Are the Things You Buy Investments?

After my recent post on looking at your automobile purchase as an investment, an interesting discussion broke out in the comments: should a car even be considered an investment? A few choice comments:

Automobiles are nothing more than consumable goods. Tools in a toolbox. I say drive them till the wheels fall off and then go get another. I guess I have never understood the love affair some people have with automobiles. The treat them as objects of desire. I really get a kick out of my neighbors that waste so much time washing, waxing, and detailing. I can think of 100 better things to do.
- Jeff @ 11:24 AM

“A car is an investment. Without it, almost every car owner would see a vast decrease in earnings potential”

It’s not an overstatement, it’s just ridiculous. And I’m not even talking about investing the money that what would have been wasted in a car.
- Ben @ 11:31 AM

Cars, bikes, and public transportation are all investments.
- Andy @ 11:47 am

A car is still an investment, though, because a car buyer is investing in his time and convenience. Without my car, sure I could ride my bike to work every day. But that would take more time and energy. It would be more difficult (though not impossible) to buy groceries (in my hilly city, pulling a bicycle trailer is extremely difficult). It would be less “cool” to go on dates without a car.

Yes, a car is indeed an investment, just not a strictly financial one.
- Rick @ 11:32 am

So which is it? Are consumer products investments or not? My feelings are actually neutral on this one, but it’s an interesting discussion, so let’s try to make each case and see where things fall out.

Consumer Goods Are An Investment
The government defines investment as referring to “an expenditure of funds to acquire a new capability or capacity.” Every time you purchase a consumer good, you’re looking to acquire a new capacity or capability that you currently do not have.

Take, for example, a car. The purchase of a car gives you the capacity to drive about, and it also contains a certain amount of resale value as well which you might apply to a new car in the case that the current car no longer fulfills its capacity or another car you might wish to purchase fulfills the capacity better.

You can apply a similar line of thinking to almost any consumer good. A beverage provides enjoyment and refreshment. An electronic device provides some information-sharing capacity. And so on. And so forth.

You evaluate non-monetary investments in the same general way that you evaluate monetary investments: are you getting more value out than you’re putting in? Sometimes, it’s not straightforward to evaluate, because it’s not as cut and dried as it is with a strictly financial investment.

But it is real. If you buy something and it’s “worth it,” that’s a good investment. It means that you got more value out of it than you put in. If it turns out to not be worth it, then it’s a bad investment – you didn’t get enough out of it to make it worth what you put into it.

Consumer Goods Are NOT An Investment
Princeton WordNet defines investment as “money that is invested with an expectation of profit.” Quite simply, when you buy almost all consumer goods, you are not expecting a profit – they are a guaranteed loss, and buying them is simply a necessary expense of life.

A drink is just that, a drink. You spend some money, get a beverage, drink it, and it’s over. You’re now out a certain amount of money, no matter what. There’s going to be no return on that financial investment.

If you make a move with your money that doesn’t have a good chance of a positive financial return, then it isn’t an investment. It’s an expense. Getting a good deal on a product isn’t an investment, either. It’s a bargain.

An investment is when you walk away from something with more financial resources than you committed to it. Consumer goods don’t fit the bill.

My Thoughts
To me, this is really a question of how broad your definition of the word “investment” is.

In the broad definition, you’re looking at the amount of value you put in versus the amount of value you get out. In that sense, it can be applied to pretty much any aspect of life. I consider two hours at the park playing with my kids to be a spectacular investment: everyone’s happy and having fun, there’s almost no financial outlay, we all got exercise and fresh air, and I’m building a long-term bond with my children. My cost? Two hours.

The problem with looking at investments from that perspective is that they’re wholly tied to who you are and what you value. You can’t compare the value of that time investment from person to person. Another person might find two hours at the park with kids to be a horrible investment – a complete waste of their time. Thus, we would label the investment of a trip to the park wholly differently – I’d label it a great value, he’d label it a loss, but the actual physical input and output would be identical.

