You definitely need to pick up some Melanios.......consider it an "investment". My wife has a hard time understanding how a great deal on cigars is an investment when you end up torching your investment. But if you end up smoking a cigar that you picked up at $3.50 and the going price at the time of consumption is let's say $5.00 in three years, that' s a 19.5% return on investment - right before you torch it to zero value. But remember you are only torching the original investment! So your loss is 34.5% not a 100%. Not a bad deal, huh?
If you wait till the cigar is worth twice what you paid for it, in lets say 4 years, your return on investment is 18.9% right before you burn it. but then after its gone your ROI drops to 0% or break even. The increased value is offset by initial purchase price. If you had not made the initial purchase at $3.50, you would be instead paying $7.00 at the time of consumption. You end up not spending $3.50 that you already spent. That $3.50 that you save reimburses you for the $3.50 you already spent. So essentially you are smoking cigars FOR FREE!!!!
Warning: This does not take into account the time value of money. Let's look a little closer. Compounded interest on $3.50 not spent on a cigar will result in a return of $1.09 at 7%. This will be harder to recoup in the end, though you are still grossing an 18.9% ROI up until the time of consumption. Under this scenario, your cigar would need to increase in value by 2.6 times, in order to achieve your free cigar. Given the FDA regulations, anti-tobacco programs for minimum pricing and consolidation of the industry, it is not outside the realm of possibilities that the $3.50 cigar will be $9.18 in four years - your break even point. On the other hand, if you are not able to invest at 7%, or end up stuffing your money in a mattress, or spending it or losing it on a bad investment, then your cigar investment looks much better in a shorter time span.
If you die before you smoke all your cigars, there is a perceived loss in investment as the cycle of appreciation is broken. However, if you calculate the difference between your age of death and the accuarial tables say a person of your age is expected to live beyond, then you save the money that you would have spent on cigars while you would have been alive. For example, lets say you die at 80, according to statistical probability an 80 year old's life expectancy is considered 8.34 years. So if you spend $500 per year on cigars - that is money that is no longer being spent. $500 per year compounded at 7% results in a value of $6761. If we calculate a discount rate to determine present value of that amount and we get about $5000. This is what cessation of your cigar hobby is potentially worth to your heirs. Remember, while you were alive you were smoking free cigars! Then the question arises regarding your remaining stash. Have them donated to a good cause and take the tax write-off. You can deduct the fair market value, which as we have discussed has appreciated substantially. At a market value of $10,000, a dollar tax benefit for say the lowest taxable rate would be $1000. If you averaged a 200% appreciation on your stash, the real cost to you was $5000. So the $5,000 you don't spend because you are dead combined with the taxable write-off value of $1000 equals $6,000. The cash out value to your collection results in a net profit of $1000. Your could also choose to will your cigars to family and friends and forego the tax write-off (depending on age you may not need it anyway). In this scenario, your hobby has a break even consequence on your families finances.
Moral of the story: Invest in cigars at great deals and then smoke free for life!
