General

The best investment right now can actually be used cars or trucks

The best investment right now can actually be used cars or trucks

In an economy rife with inflation, the investor looks for where to place his/her investments in order to outperform the standard return on investment (ROI). As NerdWallet reported in March, the stock market has: an average return of almost 10% per year for “almost the last century”, but ironically it has fallen by an average of 10% since the publication of that article. Typically, short-term bonds are viewed as a strategy to avoid temporary inflation and allow the investor to redirect the payout back to equities after the turmoil, but as noted by GoBankingRates, “…bonds face their own challenges.” in light of high inflation and a slew of expected rate hikes by the Federal Reserve.” Creative investors are therefore turning to alternative choices, such as one of the 18,000 different crypto currency stocks that temporarily outperformed other options, but even the more stable options such as Bitcoin

BTC
or ether

ETH
eum are down 33% in the past month. Even if you put the money in a shoe box, you would lose money, because it would be worth it 8.3% less than April 2021

Interestingly, perhaps the best strategy is to buy one or three used cars. “We just got a used [SUV] with 8,000 miles on the odometer,” says Jennifer Merchant of Canton, Michigan. “Days later, we discovered the original sticker hidden in the vehicle, which was a lower price than we paid.”

Given two key elements – historical value retention and the ongoing chip shortage – the value of a used car is likely to outperform other investments in the coming year.

The historical preservation of value

The graph above shows the orange de Consumer Price Index (CPI) of FRED for all items in US cities over the past sixty years divided by the average over that time. In other words, in times of high inflation, such as the late 1970s to early 1980s, the CPI could be 250-300% of the average CPI, while during the Great Recession of 2008 it fell to -150% of the average CPI . Up and down. And the current CPI is 121% of that average CPI.

However, the blue line is the same calculation, but for only the CPI of used cars and trucks† Usually just up. No real setbacks. Used cars and trucks have historically held their value as inflation bounces around. And for this brief moment, the current CPI is 98% above the average CPI, making it nearly equal to the inflation of all goods.

Will inflation fall? plausible. The Federal Reserve raised interest rates by half a percentage point last month — the largest increase since 2000 — and this should help fight rising prices. And based on comments from Federal Reserve Chair Jerome Powell, they probably have a few such increases ahead of them in 2022. But such a drop has traditionally not resulted in a corresponding drop in used car values, leaving it is likely to outperform the market in the coming months. “Used car prices remain high due to continued consumer demand to buy and trade vehicles. In fact, wholesale price increases have continued in recent weeks for several segments such as the small and large trucks seen in our market and which have also been published by Black Book,” states ACV CEO George Chamoun. “Consumer demand has eased slightly from the unprecedented highs in 2021, but this has not resulted in a significant price drop.”

The ongoing chip shortage

As many consumers know, one of the major commercial effects of Covid has been a shortage of automotive semiconductor chips (or “microchips”), which control nearly every aspect of the modern automobile. The average reader probably doesn’t understand why supply hasn’t caught up with revised demand, but the answer is simple: Building new factories takes years and billions of dollars.

So the current backlog of chips creates a shortage of vehicles, which is not expected to decrease anytime soon. The Associated Press has reported that the US new vehicle sales fell by 12% due to the shortage at major manufacturers such as General Motors

GM
(20%), Honda (23%) and Nissan (30%) feel effects well above that. in his Crash course report 2022, CCC Intelligent Solutions reports that these production shortages are driving demand for used vehicles. “Used vehicle prices and their retention values ​​rose in 2021, and with available inventories of both new and used vehicles expected to remain tight through 2022, used prices and retention values ​​are expected to remain high through 2022.”

As reported by Newsweek in April, multiple car CEOs (e.g. Ford CEO Jim Farley, BMW CEO Oliver Zipse), “…expect the lack of chips to remain an issue in 2023.” That will create even greater pent-up demand, which will likely take much of 2023 to resolve.

Meanwhile, the value of used cars is increasing.

Author’s Note

Another possible creative investment I didn’t mention earlier was buying season tickets for a National Football League team. In a 2015 study by SeatGeek, sensible money managers could have bought season tickets (such as the Dallas Cowboys) for $3,400 per seat and sold them for more than double on the secondary market, giving them a 112% ROI in less than 12 months† “In the end, we found that for the teams that did better last year,” said SeatGeek analyst Clint Cutchins, “… [they] had better [ROI] on their season ticket.”

Unfortunately, I live in Detroit. So I buy used cars instead of football tickets.