Finance | Appreciation and 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.
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!