Someone raised this in a different thread, and I think its an interesting question.
A 30 year old buys a $5000 bike and recoups none of it.
What is his opportunity cost for that bike over the next 35 years, assuming that S&P500 mutual funds keep gaining at 10% or so?
Someone raised this in a different thread, and I think its an interesting question.
A 30 year old buys a $5000 bike and recoups none of it.
What is his opportunity cost for that bike over the next 35 years, assuming that S&P500 mutual funds keep gaining at 10% or so?
$140,512.18
The feeling of being on your dream bike = PRICELESS
I should know this, but it’s been years since I’ve taken an economics course: What is the formula again?
I have no idea! I cheated… http://www.moneychimp.com/calculator/compound_interest_calculator.htm
The things you can find on the internet…
don’t forget the impact of taxes.
regardless, you could make the same argument for any luxury purchase. (I’m assuming your implied question is whether or not the $5000 bike is worth the investment). The real question is how much utility/enjoyment you get out of the $5000 bike.
It’s a good thing I’m only 24. There’s still hope for me!
Future Value = Present Value x (1 + Interest Rate) to the power of # years
(if interest is compound)
.
The real question is how much utility/enjoyment you get out of the $5000 bike.
Sure, but all evaluation is relative.
The opportunity cost of a lightly used Cervelo Dual purchased for $1000 under the same conditions has an opportunity cost of $28,102.44.
So the question becomes whether a new P3 is worth $112,409.74 more than the used Dual to the rider in the long run.
If it is, go for it.
Future Value = Present Value x (1 + Interest Rate) to the power of # years
(if interest is compound)
Thanks - makes sense now that I see it.
Sure, but all evaluation is relative.
that’s exactly my point…
Sure, but all evaluation is relative.
that’s exactly my point…
I thought so. Absolutely everyone is entitled to their own preferences.
I didn’t start this thread for a fight, I was just asking a question.
I was thinking about this not long ago. If I had every dollar I have spent on triathlon-related expenditures for the last 23 years…equipment of all types, travel, race fees, etc., well, it would be a **VERY **substantial chunk of cash.
When I do a unit on economics for my middle school students I have actually brought in my racing bike, with the HED 3’s and assorted bling, to illustrate the concept of opportunity cost to them.
Having said all that, I feel that the money (for the most part) has been well-spent as it has led to a very positive life-style and a wealth of personal experiences.
I thought that we all worked so that we could spend money on silly things like bikes, trips, etc?
Present and future value calculations are interesting. My wife’s dad is 90 and she’s now looking after his affairs. He’s been putting $78 a year into an insurance policy since 1944. It’s now worth $60,000. The insurance agent was telling my wife how great the return is, etc. My wife wondered how it related to bank interest. I calculate it as about 6.7%. Not bad (better than bank interest, particularly because it hasn’t been taxed), but not fabulous, either. Understanding something about compound interest can be useful since that’s the reason these numbers can become so large.
Only you can decide whether it’s better to consume now or hang onto it for retirement. I evaluated my position a few years ago and decided that retirement was fully funded and that I could spend whatever I made, except the investment income. It was truly liberating. However, it’s getting hard to get around the house and the garage with the 21 bikes we now own. If I’m going to find room for next year’s bike, I have to convince one of the kids to move out and take his bikes with him.
The real question is how much utility/enjoyment you get out of the $5000 bike.
Sure, but all evaluation is relative.
The opportunity cost of a lightly used Cervelo Dual purchased for $1000 under the same conditions has an opportunity cost of $28,102.44.
So the question becomes whether a new P3 is worth $112,409.74 more than the used Dual to the rider in the long run.
If it is, go for it.
Your $112,409.74 number does not appear to account for inflation. That figure is in future dollars, whereas the number would be much lower in today’s dollars. Also, if the guy claims to be a pro, then his purchase is tax deductible, or maybe you would depreciate it. I’m not sure, but I’ll be doing this in a few weeks for the first time with my accountant.
It’s this line of thought that has made me regret trading my well used and paid for vehicles, but still very serviceable, for two much nicer but much more expensive vehicles.
I have vowed never again.
But I’ll still not hesitate to get a new bike if I ever tire of my P2K.
That is assuming that you sit on your coach instead. However in the real world you have many other options. Instead you get into fishing and buy a boat, rods, reels, bait, beer, gas… Or you get into golf buy clubs, lessons, fees, membership at club. Or maybe hunting buy guns, ammo, leases, trophys…Even better you get into partying - bar tabs, missed days of work, wrecked cars, dui defense costs, liver transplant!
All in all in comparison to other leisure activities our sport is reasonably priced.
However, it’s getting hard to get around the house and the garage with the 21 bikes we now own. If I’m going to find room for next year’s bike, I have to convince one of the kids to move out and take his bikes with him.
Since your oldest is 13, I think it's a little cold to ask him to move out...
ps. disclaimer: the facts as presented in the preceeding statement have not been evaluated for truthfulness
That’s not even the worst of it…
Ran a hypothetical at work, looks bleak. (yes I was bored)
Let’s say you started with 5k worth of tri stuff. Then budgeted $100 for shoes every 3 months, and about $25 a month on bike related things (tubes, shorts whatever.) Then, let’s say you took 10 of the hours you train a week, and instead worked overtime. I used a figure of $30 an hour at time and a half, hopefully a fair number. For you salary folks it won’t be exact, but there would/should be some pay advantage/promotions for working extra that would/should kind of equate.
I am 23 and would like to tri another 30 years until I am about 53.
Assuming I would keep riding that same bike, or really budget the $25 a month bike money into a new bike every once and a while… (doubt it) and adjust for an assumed 4% inflation…Guess what the end result is.
9.2 million dollars over the 30 years!!!
This is with a return of 14.7%. The return of one of our conservative growth funds over a hypothetical 30 year time period.
I almost wish I wouldn’t have calculated that…
14.7%?!?
That’s a little high for a conservative estimate, don’t you think?