The Wonder of Tech is pleased to welcome James Taylor as a guest author. James explains how people, even fans of tech, may do better financially if they don’t get the latest and greatest tech. His article shows how money spent on tech could have grown if invested in stock, instead of used to purchase a device that loses value quickly.
As autumn is a season traditionally filled with new tech products, we may be tempted to replace devices that are working fine for us with the latest models. But is the latest really the greatest? This article may make you think twice before you spend money on replacing tech products that are working well for you.
Disclaimer: the information provided in this article is intended to illustrate how investments could have grown in the past and is not advice on investing in the future. The Wonder of Tech is about tech advice, not investment advice.
The next time you’re tempted to buy the latest phone, tablet, computer or other tech product, you may want to stop and think about whether the money you’re spending is being used wisely. Tech products usually depreciate over time, leaving you with outdated and obsolete gadgets that aren’t worth anywhere near what you paid for them.
While some tech becomes classic, such as an original Mac computer, most tech products lose value and functionality as soon as they’re upgraded by a new model. What was once bright, shiny and exciting, soon becomes dull and boring.
For example, the first iPhone was sold 10 years ago. How many people do you know who are still using a 10-year old phone? How about a 7-year old phone? But how many people you know have the latest model phone?
But what if, instead of buying new tech, you had invested that money? What if you invested in the company making tech, instead of buying the tech product itself?
Apple’s stock price has seen incredible growth, helped by the release of the product that revolutionized the music industry: the iPod, which was first sold in 2001. Since then, many of us have purchased at least one of Apple’s many products, such as iPods, iPhones or Mac computers.
At my company we decided to investigate how much money people could have made by forgoing these purchases and purchasing Apple stock (AAPL), instead of Apple products.
The graphic below shows how much money could have been made from investing the original cost of the early generation iPods into shares of Apple stock, at the time of launch of the iPods. We were stunned at the results of our investigation!
(RRP => Recommended Retail Price)
The numbers show that investing $499, the original US launch price of the 1st generation iPod in 2001, would have bought shares of Apple stock now worth $57,458, at today’s stock price, adjusting for splits. Not bad for a relatively small investment!
Since this data has been collected and this article written, Apple’s stock price has actually risen from $149.69 to $157.50. This means that the amount that could have been made would have risen to $60,456 even in this very short period. (Editor’s note: Apple’s closing stock price the day before publication of this article was $163.35.)
The greatest increase we saw in our investigation, however, would have come from investing the cost of the 3rd generation iPod in 2003, and buying shares of Apple stock then, due to a slight dip in the stock price at the time of launch, to just under $1 per share.
Realistically, most of us would be unlikely to make this trade-off of stock investments instead of tech products for every tech purchase. We have become accustomed to using phones, tablets and computers and these devices do need to be replaced eventually.
It’s even less likely that someone purchased every one of the first five generations of the iPod. However, if someone had used this as a method for picking a stock to invest in, they could now have a total of $213,812 of stock from an investment of $2,295.
In this the period of time of 16 years from 2001, an investor could have turned $2295 into $213,812, and we see that this unique way of looking at the products we buy could have been very profitable.
Could This Investment Theory Work for Other Companies?
Now, it’s very easy to sit here now and look at stock prices that have already risen and state ‘you should have invested in XYZ’ What’s more difficult is predicting these trends in the first place.
So is this trend unique to Apple or could it apply to other companies?
We decided to look outside of the tech industry and chose to compare McDonalds stock (MCD), which has also seen a significant increase in share price in a similar period of time. Since 2003, that stock price has increased from $12.82 to today’s price of $159.64 (at time of writing).
Our company found that, if an investor were to consistently purchase McDonalds stock at the same rate as the average customer purchases a Big Mac in the UK, an investor would yield $5454 from a total investment of $1562, minus any trading fees.
While this gain is not to be sniffed at, in comparison to the Apple scenario a similar investment in McDonald’s stock would have resulted in a relatively small gain.
There are two main reasons for this discrepancy, despite the similar increase in stock value. First, the stock price for McDonald’s was higher than Apple stock at the time of the launch of the iPod.
Also importantly, the buying power of forgoing an iPod is much greater than the buying power of forgoing Big Mac, as an iPod is much more expensive than a Big Mac. Yet, even when the frequency of fast food purchases is taken into account, the Apple strategy would have been more profitable.
This led us to believe that, if you were looking to invest similarly in the future, tech may be one of the best markets to buy shares instead of products.
Of course, this is more of a light-hearted way to look at the value of the products we buy, rather than a serious investment strategy. However, it might be worth taking a look at your next big tech purchase and wondering ‘what if?’ Investing wisely might just be the ticket to buy the tech you want in the future.
Have you ever considered investing in shares of tech companies instead of buying tech products? Can you think of a different industry where this investment approach makes sense? Will this article make you think twice before buying the “latest and greatest” gadget?
Share your thoughts in the Comments section below!
*iPhone image courtesy of Scott Swigart via Flickr and Creative Commons
James Taylor is an executive at UK currency and travel money comparison site comparecurrency.com. He enjoys investigating currency anomalies worldwide, as well as other interesting money-related data.
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