Sunday, March 27, 2011

Patriotic to own a Beemer

One of my classmates bought a BMW recently. I know she earns about $10,000 a month and technically speaking, she is buying a car that cost roughly twice her annual salary. There is nothing wrong to enjoy the finer things in life though it means she is also patriotic as well.

Why patriotic?

In Singapore to own a car, you will be paying a huge load of tax to the government. Take my classmate’s BMW, she has paid the following to the government:

Open Market Value (OMV)= $58,000

Thus Additional Registration Fee (ARF) will cost 100% of OMV =$ 58,000

Excise Duty: 20% OMV= $11,600

Registration Fee: $140

Certificate of Entitlement= $45,000 (few months ago)

GST: OMV x 7% (approximate) = $ 4,000

Total tax payable to government coffers: $118,740

The total cost of her car was about $210,000 then, which means the gross profit margin for the car dealer was 43.4%.

In order to own her dream car, she has to contribute in excess of $100,000 to nation building, I have respect for that.

Good thing is that she only took a 1 year loan and has only a couple of months to fully pay up her car. As for me, it will be unlikely that I will ever own a BMW, probably the furthest I would go is a Toyota Camry.

My rationale is simple. Consider a $200,000 lump sum investment to grow on a compounded basis of 10% (1.1^10), this initial sum would grow to $518k after 10 years. The opportunity cost of $318k means that she might have to work another additional 3 years to fund her retirement. Coupled with her 2 years salary to purchase the car at the onset, she potentially could have retired 5 years earlier.

Yup, 10 % PA might not seem realistic. But if one has the investment horizon and purchase some China Equity fund, we should be looking around this level of returns. China will be overtaking America as largest economy in my lifetime, according to most analysts.

Well, to each his/her own. I prefer to retire earlier and spend my days reading, writing and travelling when I am still able. As for owning a nice car, I think I will hitch a ride when I meet up with her in school instead.

Life is tough, retire early. That’s for me.


Musicwhiz said...

Yup, nothing wrong with enjoying the finer things in life. I guess this also makes a large majority of Singaporeans extremely "patriotic" as many families own a car these days! Though I must say, I only know 2-3 friends who own a Beemer, and one of them is a 2nd-hand one. Haha!

Drizzt said...

i think u have alot of friends in that category. in my case it is the junior engineers owning cars now.

makes me feel so odd one out

Soodo said...

Dear SBC
The worldwide Risk-On Trade seems to be back on.

I'm out of USA Treasuries and into the ETF "XES" as of last night. Time to jump onto a faster running horse.

Still no buy signal on the Singapore stockmarket. Sigh. My Singapore cash is burning a hole in my pocket. But Buy/Sell discipline has to be maintained at all times.


Soodo said...

Dear SBC
I will be bargain hunting in Singapore next week Monday. Decision is based upon STI's close on Friday.

Bargain hunting. This is the part where fundamental analysis come in.

I cannot & don't even try to predict the market. I am a trend follower. I let the stock market tell me where it wants to go.

Fund managers tell us that studies show;
- if we miss out the 10 best days of a market's rally, we miss the boat
- I've looked up such studies myself
- the performance is even better when we miss out the 10 worst days of a market decline (this part of the study seldom gets hi-lited)

Two quotes I've always remembered from John Maynard Keynes.

"Markets will stay irrational a lot longer than we can stay solvent"

"In the long run, we are all dead"


Sgbluechip said...

Soodo, we are on the same page. Email me at for meaningful discussions.