No. of Recommendations: 23
I will in two weeks start ER with a three year old Toyota 4Runner with 30k miles. When I bought this vehicle, a salesman tried to push the more expensive Land Cruiser which costs about 50% more. I realized however that the cash saved by buying the 4Runner could be invested and would indeed pay for a replacement 4Runner in 10 years or so, making it almost a two for one special.

What an interesting life span cars have I thought, long enough for significant compound investment growth yet not long enough to last a lifetime (like a piece of art). If they lasted only 2 or 3 years any savings would not grow much and if they lasted indefinitely you could spend any amount on your dream car and enjoy it for a lifetime.

Walking though the parking lot at work the other day I encountered yet another new Porsche 911 with a temporary dealer plate in the rear window. It made me wonder if the amount of cash spent on this shiny toy could keep me in new 4Runners for life. It seemed reasonable since the cost of the Land Cruiser can provide two 4Runners 10 years apart and the 911 is about double the cost (at least).

Now ideally one could start with the 70k or so needed to buy the 911, spend half on a 4Runner and the remaining 35k could double in 7.5 years at 10% and be ready to repeat the cycle but how many years will I need to go between vehicles more realistically? So I assumed an 11% investment return, 3% car price inflation, 0.2% management expense ratio and 20% capital gains taxes and made a quick spreadsheet. The answer now is about 12 years (or 15 years if you are foolish enough to pay 1% MER).

I thought of creating a separate account for this purpose so I can establish a portfolio withdrawal that pays only for expenses that are easy to compute on a monthly basis. All other car related expenses like gas, insurance, maintenance, licensing are easy to incorporate into a monthly budget. The plan is flexible so I do not need to wait exactly 12 years, I can wait more or less, buy new or used as long as I just spend half the fund each time.
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