What’s up world? How’s it going?
This afternoon I sat through a 2 hour on/off conversation between some guys in the office I’m working in today. I didn’t participate, for two reasons:
- I would have probably upset a few people (which is something I don’t generally like to do)
- I was making notes on the conversation because as soon as it started I could smell a nice, freshly roasted blog post ready for carving!
Basically, these chaps – all very nice, decent lads I should point out, nothing personal whatsoever here – were discussing cars, as work colleagues often do. To be more precise, they were discussing new cars.
– Which new car should employee (a) now purchase to celebrate his recent bonus (even though the bonus comes nowhere near paying for any of the cars in question)?
– How much has employee (b) been recently offered for his 3 years old motor by his friendly local dealer, in part-exchange for a new one? (62% of the price he paid for it just three years ago, by the way.)
Now, one of these fellas has only recently started work at this place. He used to work for a similar company that have offices literally right over the road from the office we were sat in. He and his (ex-)colleagues all became casualites of the ever-popular trend of outsourcing. Sympathy not really required though, it matters not to them – they all quickly got new jobs, and they all got not-at-all-insignificant redundancy payouts – miniumum £30,000 by all accounts. Tidy.
So anyway, this guy made it known that he’d just seen his old colleagues as they’d all been back to their old office for a lunchtime farewell. Three of his old colleagues, he told us, had just bought new Mercedes cars with their redundancy money. The group of guys involved in the conversation all then toddled off together for a look – and sure enough they came back 10 minutes later with a photo of the three new Mercs parked next to each other, shining and resplendant in the midday sun.
I’m not criticsing these three people at all – it’s quite obviously their money to do what they want with. But…
By golly, if I had that sort of lump sum paid to me.. Well, I reckon I would be quite a bit further down the line to financial independance, whichever way you look at it. That £30,000 (the lowest sum received, remember!) would fill two people’s nISA for the year. Or maybe it could become a decent deposit on a buy to let property.
Having scribbled down some notes and drafted out the blog post thus far, I went for a quick walk. And I thought “I wonder what would have happened if, instead of purchasing one of the rapidly-depreciating and completely-unnecessary-to-them products of the company, they had instead invested in shares in the company ?”
Well, let’s see.. Here are Daimler’s share prices:
14th March 2014 (when these guys got their big cheques and P45s):
25th June 2014 (today):
So.. wait.. If they’d have bought shares in Daimler instead of the car itself, they’d each now be looking at a minimum…
– £2,268 increase on their initial capital?!
– Almost 7.6%!!
– In THREE MONTHS?
Hands up anyone who would like to see that sort of return on their money?
However, back in the real world… Instead of looking at that 7.6% INCREASE on their money, they now have a car. A car which, if they took it today to a dealer to “trade in” or just “get rid” then I reckon the dealer would be offering them.. what?.. at the absolute top-end.. 80% of what they paid for it? A 20% LOSS.
Now, ok – this is all a tad contrived, because back in March I almost definitely wouldn’t have said to them “buy shares in Daimler!”. Also, of course, they could have invested that money and lost 7.6%, or even more. But then, I wouldn’t have recommended they sell an investment after 3 months anyway (except, perhaps, if they had seen a 7.6% return on it in that time..!). No, had they asked me, I probably would have just recommended they bought “some sort of investment” with it, and then left it there for a minimum of 5 years. Keep the current, perfectly serviceable motor vehicle, take up your next job, and seriously get to think about winding things down a bit in 5 years time, aged 45.
So, as I said, I almost definitely wouldn’t have recommended buying shares (regardless of the company – I just don’t do “shares”) – I just had that thought on my walk and thought it would make for an interesting point (and I think it did!). But how’s about if they’d have invested in something which I might well have recommended? What if they had just stuck that money in one or more passive investment vehicles, index trackers?
Well, let’s look at an example:Vanguard LifeStrategy 80. It’s currently up 3.2% in those 3 short months. Not quite the awesomeness of 9%, but what would you choose :
3% increase, or
Again, I must point out that the tracker could have quite easily lost value in this time too, but that’s not the point because I wouldn’t be recommending they sell for quite a while anyway. The JAL investing plan isn’t based around buying one day and selling the next. We buy an investment with a view to keeping it for at least 5-10 years.
Also, we haven’t mentioned dividends either. Those guys would have been getting a little bit of that too, a nice bit of extra income as well as the capital gain. That income, compared with the outgoings of motor vehicle ownership..
Hey ho, enough already. I hope those dudes enjoy driving those cars, ‘cos I reckon they’ll be driving them (if not even costlier replacements for them) for another 20-30 years. Driving them to some office or other. Rather them than me!