Slide 11 of 17
Since we’re aiming high, let’s buy a Ferrari.
A new Ferrari California has 553 horsepower and has a published top speed of 196 miles per hour. It costs about $200,000. But that’s not the entire story. If we estimate taxes, insurance, and maintenance at a hypothetical 20% of the purchase price, keeping that Ferrari on the road may cost another $40,000 a year.
A new Porsche 911 Carrera S only has 400 horsepower and has a published top speed of 188 miles per hour. The Porsche costs $100,000. Using the same hypothetical 20% figure as before, the Porsche may cost $20,000 a year in taxes, insurance, and maintenance.
Say we were to invest the difference in the purchase price—$100,000—in an investment with a hypothetical 6% average annual rate of return. In addition, we invested the $20,000 in maintenance saved each year in the same account. After five years, the hypothetical account would be expected to grow to nearly $250,000.
Luxury items—such as the sports car of which you’ve always dreamed—may be an important part of your lifestyle. As in any other financial decision, however, that luxury sports car or sailboat has an opportunity cost: what the money may have earned elsewhere.
The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. Actual investment results will vary. This does not represent any specific product and/or service.