That’s why it often makes sense for people to strictly look at investments that can be quantified and transferred from person to person. You and I can both invest $10,000 in VFINX tomorrow and both get out $11,000 at some point in the future, on the same day. The input is clear and the output is clear for both of us.

The real distinction is between personal investments and financial investments. The naked word alone means different things to different people, but the prefix makes all the difference.

As for me? I think it’s useful to look at everything we buy and do as a personal investment, but I realize that my conclusions won’t necessarily match yours because my values are different. To me, frugality basically means getting the maximum bang for the buck out of personal investment – what can I do or buy that will give me the most personal value for what I put into it?

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  1. Tom says:

    I don’t think the things you buy are investments, unless it will appreciate over time and you will be able to sell it in the future at a nice profit.

    For example, a car drains your budget every month with insurance and other miscellaneous repair costs. When you get rid of your car, you likely will not be able to sell it for more than you paid for it.

    However, when you buy a house, you may have to put money into it, but when the time comes to sell it, you will more than likely see more money than you put into it.

  2. Rob says:

    I to get a kick out of how much time people spend on their cars. wax, wash, wax, wash. I havent washed mine in 6 years. The interior is clean, because I am not a slob. I dont need to make it shine. It gets me from point a to b, and is reliable. Its a 97 toyota 4 runner with 220,000 miles on it. I will drive it till it dies.

  3. Flea says:

    Certain items are an investment in your personal and families security and safety. Purchasing extra food and water in case some crisis hits for example. These are commonly viewed as consumer goods but having some stockpiled for a rainy day is an investmant as far as I am concerned. The same could be said for items like a generator, shotgun, flashlights, batteries, plywood, etc….all worthwile investments that will never go up in value a dime; Until a hurricane or tornado hits…then they are more valuable than any stock or precious metal.

    Flea
    http://beasurvivor.blogspot.com/

  4. Sarah K. says:

    I think it’s helpful to be more precise and call a car what an accountant would call it: a depreciating asset.

    Depreciating = it loses its value over time
    Asset = something that has value to start with, but can retain its value, increase its value (that’s an appreciating asset), or lose it’s value.

    If you run a plumbing business and need a work van, that van will depreciate in value from the moment you buy it – but it will be a great investment if it allows you to take on more and larger jobs.

    If you run a web design business and buy a work van, that’s probably a lousy investment – it will lose value, and it won’t help you do more or better work, because you could get to a client’s office just as well on a scooter or in a mini-subcompact car.

  5. Vartan says:

    It seems to me the word investment can be used in a way that kind of bridges the gap between everything being an investment and only financial moves being one. To me an investment is when you put money into something that you believe is worth far more than the money you put it. It’s not about the bargain, but the benefit over time.

    For example, my computer is an investment, internet access and a wonderful LCD monitor allowed me to stop watching TV(great in and of itself), and cancel my cable, saving me 25 dollars a month. The entertainment provided by the TV became inferior and so the investment was worth it. A host of other factors can play into this as well, like being a student or a writer or a graphic designer, you are clearly investing personally but there are financial rewards and risks at stake.

    This is relevant financially without being strictly tied to investments in markets or companies.

  6. Jeff says:

    I often look at this type of ‘investment’ in even simpler terms – A car that can be purchase for $18,000 and sold for $6,000 is an investment, just a bad one because of its depreciation in value over time.

    But if you lost money in the stock market, you’d simply view it as a ‘bad’ investment decision, but an investment none the less.

  7. Seth Miller says:

    I would also say with some of these arguments it comes down to what your true hourly wage is. You might have more job opportunities with a car, but are you truly earning more for your time?

