… so far from God, so close to the United States, went the comment attributed to one of their presidents. Mexico was very close to us, when I was growing up in suburban Los Angeles in the 1960s and early 70s. My elementary school had us study Mexican history in the 6th grade if I remember correctly, that was part of the unified school district curriculum. We did a field trip to Olvera St., in the old part of downtown, at least three of the old Spanish missions were within a short drive from our various homes, and we weren’t allowed to forget that Los Angeles itself had Spanish origins and Mexican governance for decades before American statehood. For Southern California, Mexico was just a hop, skip, and a jump away just as it is for South Texas.
Personal Finance
Autos and Disruption
Prior to moving to the West Coast, I had little need for a car because I walked and / or took public transport to work (or a cab if I was lazy, back in the days when you could hail a cab on the street). Thus I typically invested the minimum amount I could in a reliable car that could fit 4 passengers with a full size trunk and also squeeze into a narrow parking garage.
The cars that “fit the bill” for me were the older model Nissan Altima which I drove for a decade and then a Jetta which I picked up in 2011. Each of these cars cost about $17,000 “out the door” and contained a reasonable level of equipment (the Altima was my first car with air bags, the Jetta was my first car with ABS and traction control) – they weren’t completely stripped down models with manual transmission, for instance. These cars have both turned out to be highly reliable autos – and the old Nissan Altima is still driving today, almost 20 years later, as a starter car in my extended family.
The average age of a car on the road today is 11.5 years (nowadays you don’t even have to “link” to sources – Google just brings in the data from Wikipedia as a search response when you ask a common question) and that seems long to me. For every new car on the road, for instance, there is a late ’90s model still driving to offset it in order to get back to an average of 11.5 years.
My theory today is that the total package of “functionality” or “value” that you could obtain from a new Jetta for $17,000 would be comparable to autos that cost far more for 99% of the scenarios in which you would plausibly use that auto. These scenarios include 1) commuting to work 2) running errands around town 3) going on a trip and putting luggage in the trunk.
That’s not to say that there aren’t scenarios where it doesn’t make sense to have a more powerful or capable auto. In Oregon we went to visit a friend who lives up in the hills and I had 4 people in the car and gravel had been newly laid on an uphill slope (which, as it turns out, means that it is very slippery). As a result our car couldn’t make it up the hill and we slid sideways into a ditch and had to have a friend hook up a rope and give us a pull from their big pickup truck to get us back on the road. If I lived up there, for instance, then this car would be completely inappropriate. But that isn’t a common “use case” for my auto.
When you look at the “true cost” of owning an auto, there are a lot of factors to consider, and whole web sites to calculate it in various ways. Instead, I am going to make the general statement that if you buy a new car at around the $17,000 price point and drive it for perhaps 7-8 years before selling it you are probably going to pay about $150 / month for that car (net of what you receive on resale).
On Investing
Investing has changed significantly during the 25 or so years that I have been following both the market and also the tools available for an investor to participate within the market. The following trends are key:
- The cost of trading and investing has declined significantly. Trades used to cost more than $25 and now are essentially free in many cases. Mutual funds used to have “loads” of 5% or more standard when you made an investment, meaning that $100 invested only went to work for you as $95. These sorts of up-front costs have almost totally been eliminated
- ETFs have (mostly) replaced mutual funds. ETFs “trade like stocks”, meaning that you can buy and sell anytime (mutual funds traded once a day, after being priced with that day’s activity) and they don’t have income tax gains and losses unless you actually make a trade (mutual funds often had gains due to changes in the portfolio that you had to pay taxes on even if you were just holding the fund)
- CDs and Government Debt are all electronic. You used to have to go to a bank for various governmental bond products or to buy a CD. Now you not only can buy all of this online, you can choose from myriad banks instantly rather than settle for whatever your main bank (Chase, Wells Fargo, etc…) offers up to you
- Interest Rates are Near Zero. One of the key concepts in investing is “compound interest”, where interest is re-invested and even small, continuous investments held for a long time can end up amounting to large sums (in nominal terms, because inflation often eats away at “real” returns). However, with interest rates basically near zero, you need to earn dividend income or take on more risk (i.e. “junk bonds”) in order to receive any sort of interest income. There is no “safe” way to earn income any more
ChicagoBoyz Waiting Room Series
Diagnosis: rhinitis medicamentosa.