Luxury purchases — jewelry, paintings, boats, antiques — can be a pleasure or a statement. Can they also be an investment?
Think first about the value retention and the resale value of the item you are considering. Things like high end electronics and cars tend to depreciate in value immediately. These items are constantly improved upon, so last year’s model will be outdated and inferior, not more valuable. You can feel fairly certain that the only value of these items is in the value they have for you as you use them. They shouldn’t be considered an investment.
There are also luxury purchases that may increase in value over time. For instance a rare painting or fine jewelry usually becomes more valuable. Primarily, this is what makes or breaks a purchase’s chance of being defined as an investment.
A recent analysis of the Knight Frank Luxury Investment Index by the Wealth Report revealed a few interesting facts about luxury spending. The index targeted 10 countries with the fastest growing potential for luxury spending, and incorporated four major factors:
- Luxury footprint
- Wealth creation
- Premium air travel
- Economic growth
The Middle Eastern nation of Qatar took the top spot, with the United States placing fourth. The index showed increases in specific purchase types over the course of the last 10 years; items such as cars, jewelry, art, coins, and even wine have increased in sales by over 150%.
This suggests that luxury purchases that hold their value may have strong potential for future resale.
However, the investment potential of a beautiful piece of jewelry or a fine bottle of wine may be separate from your desire to purchase it. After all, once you drink the wine it no longer has any resale value.
It’s smart to distinguish between the two. That is, when you see a sculpture you love and decide to purchase it for your home, don’t tell yourself, “It’ll be an investment.” If you want to buy it as an investment, get expert advice.
If you want to buy it because you love it, go ahead. If you won’t buy it for yourself unless it’s also a good investment, get that expert advice.
If you’re not sure, talk with your financial planner about your financial goals. You’ll be able to determine how luxury purchases might fit into your overall financial plan — or how you can budget to include luxury purchases in your financial plans and still meet your long-term goals.