  8. Carlos says:

    Hello -

    I don’t see a car as an “investment” in the normal sense (sell it or trade it for a lot of $$) because using the car is in conflict with the keeping the investment “safe”. If I were to buy a rare Chinese vase, I wouldn’t go walking all over the place with it. I would put it in a cabinet and take steps to reduce the chance of it being broken. If I were investing in gold, I wouldn’t walk around with the gold in my pockets all the time. With a car, in order to get utility out if it, you need to *use* it by driving it. This puts your investment at risk *all* *the* *time*. So, when someone talks to me about how car “X” maintains it’s “value” over time, I could care less. The value of the car is it’s cost and utility to the person using it, not it’s value relative to other cars.

    Chuck

  9. Christophe says:

    An investment is anything from which you expect to get a return on investment.

    If you need a car to get to work, then, yes, the car is an investment. The trick to keep the “up front load” on that investment as low as possible by not over-buying the kind of car you need to get to work. A beater might not be a good investment if it is constantly sucking up money in repairs and time in downtime; a very expensive car might be super-reliable, but a poor return (like a high-fee mutual fund) when the cost is taken into account.

    The thing that gives me hives about statements like “A car is an investment” is that it is usually associated (for me, at least) with an attempt to justify an overspend.

  10. Tom says:

    I agree with Rob, my neighbor keeps washing his Aztek and I’m like, come on, that’s not worth anything with gas prices these days… and wasn’t worth anything before then, either! Hah! Azteks are ugly!

  11. Andy D. says:

    Wow, I got quoted! Let me add that transportation not only allows access to higher paying jobs, but it also access to cheaper stores and cheaper services. Owning a car (or bike, or using a bus) can certainly more than pay for itself. Having said that, the best kind of investment is the kind that costs the least and produces the largest dividend. I opt for small inexpesive cars, because all cars produce the same results. I also walk to work.

  12. kazari says:

    I think a car can be considered an asset, but it’s never going to be an investment. An investment is something that gets more valuable with time, I think. A car, while being useful for earning money, and living your life, is only going to be worth less (and less useful) the longer you have it.

  13. Lo. Price says:

    In a lot of ways, I view a car as just a necessity (I know, I could get a scooter, or ride the bus….), much like I view lights in my house, clothes, a roof over my head…etc. Of course, if I didn’t have clothes, I could never make much money because anytime I went outside I would be arrested. So technically, clothes allow me to earn more money. Also, light bulbs in my apartment might be considered an investment because they allow me to read/learn/gain more skills when it is dark, thereby improving my skillset and earning me more money. When I think about a car in this sense, it is basically a necessity to earn money and function generally.
    At the same time, a safer car in general will allow me to earn more money, because if I get in a wreck, I hopefully won’t be killed or seriously injured. However, I could spend $70k on a car which is less safe than a $20 car, in which case I have just wasted money on a necessity, similar to paying more for light bulbs that look prettier (assuming efficiency is the same).

  14. Romyr says:

    Great Post. I totally agree that the term “investment” has different connotations to everyone who uses it, but I think people struggle trying to distinguish the difference between “financial” and “personal” investments, which may create tension and stress.

    For example a car, which, in many cases, is both a personal and financial investment. But several problems soon arise when purchasing a car because there are so many factors involved in choosing the “ideal” one (i.e. price, gas mileage, resale value, luxury, comfort, appearance, amount of cupholders?). The issue then soon becomes “want vs. need.” Like Trent said though, people have different values and may desire different things than someone else. In any case, people take into account what they desire personally, but what can also suits them financially as well in any personal, or financial decision they make.

    Every decision has its consequence; likewise, all investments, either personal or financial, result in a decline or rise in value of the investment.

  15. beth says:

    I think where you live and how you run your life also dictates whether a car is an investment, an asset, a luxury, or for that matter, a liability. If you live in the suburbs (which I do now) or the country (which I did forever), a car is often necessary to allow you to work away from home at all– an investment in your future for sure. But if you live in an urban center where work, shopping, and life at large is either within walking distance or public transit accessible, then a car is at best, a luxury and at worst, a deep sucking hole to throw money in.

