The Tesla Model S! It’s EVERYWHERE… and the coolest toy in Silicon Valley today. The hype has spread, and you will now find one on the road literally everyday. I still remember just last year when I first saw one pull into my company’s parking lot. At the time, it was esoteric and unknown. Each day, more and more people would gather around to check it out. When I saw all this buzz, I knew it was only a matter of time before a revolution would arrive.
It Has Arrived
Fast forward one year later, and Tesla has taken the automotive world by storm. The stock is sitting at an all time high, demand is rapidly growing (just wait until China catches on), and the prospects for the company have never been brighter. Couple that with the influx of wealth pouring into the Valley, and this car has become the ultimate status symbol.
If you ever visit Santana Row, you’ll see these cars lined up, side-by-side in the parking garage. Those charging stations used to be mostly unoccupied, but now I’m betting you’d be hard pressed to find an open spot at any time of day. I really can’t even drive to lunch and back without spotting a few…
What It Means
What does all of this mean to me? Well, since the car starts at about $100,000 (premium model, and after all taxes/fees), it sure isn’t cheap! There’s a ton of wealth floating around the Bay these days, and times are good again. I can’t speak for the rest of the country, but the local economy around here has never been better. You can feel it in the atmosphere, easily. It’s almost impossible to go into ANY restaurant during lunch hour without having to fight through crowds and having to wait in long lines.
And all of this has me nervous! Petrified even. When the economy is doing well and others are greedy, I am at my most fearful. As investors, we are all taught this golden rule. I still remember when I started buying stocks and property in 2012… Most people, in my everyday life, just wanted absolutely nothing to do with investing. Everyone was jaded and still recovering from the burns of 2008-2009. Now everyone just wants to buy stocks… Any stock. Because after all, prices are just gonna keep going up, right?
For investors, times were good back then. We could load up on assets and not worry about overpaying. Stock valuations weren’t ridiculous and bidding wars for properties were just getting started up again.
My how times change…
Even if I had $100,000 to “drop it like it’s hot”, I still wouldn’t. No way, no how. I don’t believe in lifestyle inflation (for sure not before I reach early FI), and just because times are good, I don’t think it gives you an excuse to be reckless with your spending.
Just watch… All these folks who are “making it rain” today, will be the same ones moaning about how screwed up everything is when the party stops and unemployment runs rampant again.
The thing is, when times are good, you need to be even more cautious with your money. You shouldn’t be out spending all your bonuses, options, RSUs, ESPP, and other windfalls… even on a toy as spectacular as a Model S.
I love Tesla… Or T$LA, as it is most commonly referred to these days. I even loaded up on shares last year and made enough to fund a downpayment on a property. I want the company to succeed long-term.
I just wouldn’t buy one. Not when it’s priced at $100,000 a pop. And definitely not when I know that I can easily invest that money elsewhere, and make financial freedom a more realistic possibility. Let’s say you can locate an investment that will earn you 12% return on your money. That’s $12,000/year, or $1000/month in passive income. For myself, that would be 2/3 of my original passive income target needed to declare early FI!
Yikes! That’s insane… If all of these rich people invested in assets instead of flash, they could probably retire tomorrow! Or at the very least, the day after tomorrow.
But times are fun again. And people just wanna celebrate good times… I personally would rather use that $100,000 in ammo and lock down 4 houses in the Midwest. At $100,000 each, that’s $25,000 for each downpayment.
There you go. 4 houses and $1000/month in cash flow? Or would you rather be the coolest kid on the block?