Silly Math Exercise

[RobDoc]

Aaron's calculations also assume that you will not be spending anything on vacations during this time period. Once you start deducting the room costs for those stays (whether rack rates or discounted), the principal in the mutual fund is actually a declining balance and those figures won't hold true.

So, if you don't join DVC and just count those invested dollars (by the way- how did those mutual funds do in 2000??), then you will be way ahead of those of us who have squandered away our kids inheritance on family vacations to WDW.

Doc
doc@wdwinfo.com

 

[normr]

Will probably be dead long before they could enjoy the money because they're killing themselves with the stress of worrying about it.

Don't you read the docs, DVC members live longer any others due to the stress free vacations for the next 41 years. x

 

[Jimbo]

As always, Doc is right on the money. When I figured that I was $1200 ahead, that's compared to what staying on property would have cost. And make no mistake about it, I would have been vacationing the last 4 years. Maybe not at WDW, but somewhere nice, I'm sure.

The other thing worth mentioning is that all of this left out the resale value of our membership. Our 300 OKW points and 100 BWV points could quickly be sold for $25,000. More if we wanted to hold out for the best offer. So am I actually $26,200 ahead?

 

[PamOKW]

This "if you invest the money" discussion always comes up. Are we to take every dime we earn and invest it so that when we are too old to enjoy it we'll have lots of money? Of course, I understand having investments for the future but I don't see comparing investments to buying DVC. As Doc just said, not every year sees a 8% return on the $15,000. Even if you just spend the interest on WDW rooms, what do you get for $1,200? A week at a moderate? Even if you kick in what the dues would cost...$2,000? And then you aren't compounding your interest, you're spending it and keeping the $15,000.

The money used for DVC should come from disposable income. Not from money needed for investing or for what that investment might purchase (home, college education, etc.)

 

[Niagara2]

Let's See - at age 88 we would have $350,000 in the bank. If we put $5000 a year for three years tax free in a 401K at the same time we would also have close to the $350,000 in the bank at 88. BUT - we had 45 years of five star vacations, memories that our children and grandkids still talk to us about when they visit us in the nursing home, and no regrets!
I wouldn't suggest you take all savings or forget about a plan to save for retirement when buying
DVC. If you plan to vacation, and Disney is your priority for a fun place to go, then DVC makes alot more sense. I can hardly wait until 25 or so years from now and tell my kids how we paid $58 for a point back in the 90's. One would even suggest we go to resale market as the points now are $215 each and resale is a bargain at $199.
All kidding aside, either you spend some of your hard earned cash for vacation and enjoy life while you can or save it for the kids who hopefully have more enjoyment in life than the parents who didn't take them on vacation as they needed $350,000 in the bank at age 88. With inflation, which will only be worth - (math wizards help me out here) maybe $150,000 in todays dollars.
Balance - in life - in work - in love.

 

[Princess Tess]

As far as I am concerned this is an investment, only the return doesn't have a dollar figure to it . It has a return that is far more important than any money can buy....it's an investment in your family. All of us, especially kids today, have way too much stress in our day to day lives. So for some of us this is the best value for our bucks....one other little note, if you were to survey any 100 elderly people and ask them what their regrets were I think you would find the majority of them would tell you their regrets were not things that they had done but things that they didn't do.

 

[KNWVIKING]

During the 41 years I'm earning money on $15,000 original buy in,what am I doing for a vacation.
Lets assume 15,000 original buy + annual dues is 200 pts.200 pts gets me 20 value days at OKW studio,with tax assume 250.00 a nite.thats 4500.00
that 15,000 earning an outrages 20% that year only earns 3000.So to pay for my trip I spent 1500.00 more then I earned,and I still owe 38% tax on interest earned. Without a 41 yr headstart on the interest,I don't think your math works.

 

[msdis]

All points of view are great and not to depress anyone but I work with nursing home patients every day and have seen people with LOTS of money be leveled to poverty, being reduced to welfare with nothing left for children or grandchildren. And yes I know there are ways around it and with a price of course; but my point is there comes a point where saving and investing makes sense and living here and now for today makes better sense. Let's not any of us be fooled into thinking we are going to be better off with 300,000+ dollars in 40 years from now.

 

[GrumpyOne]

Having been thinking of joining DVC for a while I put a bunch of numbers into a spreadsheet. Ibased my original numbers on historical values. The stock market produces 8 to 9% over the long term but I assumed 8 hotel rooms go up about 8% annually and not having long term info on the annual expenses (10 years isn't long term), I assumed a 4% annual increase. Since non-retirement stock profits are taxable that 8% long term value has to be reduced for taxes so my final value for the market was 5.5% annually.