  16. Chiara says:

    I don’t mind using the word in a broad sense. The caveat is that people like to throw it around to justify spending on consumer goods they can’t really afford, because it’s not a luxury, it’s an “INVESTMENT, SEE?” (I’m thinking of someone in particular!) So they do things like constantly invest in their “image,” which I guess is not wrong per se, but becomes license to go into debt for expensive cars and clothes and watches, etc. Don’t think it would apply to most of us here.

    A car is a tool, which could be an investment, but I would call it an asset. Or a liability, as the case may be. :)

  17. Great article! I love that you presented both sides. I do suppose the type of car comes into play. Transportation for bettering your life with a job or education, OR a flashy toy draining your bank account.

  18. Keith says:

    My initial gut reaction is that an investment implies that you can eventually sell it and make money, even turning a profit if it is a successful investment.

    Although, your statement “The real distinction is between personal investments and financial investments. The naked word alone means different things to different people, but the prefix makes all the difference” really nails it.

    Traditionally, I have considered cars, boats, airplanes, motorcycles or any other good as an expenditure as opposed to an “financial” investment. These days, I even teeter on considering a house an expenditure rather than an investment. Re-thinking it, I may consider each a worthwhile endevour maximizing my personal utility and therefore a “personal” investment.

  19. Shanel Yang says:

    My vote is that consumer goods are not an investment, including automobiles, unless you own your own business and can get a big tax write off for leasing the company’s vehicles.

  20. KC says:

    An investment is a purchase that you expect to increase in price. I do not expect my car to increase in price over the 10 years I own it. I do expect my house to increase in price over the 10 years (or 20, 30) I own it.

    The home seems to be the exception to comsumer goods increasing in value. Perhaps diamonds or jewelry may be purchased knowing they will likely increase in value over the years, but few other consumer items, including collectibles, really ever increase in value.

    As for the first comment I wash my car as needed and keep it clean and neat looking. To me its as important as wearing clean, pressed clothing. I wouldn’t drive to work in a filty car and I wouldn’t pick up a client in one either.

  21. Trent, you hit it right on the money. Politics, art, beauty, investments…our opinions of these things are all based on our values system. What do we feel is important in life? Money? Time? Kids? Real Estate? Cars? Handbags?

    The answer to the question “What is an investment” lies in our value system. So the next time you are going to spend time, money or resorces on something, stop and think about if this something is truely valuable to you.

  22. Jennifer says:

    I am of the mind that an investment is something that will increase in value over time, not decrease or become obsolete.

    an iPod, TV, Computer, Car, Couch, BBQ – An asset, useful for a set period, but doesn’t necessarily increase in value.

    On the other hand, new appliances for the kitchen, insulation in the attic, college expenses – All increase in worth over time. Raise property value, decrease energy bills, increase salary potential.

    I am tired of hearing people say “I invested a lot of money into this (Insert item) and now it’s obsolete 18 months later.

    Nope, you bought a toy. You got some enjoyment out of it, but it was not meant to last forever or increase your net worth.

  23. James says:

    There’s a third category besides investments & consumer goods: tools. If I buy a hammer, say, it lets me do jobs that I couldn’t do without. Some of them may make or save money – I might work as a carpenter, or do some home remodelling that increases its value – some may be just for fun. Likewise, a car may serve as a tool to make money (by taking me places where people will pay me), or for pleasure, but like the hammer, it’s a means to an end, not the end in itself.

  24. David in Oklahoma City says:

    An investment is defined as something that has safety in principle and some type of return. At least that is what Benjamin Graham says in The Intelligent Investor. Benjamin Graham was Warren Buffett’s svengali.

  25. Sometimes I wonder if an iPod might be an investment in your quality of life. Yes, it will lose financial value over time, but perhaps you are a happier person when you can listen to your music.

