Starbucks People

[VincentVega]

Non-fancy Starbucks coffee is only a tad more expensive than Tim Hortons and roughly same price as Timothys. For people who enjoy the taste of coffee, I think Starbucks is one of the top-tasting coffees around. Now if you put 5 packs of sugar and half a cup of cream in your coffee, then you're not really a coffee drinker. Most of the fancy coffees at Starbucks are not really coffees (some exceptions). They are super-sweat caffeinated beverages.

And yeah, people who don't make their own coffee at home are paying through their teeth for the convenience of having someone else make it for them. Just like any other convenience we pay for.

[forumname]

The last part of this quote is kind of interesting. During the Great Depression, women would buy lipstick even though they couldn't afford it (lipstick sales actually increased during the depression). Women felt like just putting makeup on in the morning allowed them a small bit of time to just enjoy a small thing in life when everything else was looking dreary. It gave them happiness, and that was worth it for them even though they couldn't afford it. Instead of being able to buy big purchases, they bought little small things that give them happiness. It's called the lipstick effect.

You know the $5 cupcake you buy at a store? During the recession a couple of years ago, cupcake sales were up. Same reasoning as the lipstick. Even though people couldn't afford it, it gave them a reprieve, so to speak.

I wonder if the $5 coffee is much the same way. You even say that you don't have that money to spend on coffee, but she does it anyway. Maybe it's simply a small thing in life that she feels like she can splurge on to make her happy.

This makes a lot of sense, but in my eyes the problem with it comes down to the fact that people think they have to spend money to be happy. Little treats can come in other forms, can't they?

I understand it, and like most people I have experienced the shoppers high in the past, but if you can recognize that it does more harm than good, you can start trying to find happiness in ways other than buying it in small fleeting chunks.

We've been conditioned to think that happiness is something you buy, and it just isn't true. The happiness bought with $5 usually disappears very quickly and leaves you worse off than you were before.

[blayze]

I think the real issue is that the majority of people have been duped into a false understanding of what they can afford, and what they deserve.

I have more money in the bank than the average person (doesn't take much and I am faaaaaaarrrr from wealthy), but I recognize that I can't "afford" a $4 coffee. It just doesn't give a good return on investment. For that matter, I can't "afford" a $1.80 coffee either.

We're told that we deserve those small luxuries and conveniences, but it really does hurt a lot of people in the long run.

A $4 coffee every day amounts to $25,525.38 over 10 years (assuming you could get a 10% return on that money if used elsewhere).

Over 20 years, that number becomes $91,731.64

If you can "afford" that, then by all means have your daily $4 coffee. If you could benefit from an extra $90,000 in 20 years, you may want to consider being a bit less lazy and coming up with a cheaper alternative.

Convenience is very expensive, and those selling it are very good at convincing us of the opposite. It's only a few bucks they say! You can find the change in your couch cushions!

So many things wrong with this logic...

By the way, if you can consistently generate 10% over 20 years, please let me know where I sign up. Good to know we have one of the greatest investors of our era lurking these forums.

[forumname]

So many things wrong with this logic...

Care to explain?

[VincentVega]

Care to explain?

He did allude to the problem with assuming you can generate such high return on investments over such a long period. Not even the best in the business can do it.

[forumname]

Blaze, the average yearly stock market return is something like 11.1% since 1932. Of course there is no guarantee that trends will continue, but you're right - it could be less than 10%. It could also be more.

- - - Updated - - -

He did allude to the problem with assuming you can generate such high return on investments over such a long period. Not even the best in the business can do it.

He added that after.

[STLblues]

10 % a year for 20 years straight? If you have any kind of proven track record with that performance please tell me you work in finance and pm me for sure. I unfortunately pay too much for less performance than that by a wide margin.

[forumname]

10 % a year for 20 years straight? If you have any kind of proven track record with that performance please tell me you work in finance and pm me for sure. I unfortunately pay too much for less performance than that by a wide margin.

Guys, you won't make 10% every year. Some years you will make 30%, and some you will lose 40%. Historical long term return is very good, and even though people are scared of the future, most still predict reasonable long term returns moving forward.

I do have a track record. It's called the S&P 500, among others.

If it makes you guys feel better, you can re-run the numbers at a more conservative 7%, but it doesn't change the message.

[STLblues]

I know how the market works, It just peaked my interest if you were able to average that over the last twenty years. No biggy but you had me interested there for a while.

[The Comish]

Guys, you won't make 10% every year. Some years you will make 30%, and some you will lose 40%. Historical long term return is very good, and even though people are scared of the future, most still predict reasonable long term returns moving forward.

Your point is still valid forumname, regardless of the rate of annual return, if you choose to forego the expensive coffee and invest, you will nearly always end up with a tidy sum of money years down the line. The key is trying to balance living your life for the now (enjoying things) and saving/investing for the future (delayed gratification). Most people choose the former. I tend to be in the latter group, but not to the extreme - I buy what I want, but never carry a balance on my credit cards or line of credit. I have an eye to the future and need to rationalize bigger purchases (car, furniture, electronics) before I pull the trigger. To each his own though. You could get run over by a bus tomorrow, so live it up, but if you are lucky (unlucky?) to live a long life, you better hope that you have enough money to provide for the basics when you have little to no money coming in.

[forumname]

I know how the market works, It just peaked my interest if you were able to average that over the last twenty years. No biggy but you had me interested there for a while.