The idea was to see which would cost more, the total of the room that I prefer for 40 years *OR* the total of the DVC. DVC cost is the lost opportinuty of investment plus the total cost of the annual support payments.

The room type I will pay for not currently being a member of DVC has a rack rate of $260 and it usually has a AAA discount. I assumed the AAA discount because sometimes there is no discount and sometimes it's more than 10%. So, the normal room rate is 1700 for a one week stay.

When looking at DVC, I would need to buy 200 points in order to get a 1br at OKW, the closest I can figure DVC has to the FW cabin I'll be in, in May. I used $72 per point and assumed paying cash.

Over the course of 40 years, this room will cost $475,000. I certainly am not looking forward to paying $37,000 for a week in 2041!

The opportunity cost of investing the $14,400 used in the DVC contract is $123,000. The cost of the upkeep is $69,000. This means that DVC costs $192,000 over the 40 years.

Using a slightly less conservative long term market return of 10% and assuming you fall into the 15% bracket, DVC would "cost" $445,000.

DVC is the clear winner here. The market values are long term Dow 30 so no comments about how the market did last year or the year before are needed. The person who is able to do slightly better long term than the Dow 30 and who has less of a tax burden will find DVC a lesser value than someone who has a larger tax burden or who invests more conservatively. The difference just gets bigger if your normal place to stay is as expensive as DVC rooms are to the general public.

 

[mickey7861]

I my case I disagree with the statement that "lost interest is the most important point". The most important point of a DVC purchase is the family vacation time that you're guaranteeing. My son turns 18 this year and will be away at college this fall, I am painfully aware of how fast time passes. If I had saved that money and not enjoyed family vacations I would feel cheated out of more than the lost interest. Also, I readily give up the chance at spending nothing and having $350,000 when I'm too old to enjoy it for the chance to have family vacations in WDW for 41 years. If we were to save the money and not touch the interest where would our vacation $$ come from?

 

[KNWVIKING]

There are some very financially sophisticated people commenting on cost,value,interest,etc... I'm not one of them. My wife and I bust our butts to buy a house,raise two boys,max out our 401k's and now pay for college. We look at DVC as the best gift we ever got for ourselves. With two boys in college there isn't any way we spend 3 wks in OKW each yrs if we weren't members.

 

[ronw]

There are many "intangibles" that go into the decision to join besides money - but being an anal engineer I do have spreadsheets! As, Doc pointed out, a reasonable comparison means you're planning to visit Disney often and plan on staying on-site DVC or not. If you are not going every 2 years and you don't care to stay on-site - forget about DVC! But if you are going WDW you need money to finance these vacations. I made an annuity of the initial cost - putting $x into your vacation fund earning y% per year gives you $z per year to spend on vacations. 'x' would be what you pay for your points, 'y' would be your estimate of the rate you could earn on that money over the next 40 years, and 'z' would be the money this fund wolud pay each year for the next 40 years. This amount 'z' plus your annual dues are your non-DVC vacation budget. Compare this number to what your stay would cost ( Rack/Rack-20%/whatever...), don't forget that 11% tax. Now - one more twist - on years where DVC saves you money account for the savings at the same interest rate you assume for your annuity. By playing with three variables - interest rate, rate of increase of rooms, and rate of dues increase you can explore different finacial realities. Keep in mind the interest rate you receive for your money must reflect after-tax earnings. Money in a 401K or IRA is not available to use each year wihtout penalty. In playing with the numbers conservativly (I believe), I used an interest rate of 6% and room and dues inflation of 3% each. In this case, after 8 years, I could give my membership away (I said COULD not WOULD) and walk away even. Of course the result is only as good as your assumptions (past perormance is no guarantee of future return, your milage may vary, figures don't lie but liars figure etc...) but it makes me feel better! I hope this makes sense and is not just confusing gibberish. I think we all want to see the "numbers" work out and looking at it this way helps me.
The absolute best part about DVC is that I don't feel I have to "do everything" on each visit home - my wife says that's worth a lot to her

 

[Caskbill]

These discussions always remind me of a very in-depth article I read in one of the investment magazines about 10 years ago. They did a comparison between buying/leasing a new car every 3 years, versus buying one, keeping it for 10 years, paying for required maintenance, and investing the difference. As might be expected, once a car is paid off, the cost of maintenance is nowhere near monthly payments for a new car. So investing the difference does earn a lot of money over 40 years. Basically you would have bought 4-cars in 40 years instead of about 13. The difference is that most of the time you're driving an older car.