    Similarly to cars – yes, they too depreciate but if you can afford a car and all the other ancillary expenses without pinching your pennies, isn’t it better than waiting for the bus? Having the ability to go for a drive on a nice Sunday with the top down feels pretty good too – that certainly makes me happy. More happy, less stress, better quality of life – seems like some kind of investment.

  26. gr8whyte says:

    Excepting collectibles, a car is not an investment. If it is, I’m investing in oxygen right now, i.e., breathing, and I think I’ll invest in some pancakes for breakfast tomorrow. Please!

  27. FruWiki Meg says:

    I can see consumer goods as investments, just a different kind. My roommate doesn’t have a car and even though there is some public transportation here, it has severely limited the sort of jobs she can take. In fact, I suspect that one of the reasons she lost her last job was that she couldn’t stay even a few minutes late past closing because she’d miss the last bus.

    Also, I see paying a little more for healthier foods (like whole wheat products and fresh produce) to be a good investment in my health. While the potential health benefits may be hard to measure in dollars, it’s definitely worth the money as far as I’m concerned.

  28. NED says:

    @gr8whyte (#24): Broadly speaking, oxygen and food are investments. Bio-economically (i invented a word!), oxygen and food are necessary resources used to generate energy for the body to function to generate income. It can be argued that the income generated using the energy that food+oxygen provided is the return on your investment.

    That’s the crux of the problem with this debate. The definition of investment is vague at its broadest definition (value taken out vs resources put in). It allows for interpretation according to the spin you want to add. Taking the car issue as another example.

    Is a car an investment, a (deprecating asset), a liability or an expense?

    An EXPENSE: It costs money, therefore in a cashflow statement it is an expense item rather than a revenue source.

    An INVESTMENT: If you consider hourly wage, the time i save driving as compared to other forms of transport translates into potential dollars earned. If (a big if imo) the potential wage/time i save is greater than the total resource/time i put into the car, the car becomes a stellar investment. I earn time that can be put into making more money.

    An ASSET: It loses resale value from the moment you buy it to the moment it is sold, so it should be an asset that deprecates in value over time.

    A LIABILITY: Not counting the initial investment, a car comes with a lot of misc and regular expenses throughout its life cycle, i.e. it loses you money.

    So which “answer” is true? They all are. I can draw an analogy to the 3 blind men trying to describing an elephant by fondling different parts of its body, but the main point i want to drive is that each section is but a facet of the whole issue.

    Btw, good post Trent. I like the link between personal investment and personal values. Overly focusing on just the money returns will dehumanize us; Money is the tool we use, and not the other way around.

  29. gr8whyte says:

    @ NED (comment #26) : As I’ve previously stated, investments can appreciate. Cars, excepting collectibles, generally do not. Hence cars are not investments. As to what cars are, the one that fits my view best is an expense but regardless whether it’s an expense, asset or liability, it’s definitely not an investment. I don’t like sending investments down the highway at 75 MPH. We’re just playing with words here. Why stop at EXPENSE, INVESTMENT, ASSET and LIABILITY (your capitalization)? Why not add transportation and art? I’m sure somewhere on this planet, at least 1 person can be found who thinks of a car as transportation or a piece of art. What would it take to add transportation and art to your list?

  30. K says:

    I think an investment is trading one thing for something else that has more value to you.

    With a stock investment, you are not trading your money for more money in the future. You are trading liquid cash for an OPPORTUNITY. That opportunity has value to most people because of historic returns, but is not guaranteed. Therefore, it is still an investment since even if you lost money, you were willing to lose it in exchange for the opportunity of appreciation.

    With a car, you are exchanging money for your own effort and for freedom. If you do not value freedom and your effort of biking, walking, finding a carpool/subway more than your money, then you would not have a car, but most people do.

    @Andy D.: All cars do not produce the same results. That’s why some people spend more on a truck that can haul things. You are right that a corvette has minimal extra useful value than a Honda. But even in that case, you are trading money for appearance, which might have more value to that person. I guess you could say that it’s only an investment if most people would agree that whatever you are trading for is worth it (most people wouldn’t consider Corvettes an investment) but then we get into the fact that some people don’t think the risk of stocks is worth it, so they must not be investments…

    Very interesting post!

