The $2,000 iPad

WSJ ^ | 3/31/11 | Brett Arends

[harpu]

When someone asks me if I've changed my mind yet and now want one of Apple's new iPads, I tell them: "Well, even if I did, I probably wouldn't want to spend $2,000 on one."

They generally looked at me, baffled. "What do you mean, $2,000? I thought they started at $500." But I figure $2,000 is the minimum that Steve Jobs's new toy is going to cost me.

How come?

Simple. If I don't spend that $500, I'll invest it.

Historically, the stock market has produced average long-term returns of maybe 5% a year above inflation. (More on this below.)

At that rate, in 10 years' time my $500 will have grown to about $800. That's in today's dollars—after inflation. In 15 years it'll be about $1,000, and in 30 years, $2,000.

I figure I'll be retiring in about 30 years, which is when I'm going to need lots of capital. I can have the iPad now, or about $2,000 then.

Thanks, but I'll take the $2,000.

(If I were younger the iPad would cost me even more. If you're 30 or younger and you just bought one, congratulations: It probably cost you about $3,000.)

Yes, I typically do these mental calculations, at least in the back of my mind, for most things. I typically come back from the mall with no bags, gleefully clutching my future millions. (Warren Buffett, as Jason Zweig reminded us over the weekend, takes a similar view.)

[Mr. Jeeves]

How does an article containing an assertion like this get past the editors at WSJ, of all places, when they know as well as anyone that the stock market has gone nowhere for the last ten years and with inflation factored in, a $500 purchase ten years ago would now cost the purchaser about $400? This “8% Forever Market Returns” meme the financial media loves so much seems to come straight out of the last days of the Roman Empire...and their newfangled iSlates couldn’t save them, either. :)