Disney is no different. You can stay home all the time and invest what you would have spent and have lots of money after awhile. But if quality of life means anything, having some things now is worth more to us and our family.

One final twist on everything. I think buying DVC has actually helped me in the long run. Eight years ago when I purchsed DVC, I locked in some pretty good prices for vacations I was going to take anyway.

Those same vacations would have cost me more each year than they did. So, over all those years I essentially was putting that money I saved into my 401(k) plan and it grew. Maybe it is having your cake and eating it too because I was definitely able to invest money that would have had to go into ever increasing vacation costs that I was able to avoid by being a DVC member.

Food for thought...

Caskbill

 

[Trekker]

I always love these discussions. It has been three years since I first looked at DVC and I have changed my mind 18 different times about joining.

The main thing that was holding me back is that we own a Lake Home in Northern Wisconsin along with our primarary residence.

This winter we decided to sell the lake home, it restricts us to much.

I started thinking about DVC again, and if I do all the math - investing is better financially for me.

So, I've decided not to look at DVC as an investment, but something I'm going to buy because I want to.

You know you can buy this and also invest.....

<img width="60" height="68" src=Http://homestead.juno.com/rpeot/files/glittermick.gif><img width="68" height="68" src=http://homestead.juno.com/rpeot/files/TiggerFrog.gif>
<FONT color=darkblue size=2>Feb 1995 - Caribbean Beach</FONT>
<FONT color=cadetblue size=2>Feb 1997 - Port Orleans</FONT>
<FONT color=darkred size=2>Nov 1997 - Offsite</FONT>
<FONT color=darkgoldenrod size=2>Feb 2000 - Dixie Landings</FONT>
<FONT color=orangered size=2>Nov 2001 - All Star Movies </FONT>

 

[mrsdon]

I wont even go into the rack rates for rooms.
We traded our points 2 times.
One was to go on a carnival cruise and the other time was last summer to go white water rafting.
To pay cash for either one of the trips would have cost us about 4,000 each trip.(we are a family of 4).
And none of that inclueds the 30 or so times we stayed at OKW.
So our intila investment paid for itself in those 2 trips alone.

 

[BobH]

Aaron - thanks for math lesson. I'd rather enjoy my life and not go bonkers over investing every penny I ever earned. I assume you are way too smart to be a DVC owner.

 

[sumessefui]

The DVC has paid back our initial investment based on the rack rate, in just 4 years. That is with subtracting the yearly dues. We can sell at what it originally cost us. Would we have really invested that money? I don't think so. We would still have gone on vacation. To plan for the future is important, but if you dodn't enjoy the present, the stress will kill you. Then your heir can use the money to buy into the DVC.

 

[TampaDisneyFreaks]

I apologize if I ramble a bit here. The most important thing to remember is that DVC is not a "financial" investment (I realize that there is the initial financial outlay). DVC is an investment in your family, future vacations, relaxation, and maybe even your sanity! Another thing to remember is that the general assumption is that the money would have been spent on vacations, or more specifically rooms at Disney, anyway and that money would NOT have been invested in some sort of financial vehicle. So we CAN ignore interest lost. I know that in my case it would have been spent at Disney Hotels/Resorts anyway (even though I am a DVC owner, I still make the occassionally cash ressie to try out other Disney resorts, especially some of our "old" favorites on a little weekend get-away here and there). To us, owning the DVC is probably one of the best "financial" decisions we ever made. We know that we would never be able to stay away from Disney (we go MANY times a year)and,to us, there is nothing like staying on property. We feel this is the perfect way for our family (and along with some friends as well) to vacation and we love Disney soooo much. There is no doubt in our minds that DVC was the best way for us to "invest" that money. Thanks for letting me ramble

 

[PamOKW]

Some of those other investments aren't doing so well right now, anyway.

 

[Raising Disney Princesses]

The analysis that includes the lost interest on the initial investment assumes that you would not be spending any additional dollars to vacation at Disney and instead would be investing it in a mutual fund. I think a more appropriate analysis would be to invest the inital investment in a mutual fund and let it earn interest but when you are ready for your next Disney vacation, withdraw your accommodation expense from the mutual fund investment. Continue to do this each time you take a vacation. If you run out of money in your mutual fund before you stop wanting to vacation at Disney, you know you made the wrong decision. If your mutual fund outlives your desire to vacation at Disney, then you made the correct decision. Only problem is that it is all in hindsight (unless we estimate the cost of future rooms)!!