Which is the Better Investment? The S&P 500 or Four 1976 Cadillacs with a Silver Lining?
Eileen St. Pierre, The Everyday Financial Planner
My husband Jeff recently read a news article about this woman who unearthed a surprise from her father. She found four 1976 Cadillac Eldorado convertibles in excellent condition stored in her father’s garage after he passed away. He had bought a Cadillac for each kid. In one of the car’s spare tire wheel well he stored silver bars. I guess this was his way of setting money aside for his kids’ futures. The silver was no longer there when the cars were found. The daughter was not sure what happened to it.
Jeff asked me to write a blog post about this because he felt putting the money in the stock market would have been a lot better investment over the past 40 years (Did I marry well or what?). So here are the numbers:
The Four 1976 Cadillac Eldorado Convertibles with a Silver Lining
Jeff told me that when this car came out, it was touted as the last American convertible that was going to be made (it turns out it wasn’t). Although the sticker price was around $12,000, most sold for higher than that due to a “speculator frenzy” premium. So let’s assume the man in this story bought his for $14,000 a piece or $56,000 total. To make the math easier, we’ll assume zero storage, maintenance, and insurance costs (big assumption!).
Jeff did some investigation on silver prices. He assumed the man bought 100 ounce silver bricks because they would fit best in a spare tire wheel well and that he bought two bricks per child. In 1976, the average price for silver was $4.00 per ounce. That’s $400 per brick and a total silver investment of $3,200.
The total investment is $56,000 for the cars + $3,200 for the silver = $59,200.
Since the silver was not there when the cars were found, we assumed the silver was sold when the price of silver peaked in 2012 at $31.15 per ounce for a total of $24,920. I don’t think it is a stretch to assume that this man then put his silver profits under his mattress or buried them in the backyard somewhere so no additional money was earned in interest.
Jeff says that according to Hagerty, a 1976 Cadillac Eldorado convertible in excellent original condition would sell for about $20,000 today or $80,000 for the lot of four.
Total profit = ($80,000 + $24,920) – $59,200 = $45,720 for a return of 77%.
The Alternative: Invest in the S&P 500 for 40 Years
I used data on the S&P 500 provided by New York University. The annual returns on the S&P 500 over the past 40 years ranged from -21.97% in 2002 to 37.20% in 1995. The average annual return was 12.52%.
- Interesting, the year following a steep loss, the S&P 500 bounced back with returns over 20%. The only exception was after a loss of 6.98% in 1977, the S&P 500 only returned 6.51% in 1978. But the S&P 500 continued to rise throughout the next few years, earning 31.74% in 1980.
- This goes to show you the importance of not panicking during down years and exiting the stock market.
Now for the shocking numbers – If you put $59,200 in the S&P 500 in 1976 and let the money sit there for 40 years, it would be worth $4,202,800 today. Oh, the power of compounding!
Total profit = $4,202,800 – $59,200 = $4,143,600 for a return of 7000%.
The Bottom Line
It’s human nature to want to “see” your investments. That’s why some people feel the need to invest in tangible assets such as homes, cars, artwork, and precious metals. I’m not saying these are lousy investments. If you really want to build wealth, you also need to consider financial assets. Yes, there is risk in the stock market. But there is also the risk that your money will not grow enough if you just choose tangible assets. I’d take a rollercoaster ride in the stock market over a ride in a 1976 Cadillac Eldorado convertible any day.