It’s 1908 and all you need is $400 to buy a Model T. You save like crazy until you have the cash ?

May 2021 10 85 Report

It’s 1908 and all you need is $400 to buy a Model T. You save like crazy until you have the cash ?

It’s 1908 and all you need is $400 to buy a Model T. You save like crazy until you have the cash and then a friend says “if I had $400 I’d put my money in the stock market”. So, you say OK – you invest in the stock market and I’ll invest in my Model T. FAST FORWARD. It’s 2008. Now your great grand children are reaping the rewards of your investment. You invested in the Model T – kept it in mint condition and only drove it on Sunday to Church. Your friend invested in a good growth stock mutual fund that averaged 12% per year for 100 years – but never put another penny into it. Who had the better investment? WHY?

Business & Finance / Personal Finance

zygote222

Verified answer

Tom S has the right calculation - the $400 stock market investment would now be worth about $33.4 million. So, based on the raw numbers, the stock market investment completely blows the Model T out of the water.

There are a couple of other things to think about, however, before proclaiming the Model T to be a bad investment. The first is taxes. Income taxes didn't even exist in 1908, but over the years they have greatly eroded the real, after tax returns on invested money. Suppose that over the past 100 years the combined federal and state tax rate has averaged 33% per year. Then the real return of the stock market investment is only 8% per year. That works out to the stock market investment being worth only $879,904 in 2008. That's still a win for the stock market, but not by as big a margin.

The other issue is opportunity cost. You envision not using the Model T very much over the years, but you still would use it some. If you didn't have the Model T, you would have had to spend additional money to find alternative transportation. You should subtract the additional transportation costs from your stock market returns. Furthermore, once the Model T became a collector's item, there was the possibility of earning extra money from the car, for example leasing it out to a film studio for background. Without the car, you wouldn't have a chance to earn this extra income.

Opportunity cost is harder to quantify than compound interest, but it's conceivable that overall the two investments might be comparable. As some of the other answers indicate, the Model T would certainly be more fun to own.

Tom S

Each dollar invested at 12% interest for 100 years would be worth 83522.26 today. So $400 would yield $33408904.00 dollars.

A 1908 model T automobile in mint condition is worth maybe a couple of hundred thousand, tops. That's if you can find a buyer.

So the first option is better, but more boring. Driving a Model-T automobile was certainly more fun than watching $400 turn into $448 after the first year.

Anonymous

That would be 45 mph. Hope this helps. Car Mileage: 1908 Ford Model T - 25 MPG Ford's Model T, which went 25 miles on a gallon of gasoline, .... But with a top speed of 30mph, the journey would take more than a month to complete

Gregory E

With a 12% avg annual return, that intial 400 investment would have grown to be over $34 million in 2008.

So unless that mint condition Ford is made of gold, the stock market friend would have a lot more money.

cory m

well eventhough i hate fords, i would have to say the model-t. mainly because of the great depression in where the stock market crashed and everyone lost just about all their money, also the cars value now you could sell for tons. i was watching a classic auto auction and a guy bought a corvett(ya i know sports car, but still) that was like a 50's or something and he paid 98,000 for it. so that car would be super expensive.