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Finance | Appreciation and Depreciation


Vauxhall Vectra

Depreciation

I bought my car in 2004 and so it’s lasted 8 years without any trouble. That is 12.5% depreciation a year and I expect it to last at least another 2 years so I can get depreciation down to 10% a year. It’s not as fashionable as a new car straight out of the showroom; but cost a lot less. A wealthy American on television advised people to own more appreciating assets than depreciating assets like cars; that was good advice.

If your assets, everything you own are depreciating more than appreciating then you are simply getting poorer by the minute. Many people had their homes as appreciating assets to cover all the contents of their homes and of course their cars that were depreciating. Even houses are losing value in many parts of the UK now and so maybe it’s time to buy other appreciating assets like bonds or shares.

Have you ever been around a market when it was about to close and the sellers were knocking down prices trying to offload stock before the weekend? The same appears to happening in the stock markets as sellers outnumber buyers and his could be a good time to pick up bargains. I bought Premier Foods last year and that was a risky investment but so far it’s doing well.  I bought at 4p and today they are at 9.67p; more than double. You do pay to learn on the stock market though and can expect to pick a few they will go down! I also wrote about buying Lloyds Banking Group last year and they aren’t doing quite so well but up now to 32.31p. I bought at just under 30p and expect that one to go up if they even sort out the Eurozone crisis. It is a gamble, but life is a gamble.

Smile with tongue out

When you’re working out appreciation or depreciation you do need to take into account inflation. My car has depreciated but more so because the value of money is now less than it was 7 years ago. It would cost me around 50% more now to replace my car as a result. The same applies to appreciating assets, if an investment appreciates by 10% over 2 years that may appear good; but does it even cover inflation? Many savings accounts actually pay less than inflation and so in real terms, you lose money. Then to add insult to injury, they tax you on it!

Some depreciating assets can be an investment. If you have lost your job and your neighbourhood doesn’t have a handyman that can fix a picture or kitchen clock on the wall; then an electric drill with a good bit can be a good asset to have. It can make you money. The same applies to any ‘tools of the trade’ even a van. 

Education although it usually costs you money in fees and lost earnings is often a investment too. The return on that investment often goes up with inflation too; it’s not tax free though.

Finally, you might like to make a list of the values of all your depreciating assets like your car and household items and compare them with appreciating assets like your house and investments. Will you be richer or poorer at the end of 2012?

There are more amazing blogs on my Home Page. I mentioned cooking rice in yesterday’s blog, I now have some information that might help!

Smile

 

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10 responses

  1. First time I’m here! Love your blog, looks very nice and you have some really beautiful photos! And I noticed you’re like me: you don’t really write in a “niche” to show off that you’re the expert in it. No, you write about all sorts of things that interest you and that you think, since you’re an intelligent articulate individual , that you have something interesting to say about it. And you do, congrats!

    In case you’re interested I came to you from LinkedIn (the discussion on what are the ways for aspiring writers to get noticed online).

    Regarding this particular financial post, I think much of what you say is spot on. As to the Euro crisis – well, it’s not really a crisis, is it, considering it’s been going on for nearly three years! There’s a Euro Summit scheduled for 30 January and you want to watch it and see how Merkel, the German Chancellor, fares. So far, she’s caused much of the problem (if she had moved fast when the Greek debt scandal exploded, we wouldn’t be here now talking about a possible Euro collapse!) Hopefully she’ll agree to strengthen the two funds that are supposed to function as a firewall, ie to stop the spread of default from Greece to the rest of the Euro-zone (I’m speaking of the EFSF and the Financial Stability Mechanism). I’ve often blogged about the Euro … inter alia, because I do blog about lots of other things too, just like you and now and then take photos…Do drop by for a visit!

    27, January 2012 at 10:06 am

    • Hi Claude,

      The Eurozone problem is complex, the more dithering there is, the higher the interest rates on bonds that the poorer countries have to pay. The rates that have been negotiated are still higher than what the UK are paying or Germany. The rates in Germany are around what inflation is though, the uK rates are far less than inflation as banks swim with money and have no where to put it! I the EFSF is a temporary solution as is intervention by the IMF but in the long term a Financial transactions tax seems likely. We shall have to see, but we have seen recessions come and go and they will print money and get out of this one! In the UK it is a combination of quantitative easing and austerity. Neither appears to be an ideal solution.

      27, January 2012 at 10:43 am

      • You’re right! Quantitative easing and austerity don’t go together…no doubt why the UK’s economy’s in trouble! Tell that to Osborne…

        27, January 2012 at 10:45 am

  2. Welcome back Claude,

    It seems we have more austerity to come and it’s the fact things keep changing that is making things difficult. Gradual change was needed and I think they are running out of options. Economists can’t agree now but constantly devaluing the currency doesn’t seem to be the answer. We need genuine efficiency in the public sector rather than austerity.

    27, January 2012 at 11:08 am

    • Genuine efficiency? Totally agree with you – but hard t get!

      28, January 2012 at 5:13 pm

      • In the UK we pay millions to consultants to show us how to use computers. I think IBM got 160 millions for their views on a new system for the NHS. I could have solved the problem for a little less than that. My brother actually worked for them on a computers once; they privatised it. He ended up CEO of his own company and did quite well. My experience of working for the government is the people who get the top jobs rarely know what they’re doing!

        28, January 2012 at 7:56 pm

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