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Is a Car a Good Investment?

Essay by   •  November 26, 2018  •  Essay  •  574 Words (3 Pages)  •  166 Views

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Analytical Essay – Is a car a good investment?

An investment is defined as anything that requires a financial investment, with the probability of creating a larger return. Investing in stocks, or real-estate allows you to create a financial investment, and watch your money grow over time. Vehicles are not a good investment because their value has an extremely low probability of appreciating. Vehicles are classified as depreciating assets, as on average a car loses 15 to 25 percent of its value in the first year. Cars and all mechanical machines tend to break down and require repairs. These repairs cost money and the investor will put more money maintaining the depreciating asset. Vehicles nowadays are extremely expensive and require a loan to purchase. Going into debt to purchase an asset is not a good investment strategy.

        A depreciating asset is known as something that can be liquidated into cash, however the asset will never supersede its original value. As per Miriam Caldwell, in the first year of ownership cars depreciate in average $2,5000. A car will almost never appreciate, which makes it a very bad investment. Cars depreciate based on time since purchase, and usage. Miriam also states how over the first five years of ownership a new car will depreciate in between $6,000.00 and $10,000.00, and this money cannot be retrieved.

        If an investment is created with a low probability of making a return, it is classified as a bad investment. Cars not only depreciate, they require constant investments of capital for maintenance. This regular maintenance ranges from oil changes to part repairs. According to DesRosiers Automotive Consultants by year five of ownership of a car, maintenance costs an average of $800 annually. Maintaining a vehicle doesn’t increase the value, but simply the longevity. Any investment without a return is not a good one. Besides maintenance to legally operate a car you must acquire and annually pay for car insurance. Depending on the plan, and geographical location car insurance can cost on average between $100 - $300. Often to afford a car and its various supplementary finances external finances are needed.

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