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Should we "Invest" in Luxury Goods?

Are luxury goods an investment?

I was recently asked this question! And it's actually a good one, so please don't pre-judge the question. :) Also, there are several layers to the question. 

Let's take a step back, and first define what a luxury good is. It's definitely not a "need". It is probably very high quality and expensive. A handbag could be a need if you need it for work purposes and just getting your stuff organised. A Prada handbag would be a luxury as you don't really need a branded one. 

But hold on. What about an Hermes Birkin bag? According to a Jan 2016 article on Time Magazine that quoted Baghunter, the Birkin bag has outpaced both the S&P500 and the price of gold since the bag was first produced in 1981, claiming that the return was an impressive 14% per year! Now that's a return that would put many fund managers to shame!

So on the surface, this might be a great way to have your cake and eat it too! Enjoy the handbag, whilst seeing it's value grow over the years!

Before you rush out and try to buy one, a few pointers. Actually you can't just pop into the store to buy one. You need to get on the waiting list, and in order to get on that list you need to have purchased several other items to demonstrate you are a real fan, but I digress.

1. The Birkin is a rarity. An icon. This status applies to very few products.  Most luxury goods you buy, are just expensive versions (albeit maybe much higher quality) of something you could get from Walmart. It does not mean you cannot indulge in luxury goods, but that's a separate question. I indulge myself in some luxury goods as well.

2. Provenance is an issue. If you buy a luxury good, and start to use it, unless you are a celebrity and people actually want your used goods, it is unlikely you will get as good a price for it compared to if it were totally unused. You basically need to keep it in pristine condition. Storage and insurance will cost you as well. Oh, liquidity (ease of buying and selling) and the costs of doing so are very high as well.

3. You need to be extremely selective. Some models will "perform" better than others and you are essentially taking a view on consumer tastes and trends, which are notoriously fickle.

4. The "returns" are often misleading. You don't know if it related to one particular model, whether it is brand new, whether they are comparing apples to apples (in terms of the model), whether it would be a different result if you bought new and sold 2nd hand etc. 

So technically, yes. a luxury good CAN be an investment, but its only the rare few, and you need to be spot on. Most luxury goods will not qualify as an investment. The RETAIL PRICE might go up over time but that will not be what you can sell it for. It still relies on someone wanting to buy it from you at a higher price. 

But if you're still keen on "investing" in a luxury good, consider this guideline.  Buy only the icons of that particular product / brand. Think the Birkin, the Rolex Submariner, a Patek Philippe and the like. 

Actually, how about investing in the company that makes the Birkin instead? ;)