  31. fern says:

    Many of those commenting here misunderstand the definition of “investment.” an investment is something that increases in value over time, the way a house might. Cars NEVEr increase in value; everyone knows that you lose thousands the minute you drive a new car off the dealership lot.

    You might believe a car is a necessity to maintain your lifestyle, but the purchase of a car is NOT an investment. Every car has a finite lifespan. Whether you spend 450K on a Mercedes or $12K on a Honda, you will have to replace it in x number of years, so why spend more than you have to?

  32. Someone says:

    To me, if a car will genuinely increase your quality of life (access to better jobs, or even access to things that you truly enjoy but would have a hard time getting to without a car) then the first $X of a car purchase might be considered an investment.

    $X is the amount it would cost to get reliability and the most basic functionality of that transportation. If you live in an area with great transportation, $X might be the cost of a public transport pass. If you live in a rural area where there’s a lot of snow, $X might be the cost of a vehical that can handle that snow.

    In my mind, nothing above $x in the price of the vehical should be considered an investment– just a consumable good. It may be worth it to you to get something “nicer” than the basic minimum you need, but I don’t think that automatically makes it an “invstment”.

  33. K says:

    @fern:

    Are you saying that stock in Enron wasn’t an investment? That didn’t go up in value.

    Do you own a car? Then it must offer you something that the $12k in the bank couldn’t give you.

    Trent is just asking people to look at the word investment in terms of non-monetary value.

  34. Catherine says:

    I think the problem here is with implications. By that definition, a car is an investment. Is it a GOOD FINANCIAL investment that is going to provide a RETURN? Probably not.

    The word investment has a lot of different connotations. I invest my time into volunteering or surfing the ‘net for hours. I invest my money into a Roth IRA or a new model vehicle. I invest my feelings into relationships.

    All of these have potential for complete failure or gain. I think a some of the comments are based this question, “Is a car a GOOD financially SOUND investment?”

  35. F2O says:

    I’s sorry, but those of you with the attitude about poeple that spend time on their cars need to step back and learn not to judge. I wash my car becuase I take pride in the things I own and care for them so they will last a long time. In the case of a car, if you live in the northeast and have to deal with the ice and snow all winter, the salt they put on the roads will cause premature rusting if not cleaned off. Wax protects the paint and also increases the likelyhood than my car will not turn into a rust bucket. On the inside, dirt can get ground into the rugs and seats causing foul smells and unsightly appearences while food can attract bugs. Keeping a car clean is just as important to me as keeping it running well.
    It’s not wasted time in my opinion. Just as other people enjoy doing yardwork, cooking or learning about personal finance, I enjoy washing and waxing my car when I have free time.
    As far as an investment goes. What may be an investment to one person may not be to another. Just like everything else in life, this in not a one size fits all answer. In my case, I own a truck that provides me the transportation to go to my primary job and support my family. It also enables me to haul things to and from the house that are needed to maintain an older home. Lastly, I am able to help out my parents, my inlaws, as well as an assortment of other family members who do not have access to a truck when they need it. As such, I see it as an oppertunity investment becuase I would have to find another way to do some of those things without it. However, a person that rents an apartment in the city, can walk or take public transportation to work and has no other obligations that require it, a vehicle might not be needed.