The reason most investors don't get those returns is that they try to actively beat the market - something that is very hard to do in the long term.

People are also often scared of losing money or getting poor returns, but those are generally short term concerns. I can't find the source on this, but I'm pretty sure the TSX has never gone down over ANY 10 year period since its inception. The longer your investment window is, the MORE certain you can be of getting a good return, not the opposite. I would bet on a 10% return over the next 20 years before I would bet on a 10% return in any single year.

[STLblues]

Your point is still valid forumname, regardless of the rate of annual return, if you choose to forego the expensive coffee and invest, you will nearly always end up with a tidy sum of money years down the line. The key is trying to balance living your life for the now (enjoying things) and saving/investing for the future (delayed gratification). Most people choose the former. I tend to be in the latter group, but not to the extreme - I buy what I want, but never carry a balance on my credit cards or line of credit. I have an eye to the future and need to rationalize bigger purchases (car, furniture, electronics) before I pull the trigger. To each his own though. You could get run over by a bus tomorrow, so live it up, but if you are lucky (unlucky?) to live a long life, you better hope that you have enough money to provide for the basics when you have little to no money coming in.

Perfectly said man. Way to go....same here.

[forumname]

The key is trying to balance living your life for the now (enjoying things) and saving/investing for the future (delayed gratification). Most people choose the former. I tend to be in the latter group, but not to the extreme - I buy what I want, but never carry a balance on my credit cards or line of credit. I have an eye to the future and need to rationalize bigger purchases (car, furniture, electronics) before I pull the trigger. To each his own though. You could get run over by a bus tomorrow, so live it up, but if you are lucky (unlucky?) to live a long life, you better hope that you have enough money to provide for the basics when you have little to no money coming in.

I'm with ya

[blayze]

Care to explain?

For starters... you're comparing consumption to investment. They are totally different things. I can hypothetically live like a homeless person, save every penny I make and live off crumbs, and "invest" that to be worth a tens of millions in future value. Of course I won't ever live long enough to see a dime of those theoretical millions because I'll be dead long before due that due to poor health, depression, or any number of reasons due to my extreme frugality. Point being - it is silly to compare a consumption item to an investment.

You compare investments to other investments. There is no "rate of return" on coffee. Also, as someone else noted earlier, it is simply not practical to save all of that money and reinvest it in savings. People just don't do that. When you save 20% off on a pair of jeans that are on sale, do you put all those savings in the bank for 20 years? Or more realistically, will you walk a few steps to the next store and say "hey I just saved 20 bucks, I'm going to treat myself to a new belt".

Also... $90,000 is NOTHING after you adjust for inflation over a 20 year period. It is worth peanuts.

The long-term compounded REAL rate of return (by that I mean adjusted for inflation) on equity is about 5.5%. In the real world, prices go UP... you can't buy things in the future for today's dollars. On top of that... practically speaking, your average joe consumer will never have the flexibility to tie his savings up for 20 years without tapping into it... this thing called LIFE happens and it's expensive. Mortgages are expensive. Kids are expensive. Drugs are expensive. Only the rich can afford to invest with that kind of long-term horizon and truly benefit from the long-term economic upswing.

Finally... if you think you can comfortably "retire" off of $250k... you're in for a rude awakening when you get old lol

[Nights]

Blaze, the average yearly stock market return is something like 11.1% since 1932. Of course there is no guarantee that trends will continue, but you're right - it could be less than 10%. It could also be more.

Usually when people think of “normal” returns, they look at historical averages. According to the Credit Suisse Global Investment Yearbook, stock markets in the developed world delivered an annualized return of 8.5% over the last 112 years. Using that average as the midpoint in a range, it seems fair to say that “normal” historical stock returns are between 6% and 11%.

Source where I copied that from

While 10% consistent returns is a stretch (and also, I do not believe that accounts for the 3.22% average annual inflation reported here, which would tick that down closer to the 5.2 % levels), I don't see why it matters on the logic side of things... (EDIT : I see his post now. Good points, more or less the same idea.)

It doesn't change your point that not spending that money and saving it would have a considerable amount of impact that people don't see - the micro transactions very much affect the macro, to such an extent you might not notice. However, that amount could also be overkill, depending on what a person does. I'm of the opinion that if you figured out what you need to save and what you can afford to spend (as in, you can spend that 4$ on a daily coffee and still come out with a good financial situation), then go for it. Just keep the consequences in mind.

As for the 250k you mentioned, I'm hoping that by "early retirement" fund you mean "what I need on top of regular retirement money to be able to retire earlier". If you did your math and came up to that (which, without running the numbers, looks reasonable), then that is fine, but that could also be different for others.

For the record, I'm curious to see his response. I just wanted to point out that the numbers were a bit of a reach. Well, maybe it actually is 11.1% since 1932, but that if you were to take a longer period that it could change - you know, sample size.

EDIT 2 : I think we can all agree that - in the end - if you want the coffee, go for it, but that there is a much larger consequence impact in the long term then just going "it's just 4$". As long as people at the least consider the ramifications of 4$ on that every day (I'm guilty of eating out to lunch once or twice a week, but I hardly spend on anything else at all, due to a favorable living situation being young and with my parents and all for the time being :P), and can still come out okay, then it's fine.

It's the cases where they are scraping the bottom of the barrel, have the credit debt piling and the empty retirement coffers that still go "it's just 4$" that are just... argh