Why in the world would $8k not count? If you're saying $8k is so little it doesn't matter, I'm not sure I agree there. $8k invested over 40 years at 5% (remember, you repeat this process numerous times in your life) works out to $56,319. Maybe that's negligible for you, but I don't think I'd go as far as saying it's generally not worth considering.
I never said $8K "didn't count." Please re-read my post.
This sounds suspiciously like you're saying $8k is so small you shouldn't care about it. Maybe I misinterpreted. What does it mean then?
Lastly, who actually allocates & invests funds like this? We are only talking about ~$8K available for stock market investing. This would simply be a part of the money everyone should keep in liquid savings, set aside for things like living expenses, unexpected expenses (house/car/medical), ect.
If we were talking $25K-$50K, you might have an argument with opportunity cost. But $8K should not have a substatial impact on your decision.
Let me ask you a question. Do you keep any money in a safe, liquid saving account? You know, in case you need to buy a car, replace your roof, buy a refrigerator, cover your expenses if you lose your job? Do you have at least $8K in such an account?
If so, according to your logic, you are an idiot and losing out on $56K over 40 years.
There is a reason you should not invest every available penny beyond your monthly expenses. I keep many multiples of $8K in my liquid fund. When I buy a new car, my liquid fund gets partially depleted, then I gradually build it back up. The funds I use to buy a car do not come from assets I would otherwise invest.
Yes I keep about $5k in a liquid account, it's for emergencies, not large purchases every 5 years. My personal situation doesn't matter that much since we're discussing your hypothetical example though.
My point was, buying the new car instead of the old one costs additional money that could be invested. If you normally have $50k or whatever in your emergency fund, yeah you could buy a new car easily without depleting it, but you still have to pay back an extra $8k (or whatever the number is) into it compared to the person who bought the used car. That $8k could be invested in the stock market instead of a car.
Two people with identical emergency funds of $30,000:
Person A: Buys $16,000 car. Emergency fund is now $14,000. The next $16,000 he makes goes to replenish the fund.
Person B: Buys $5,000 car. Emergency fund is now $25,000. The next $5,000 he makes goes to replenish the fund, then the next $11,000 he makes is invested.
Person B invested an additional $11,000 into the stock market compared to person A, even though they both paid out of their emergency funds and rebuilt them with regular income.
Yes, in 5 years (per your example) person B has to lay out another $5k. Yet now his $11,000 savings has grown to $14,039 @5%, so when he buys the second car he's down to $9,039 in savings (he may take it out of his emergency fund again, but this is his net savings). Add another 5 years of 5% interest and it's up to $11,536 by the time he buys the third car for $5k, which brings it down to $6,536. 5 years later it's up to $8342. Now we're at the point where Person A also has to buy a new car, so we start over. I understand that the stock market isn't perfect and predictable, but over a lifetime it should average out to something like that (actually more if you use historical data). Sometimes it will have lost money, other times it will have gained more. Over 15 years person B has an additional $8342 compared to person A based purely on opportunity cost, and they both have cars with 175k miles on them.
Keep in mind this scenario assumes that neither person is able to sell their car for any $. If we assume a car with 175k miles sells for $1000, then person B has an additional $2,000 (plus interest) since he sold 3 cars and person A only sold one. This also assumes you drive to 175k miles. If you went to 200k, each car gets an additional 2 years of life. For person A this means they get an additional 2 years out of their car. For person B they get an additional 6 years because each of their 3 cars gets that extra 2 years.
Now, you may have some different numbers, or buy really crappy cars and take them to really expensive repair places, but it's not that hard to work out who gets the better FINANCIAL deal in this situation. You may get a great deal on a new car and it changes the numbers, then again you could get a great deal on a used one too. You may drive a car to 220k miles because it's working great, or maybe you can't stand driving one past 150k. It all depends, but generally used is stacked more in your favor assuming you don't just blow the savings on other stuff instead of saving it.
The safety features are the same except for a small window at the beginning and end of your car buying career. Person A buys a new Honda Civic every 10 years. Person B buys a 10 year old Honda Civic every 10 years. Person B could literally buy Person A's cars from him and use the exact same safety features, except for the first 10 year stretch where he has to find another one. Yes, person B has a 10 year lag time, the same way someone born in 1990 does compared to someone born in 2000 if they both buy new cars their whole lives. Is the person born in 1990 really in that much more danger?