I Love Negotiating for a Car – Here are my 5 Tips on Getting the Best Deal

Yes, I’m sure I am either alone or in the minority when it comes to this, but I LOVE negotiating with dealers for new (or used) cars. Friends have often asked me to come with them to the dealer to negotiate. I just love getting a good deal, and most times you are in control of whether you get a good deal or not.

Here are my 5 tips to getting the best deal on a new (or new to you) car:

  1. Do not fall in love – the best deals are on leftovers (new cars from the previous model year), loaners, and other low mileage cars that can be considered new. NEVER go in thinking you want the orange one with the purple interior only. Be open to a good deal on the car you want with most of the options you want and not a specific car.
  2. Negotiate total price NOT monthly payments - Dealers will dazzle you with all sorts of numbers. Without a financial calculator and a thorough knowledge of time value of money calculations, you cannot keep up. Always negotiate the actual total price for the car and do not worry about the monthly payments until you have agreed, let me repeat, AGREED the total price.
  3. Do your homework - Get on a site that tells you what other buyers in your zip code paid for the same car with similar options. I like Truecar.com, but there are other sites as well. Do not just use Kelley Blue Book and get the dealer price. Figure out what others are actually paying. Generally, you should pay INVOICE PLUS A FEW HUNDRED DOLLARS BEFORE THE DEALER ADDS DESTINATION AND OTHER CHARGES. Reread that sentence before going to the dealer.
  4. Do not be in a rush – generally, you know if you need a new car soon. Give yourself 3 months to look. You will know if you have only 3 months left on your old car. You can’t do this if your car is stolen or totaled, but even then, see if you can borrow a car or use public transportation to avoid being desperate when you head into the dealer.
  5. Buy at the right time – if you can, buy your car in the fall, between Thanksgiving and New Year’s Eve as car dealers are caught in a bad spot between new cars coming in October and accountants forcing them to get inventory down by January 1st. Any time around Black Friday is excellent.

BONUS TIP: Be ready to walk away. If you cannot get the price you know is right for the car, walk out of the dealership. Another dealer WILL give you the price you want. I guarantee it, as long as the price is invoice plus a few hundred dollars AND you do not want a specific orange car with purple interior, but are open to a specific model with certain options.

I’ve had dealers run after me as I walked to my car after leaving their showroom. Guess what? I got the deal I wanted. Always be able t walk away. That tip goes hand in hand with tip #3. Emotions drive car sales and it’s also how people get saddled with big monthly payments.

Also remember, what your down payment may buy you, may not match what your cash flow can handle. They are different. IF you have $5k to put down and the dealer assures you that you can afford a $50k car because you are putting 10% down, do not be fooled. A $45k loan at 2% over 60 months is a $787/month payment and you may not be able to afford that on a monthly basis. Know both your down payment AND monthly payment range that's right for your specific financial situation BEFORE you head into the dealer.

Happy car hunting!

A Mutual Fund Different is from an Index Fund - 6 Terms to Know

You may be hearing a lot more suddenly about mutual funds and fees. You may even be hearing about how it’s more efficient to be in index funds because their fees are lower. I’ve even sent out the excellent piece by John Oliver on retirement funds and fees.

But the question I keep hearing from clients when they ask me how they should invest their retirement funds or even non-retirement funds, is, “mutual funds are fine, right, that’s what you’re supposed to be in?” I then ask a few questions and realize sometimes people do not know what a mutual fund is or how it differs from an ETF (another term thrown around a lot lately) or an index fund. Let’s do a quick primer… impress your friends.

  1. Qualified Funds – IRS qualified accounts hold money and assets that grow tax free. Some examples are retirement plans, IRAs, 529 college savings plans.
  2. Non-Qualified Funds – all other money and assets usually held in bank or brokerage accounts
  3. Brokerage accounts – hold NON-qualified funds and you can buy mutual funds, stocks, bonds, ETFs and other assets into the account. You can also hold cash in the account. This is the account you use if you are investing in the markets.
  4. Mutual Funds – Money given to a mutual fund manager to buy stocks, bonds, or other assets and hold a lot of different ones all at once thus exposing the investor to greater diversity than he/she could get by investing in single stocks or bonds. There are equity (stocks) mutual funds and bond funds and natural resource funds, etc. Mutual funds have expense ratios, which is the amount the fund manager takes off the top to pay him/herself and they can have “loads” like 12b1 commission fees and management fees. Expense ratios can be 1-2% and loads are added onto that, thus eroding whatever gains you may make in that fund. It adds up quickly.
  5. Index funds – A mutual fund where the holdings directly correspond to an index like the S&P 500 index or the Russell 2000 index. If 2% of the S&P500 is made up of XYZ company, then 2% of the S&P500 index FUND, will be made up of XYZ shares. Index funds have low fees, about 0.05 - 0.17% compared to 1.00-2.00 % on actively managed funds, and Index Funds have no load. In most cases (some say about 80% of cases) S&P index funds outperform actively managed (meaning a fund manager picks holdings in the fund) mutual funds.
  6. ETFs - ETFs are like index funds split up into actual shares. You own one share of the mutual fund (in most cases, an index fund) if you own one ETF. The key with ETFs is they have even lower fees than index funds and can be traded on the market at any point when the market is open. A mutual fund is priced at the close of the market on the day you place the order.

Fees can kill your return over long periods of time, sometimes as much as 10% of your gain can be eroded by fees over long periods. It's a lot of money. Money you need for retirement and most mutual funds do not outperform the S&P 500. Have you ever glanced at your retirement savings statement and wondered why it hasn't gone up that much when you hear about the Dow going through the roof? It's fees, usually.

In addition, the S&P 500 provides plenty of diversity through its 500 different companies. PRetty cool, huh? The first index fund was introduced in the late seventies and now more than 30% of all stock and bond mutual fund investment is in index funds. Remember, index funds are not a cure for everything and you need to think about your specific situation. It's just an option most regular investors should consider.

Just owning mutual funds, and thinking you’re fine because you are supposed “own mutual funds” instead of picking specific stocks (which is true, the last thing you want to do is pick stocks), may not be enough. You have to know how much you’re paying for those mutual funds and whether they are performing enough to beat the index NET of fees. If not, try index funds. Cheap and cheerful.