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.
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?