Dear Tom and Ray:
I was looking at the prices of vintage cars today, and a question came to mind. If a person were to invest $75,000 in three new cars today and store them (hermetically sealed) for 40 years, would that be a good investment, as opposed to an interest-bearing savings account? Use whatever rules you like, such as interest rates, inflation rates, etc. I was thinking of something that might have classic appeal, like the Mini Cooper S or a New Beetle, or something that collectors might want in 40 years. What do you think? -- Tisa
TOM: Great question, Tisa. It's hard to predict the future, even for a modern-day Nostradamus like me!
RAY: I think he means NostraDUMmus.
TOM: The best thing to do is look to the past as a guide. So, let's try to see what would have happened had you done this 40 years ago.
RAY: Let's say you had the good sense to know, in 1963, which cars would become "classics." So, in 1963, you bought a Chevy Corvette coupe, with the split rear window that everybody likes. The list price back then was $4,257. By the time you got the floor mats and paid the taxes, let's call it an even $5,000.
TOM: If you look them up today, you'll find that '63 Corvette coupes in excellent condition sell in the mid-to-high $20,000s. Let's say $27,500. Since we know yours would have been hermetically sealed, let's say yours would be the finest one on the market, and you'd get $35,000 for it. That would be seven times your original investment. Not bad.
RAY: If you had put that $5,000 in an interest-bearing savings account in 1963, and the interest rate over 40 years had averaged 3 percent, you'd only have about $15,000 in the bank.
TOM: And the free toaster. Don't forget the toaster.
RAY: But let's say you made a slightly better investment with the money. Let's say you put it in the stock market. The Dow Jones Industrial Average was in the 500 to 1,000 range back then. Let's call it 750. If you put your $5,000 in an index fund in 1963, today you'd have something north of $60,000, or more than 12 times your investment. And since my detailed analysis concludes that 12 is better than 7, the stock market beats the car.
TOM: And that's assuming -- in terms of the Corvette -- that there were no costs of storing it or insuring it. And that your 16-year-old son didn't steal it one day and drive it into the reservoir.
RAY: Now, I'm sure there are collectors who can point to specific cars during specific years that grew tremendously in value. But that's rare, and it's impossible to predict.
TOM: For instance, my brother was certain that his 1987 Dodge Colt Vista was destined to become a classic.
RAY: So imagine my surprise when I tried to find its value and learned that it was 100 bucks. That's what I'd have to PAY to have it towed away.
TOM: So, our advice is: Don't buy a car as an investment. Buy a car to drive. That way, you'll limit your disappointment to only one area!