  36. gr8ewhyte says:

    A bicyclist who’s tired of being stormed on may “invest” in a car but what he’s really doing is exchanging one form of transportation for another. The car costs more but he’ll gladly pay it because he’s tired of being stormed on and the value of an enclosed cab is now worth the much higher expense to him. He may even tell his friends he’s “investing” in a car but is he really? Would anyone in his right mind zip his “investment” down the highway daily at 75 MPH or higher and play dodge ‘em with other “investments”? Most cars are crushed for scrap in the end either on the highway, the crusher, or both. Why “invest” money in something that’s going to end up as scrap? We’re just playing with words here. A car is an expense, not an investment; ask any business owner. BTW, the IRS allowed volunteers to deduct mileage in 2007 as an expense at 14 cents/mile and it’s a higher rate for Katrina volunteers. Saved me some bucks. Normally, I would have pancakes for breakfast but today, I’m going to “invest” in a pancake breakfast.

  37. JM says:

    Does it really matter?

    Isn’t the important question whether a car is necessary or not?

  38. Andy says:

    K (#30) — True, different vehicles have different abilities. Trucks can produce value in a way that a Civic cannot.

    And, K (#32) — I also agree with you that just because something goes down in value doesn’t mean its not an investment. Many stocks decrease in value, are they not investments?

    Here is a meaningful way to think about this — the relative value of an investment depends on the total cost and the total revenue the investment ears. For a car, the cost includes oil, gas, maintancence, insurance, and depreciation. The revenue includes access to better paying jobs and cheapers stores/services. So a car would be a good investment if, say over ten years, it cost $30,000 but earned $50,000. That would be a $20,000 profit on the investment. It would, in fact, be a better investment than investing $30,000 in stocks that were sold ten years later for $40,000.

  39. James says:

    “Cars NEVEr increase in value…”

    Not true. Take the 2006 Honda Insight that sold for $26K on eBay a week or two ago. MSRP was $20-21K, and the original purchaser probably got it for less, way back in the days of $2/gal gas :-)

  40. Daniel Cooper says:

    What if I hate making money? Doesn’t that mean getting $11000 from $10000 is a bad investment?

    BLAAAHHHRGH!

    (nice article)

  41. Odd says:

    Wow, I never knew there could be so much confusion over whether or not a car should be considered an investment.

    Trent, I think you nailed it when you said it’s a distinction “between personal investments and financial investments.” A car is a depreciating asset to me, my little piece of crap will never increase in value so I would never consider it an investment.

    However, there are a lot of interesting arguments here so I thought it would be fun to pose a question to those of us that have always seen our car as an asset rather than an investment. Other than price appreciation, what would it take for you to see your car as an investment?

    For me to see my car as an investment, it would have to last a very VERY long time. I’m driving a 1999 POS because I’m frugal (cheap if you ask my wife). If, ten years from now, it’s still going strong and doesn’t require major repairs every other month… I’d have to cave in and agree with others here that, yes, that car was one hell of an investment. Zero appreciation wouldn’t matter near as much if I were able to forego another 10 years worth of payments and higher insurance.

    Odd
    http://www.Money-and-Investing.com

  42. deepali says:

    An investment is something in which you are invested, whether it’s financial, emotional, or physical. It says nothing about the return….

  43. James says:

    From my perspective as an accountant, I would say investments and capital are pretty much the same: that which creates income. I usually only reserve using it for something that has some pretty decent future cash flows associated with it.

  44. Alex Workman says:

    The answer to this question “Are things you buy considered investments?” solely depends on the definition of “investment”.

    Borrowing the concept of “utility” from the economic theory of supply and demand, I would like to define my own definition of “investment”:

    An investment is a purchase of a good or service with the expectation of future utility.

    With this definition, everything we purchase is considered an investment.

    The measurement of utility varies from case to case. For example, the measurement of utility for the purchase of financial instruments tends to be in currency ($$$). Likewise, the measurement of utility for designer goods tends to be a measure of “fun factor” (which is quite subjective).

    With this definition, it becomes easier to understand a person’s rationale for purchasing a car. For people who value money more than “status”, utility will be measured in currency. Hence those people will tend to buy econimical vehicles.

  45. Bill says:

    “The home seems to be the exception to comsumer goods increasing in value.”

    Houses barely keep up with inflation – 1% to 1.5% is a typical real return in residential real estate over the long haul.

