, also to your age! (if your 55 and this is a significant portion of your retirement savings, don't do it), and to the time frame for repayment to your 401K (the longer the term, the less attractive such a propostion becomes).

Precedent is also a major consideration here. Your personal financial discipline may one day be challenged because you did it before, so why not leverage your 401K for other things? Probably not a good idea.

It's really a decision you and your spouse have to make, but good luck

 

[PKS44]

When the market turns around-and it will- you want to be in the market. Historically, the majority of the upside is in the first several months of a recovery. By the time you realize the market has really turned you have missed out on something like 2/3 of the recovery...

Paul

 

[Lhargus]

One thing to consider is that the interest you pay yourself on the 401k loan is not tax deductible. If you purchase and finance through Disney the interest should be tax deductible.

 

[fkj2]

If you don't pay back the loan, I would think you'd be subject to the stiff fines imposed by the government. Pay back the loan and either leave it as cash in the 401K or look for some quality stocks that will maintain or resume their statue when this market turns around. Looking at Japan after nearly 11 years, cash may not be such a bad investment.

If you want to consider DVC an investment, consider budgeting money that you would otherwise be paying for a hotel room and pay it to yourselves in the form of a savings.

My folks were Depression 1929 kids. My mom has told me stories of going to bed and waking up to find the doors of the banks shuttered, never to reopen. They lost everything.

I guess that what I'm trying to say is plan for the future but enjoy the present because that's all we really ever have for sure.