CARS ONE COULD AFFORD OVER VARIOUS INVESTMENT HORIZONS WITH $25,000 INITIALLY
* Performance used to calculate ending values are average rolling period returns compounded by geometrically linking monthly returns including reinvestment of dividends. Assumes no change in MSRP for the period indicated. 2021 new car MSRP provided by JD Power. Source: Fama-French Market Return Series, January 1, 1927 – December 31, 2020
Let’s assume you started a year ago with a $50,000 investment portfolio which suddenly appreciated by 50%. Your portfolio is now worth $25,000 more than you started with. What about if you bought something with that $25,000, maybe a car? To illustrate the trade-off of buying something now versus waiting, the chart above shows cars you could afford over different time periods (ignoring the impact of inflation on the future price) if you resisted the temptation to buy that brand new Kia Niro now and instead invested your money. Waiting just three years could put you into a luxurious Cadillac. Wait a decade and that convertible Porsche may be yours. And patiently waiting 20 years might turn an impulsive $25,000 purchase into a bonafide supercar.
But the cars aren’t really the point here. What matters is the cost of spending $25,000 today increases with time, by doubling in seven years and finally ballooning to nearly $200,000 over 20 years when measured against investing. Lastly, large gains in short timeframes are part of the historical gains in the stock market and are integral for offsetting losses and building long-term wealth.
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