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>If I put that same $40,000 in an index fund that got the stock market's historical 7% average, and waited 30 years, I'd have $308,000. Are you doing the math
by pedrocr 9y ago
>If I put that same $40,000 in an index fund that got the stock market's historical 7% average, and waited 30 years, I'd have $308,000.
Are you doing the math all in present dollars? Because the return is 7% after inflation but >10% before. So you'd have >500.000 in 2047 dollars. In this case it's important to do that adjustment because you're doing an investment upfront for payoffs over 30 years so the value of money adjustment is extremely important. It should only make your case stronger though if you haven't done that yet.
- Reason077 9y agoEnergy prices, and thus savings, are certain to increase over that 30 years too. Quite likely at a rate exceeding inflation.
- kcorbitt 9y agoEnergy prices have been mostly flat relative to inflation for 40 years, and there's a reasonably good chance that they will start dropping appreciably (at least during peak daylight hours) as solar continues to make major inroads.
- matt_wulfeck 9y agoThat's true in a lot of places but not really in California, where there's a lot of customers for solar. I don't need to go into the reasons why. It's California.
- jpatokal 9y agoWhy so? California's climate is pretty optimal for solar generation and there's a lot of desert waiting to be covered in solar panels. Solar is not going to have a similar impact on (say) Ireland in the next 30 years.
- kristofferR 9y agoMore solar will likely result in higher grid energy prices, since people will buy a lot less energy while the grid costs the same to maintain.
- ZeroGravitas 9y agoSolar can also reduce grid costs, by e.g. shaving the yearly peak power demand, which is usually a summer afternoon so it's not clear cut. Probably the bigger impact is bad incentives for the people building the grid, who are often able to do what they like and get a guaranteed percentage return on top, which pushes them to spend more than they need to. This has been particularly pronounced in Australia I believe.
- crdoconnor 9y agoUsually when there is additional competition (grid owners generate and supply electricity), markets respond by dropping prices. This might also be why utility companies have been furiously lobbying against rooftop solar subsidies and Barclays have downgraded US utility bonds.
- SystemOut 9y agoSolar leases use the 2% inflation rate too as a way to make them look more attractive (as does the solar roof calculator) but in reality electricity hasn't been getting more expensive at that rate.
- Spooky23 9y agoPeople made similar pronouncements about gasoline a decade ago. $4/g gas is a distant memory.
- gumby 9y agoNot clear on the historic evidence, and especially not clear when you consider people swapping cap ex for op ex.
- awkwardtortoise 9y agoIncreasing renewable energy sources and an abundance of fossil fuels is going to increase energy prices at a rate higher than inflation? I don't think so.
- MrQuincle 9y agoThe case can be made even stronger if the consumer's efficiency gap is taken into account. For example from "Market failures and barriers as a basis for clean energy policies by Marilyn A. Brown" we read: "Meier and Whittier (1983) studied a case in which consumers were given a choice in stores throughout the United States of two refrigerators that were identical in all respects except two: energy efficiency and price. The energy-efficient model (which saved 410 kilowatt hours per year, more than 25% of energy usage) cost $60 more than the standard model. The energy-efficient model was highly cost-effective in almost all locations of the country. In most regions, it provided an annual return on investment of about 50%. In spite of these favorable economics, which were easily observed by the purchaser, more than half of all purchasers chose the inefficient model. The higher purchase price of the efficient model was presumably the principal barrier to its purchase." An annual ROI of 50% is left on the table because people have to pay something upfront for benefits later! Tesla's pricing strategy here is quite blunt. They hope people don't care about the costs, only the looks and the sustainability. Disclaimer: I don't know how sustainable the manufacturing process of this solution is.
- Shivetya 9y agolooks and clique value. never underestimate pretentiousness. you can use this to get people to do good things
- conorcleary 9y agoI would assume (hopefully) that the following is true: my guess is that Tesla is currently executing a similar plan to produce solar products in the same format they produced the cars - expensive, high end up front. Roll your moderate price, high end products with the income, rinse and repeat. I think if this is the case, they certainly don't want to hint at it incase they lose consumers who will sit back and wait for the cheaper option they ironically wouldn't arrive.
- ianai 9y agoA 7% yield is an overly optimistic number.
- pfarnsworth 9y agoYou're not deducting income tax on the dividends.
- ceejayoz 9y agoOr they're putting it in a tax-advantaged account.
- MagnumOpus 9y agoIf you expect either 7% real returns or 10% nominal returns from the stock markets over the next few decades, you're gonna have a bad time - mostly because real interest rates in the 21st century are much lower than in the second half of the 20th. Current expert thinking is that there is a 4% equity risk premium over cash interest rates. Current cash rates are 1% nominal or -1% real. If you are an optimist like the Fed, cash rates will rise to 3% over the long term - which gets you to 7% nominal/5% real at best.
- pedrocr 9y agoI wasn't making a prediction on future returns just commenting on the historical returns used. For this case 5-7% should be more than enough as a comparison to the Tesla investment anyway. I'm curious about those risk premium estimates though. Any pointers or sources on where to read more about them?