    People tend to ignore things like transaction costs and carrying costs (e.g. how many roof replacements) when they talk about how much they “made” on the sale of a home.

    Merely subtracting the purchase price from the sale price is not accurate, but that’s how we think.

  46. Stryge says:

    Bad question. Bad answer. I really like your blog. But I don’t like this article. The real question isn’t “Are the Things You Buy Investments?”. It just depend of you Investment definition. But it should be something like “How do you spent your ressources (money, time, competences, etc.) and is it worth it ?”

    Anyway, Thank you for this blog !! :)

  47. Anne says:

    I would analogize cars to a capital expenditure. A capital expenditure in business is when a business purchases a fixed asset in order to keep the business going or expand it. For example, a television station that wants to expand its viewing area will purchase a high-power transmitter. The transmitter is expected to decrease in value so it is not an investment; however, it is expected to allow the company to increase revenues.

    Cars are the same way. You don’t “invest” in a car because you don’t buy it expecting to be able to sell it for more than you paid. But it could be considered capex in the sense that it will allow you to achieve rewards elsewhere.

  48. George says:

    Consumer purchases *in general* are not investments in the economics or finance sense of the word, unless you are buying an item that happens to have a higher demand than the supply. So whether it’s fuel-efficient cars, the hot new game console, or a new kid’s toy, it *could* be an investment for future monetary gain, but if we’re generalizing than usually it’s not.

    But as Alex Workman commented earlier in #44, in economics “everything we purchase is considered an investment” because you expect some “future utility” from it.

    So just because something doesn’t appreciate in dollar-value in resale, doesn’t mean it’s not a worthwhile purchase. Per the Dollar Rule, so long as you are getting sufficient usage or benefit out of a purchase (say 1 man-hr per buck you spend on it), then that in itself should be one measure of your return on your “investment”, as it were.

    So back to the car example, sure most people don’t usually sell their car for more than they paid for it, but you’re getting other benefits (i.e., the “utility”): transportation of stuff, ability to get to work, ability to travel, and so on. Getting your money back (or more) would simply be gravy.

  49. Sarah says:

    A couple of months ago, I invested in my favourite brand of coffee when it was on sale for 1/2 price. I spent just under $200 for enough coffee to last for months. Compare my 100% return to comparable rates in a CD.

    I know it will go on sale again in the future, but this was a very good sale, and I haven’t seen it for less since.

  50. ashia says:

    Anything one buys or aquires is considered and investment. Once it becomes yours it is “vested” to or upon you. At that point, if you treat it well, save or preserve it or better still -improve upon it, then its value may increase. Great! A car can certainly increase in value, right? An antique car, or say even, our prius which we got carpool tags for and then sold for a profit, or any car that you, buy for a good deal and do not buy from a dealership can probably be sold for more elsewhere.

    Now if the item is not treasured or enhanced but is used to its max (a 97 toyota never having been washed but probably has its oil changed, tires rotated and sparkplugs replaced) is also a wise investment. Since it belongs to its owner and is used for a valuable purpose.

    but- unfortunately, even the junk we buy all the time- the suv that we really dont need, and the big backyard that we dont use enough etc are investments- just poor ones if we dont maximize their potential.

    Looking at everything we do as an investment may help us to decide if we ought to be doing it or not. Is it a good investment of my time and energy to yell at the guy who cut me off? it a good investment to watch prime time tv? Is it a good investment to circle the parking lot for the closest space?

    A good way to evaluate my choices- thanks!

  51. anca says:

    as long as the vehicle is an efficient human-powered one, i consider it an investment as it allows me better transportation and the only fuel is food, which i need to buy anyway.
    but a car is definitely not an investment from any point of view: lots of taxes just to own it, high fuel prices, pollution ( this is what caused me high bills to control my asthma) and most of the big-earning jobs are in big cities where you can’t get cheaper than using the tube/underground.

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