It used to always puzzle me why online influencers used the word ‘invest’ when talking about their new luxury purchases. How is spending tons of money on an item you’ll be using or wearing an investment, I thought. Yes, luxury goods tend to be very high-quality, meaning you can often use them for years and even decades without having to buy a new one. But is that really investing?
It wasn’t until I stumbled upon a blog post written by a Chanel handbag enthusiast that I understood the investment value of certain luxury goods. I learned that Chanel, among many other designer brands, increases their prices every single year. For example, in January 2021, Chanel raised the prices of most of their classic handbag models by 4-7%. The year before, the price hikes were even more drastic with increases of up to 17%! Needless to say, reselling your Chanel handbag after a few years could be a very profitable investment.
However, not all designer goods are good investments or appreciate in value. Therefore, let’s discuss the best luxury items to invest in and what makes them good investments.
When is luxury item a good investment?
The main challenge with purchasing luxury goods is that we tend to buy them for our own joy and usage. This means that we often just purchase them on an emotional basis rather than investment value in mind. While there isn’t anything wrong with this, there are certain things you need to consider to understand if a designer piece is a good investment or not.
Luxury categories such as vintage whiskey and wine or rare stamps and coins tend to be popular luxury investments. But needless to say that these types of collection items often provide us with little joy in our daily lives. Hence, in this article, we’ll focus on investing in luxury items that you can (carefully) use yourself before selling for profit.
What to consider when investing in luxury goods?
When buying a luxury item with the hope of appreciating value, make sure you:
- Invest in classic designs and colours that will always be in style (long-term investing).
- Pay attention to limited-edition releases from timeless luxury brands (short-term investing). However, avoid seasonal pieces that are trendy only for a short period of time.
- Focus on brands that have persistent value, such as Hermès, Chanel, Cartier and Rolex to name a few.
- Research into brands, models and sizes that have shown strong historical results.
- Keep your investment piece in exceptional condition. The less wear and tear an item appears to have, the more you’re going to get for it.
- Never go into debt when buying luxury items. Buy only what you can afford or intentionally save for your desired item.
Best luxury items to invest in
It’s important to remember that not every luxury item will be an asset that appreciates in value. Most importantly, asset values are highly influenced by the fundamentals of supply and demand. In other words, a luxury item is worth only what someone is willing to pay for it.
However, there are certain luxury items that have historically performed well when it comes to increasing value. Here are a few examples of the best luxury items to invest in.
Designer handbags are widely believed to be one of the best luxury item investments. According to the Knight Frank Luxury Investment Index in 2019, handbags were better investments than stamps, art, and rare whiskey. But naturally, not all designer bags are a good investment. Iconic, timeless pieces from Hermès and Chanel are the most famous examples of designer bags that not just hold their value but continue to appreciate in value. Here are a couple of examples of their classics:
- Hermès Birkin: According to Baghunter, the Birkin bag outpaced both the S&P 500 and the price of gold in 35 years between 1980 – 2015. The annual return on a Birkin during this time was 14.2%, compared to the S&P average of 8.7% a year and gold -1.5%. However, due to the limited production of Birkins, these bags can be extremely difficult to get hold of in the first place – the wait can even be years.
- Chanel Classic Flap: The classic flap bag is considered one of the most timeless bag styles from the brand. As it is a Chanel classic, the bag has seen huge price increases in recent years. Chanel does not only pump up the prices once a year but sometimes even twice during the same year. For example, the price of the Jumbo Classic Flap has hiked from $2,695 in 2009 to $7,100 in 2020 – this is a massive increase of 163% within just 11 years!
In the world of watches, there are some timeless pieces worth investing in that will look good on your wrist while appreciating value. Here are some examples of luxury watch brands that are consistently sought-after and thus worth investing in:
- Rolex: With a strong heritage and high-end craftsmanship, Rolex is hands-down the maker of some of the best investment watches on the market. Rolex Deepsea and Submariner are usually excellent investment choices due to their resale value. For example, Rolex Submariners are said to retain an average resale value of up to 154%.
- Patek Philippe: These watches have been known to set auction house records as the brand is often called the most prestigious in the world. Rumours say that fewer than one million Patek Philippe pieces have been made since 1839. These watches often sell for more than double their retail price! Furthermore, a Patek Philippe watches that cost less than $20,000 in the 1980s can presently garner more than $400,000. Today, an entry-level timepiece runs as high as $20,000 and is almost certain to appreciate over time.
Precious metals, diamonds and gemstones have historically shown a good increase in value. For example, gold is often considered a safety net when stock markets are in decline since the price of gold doesn’t typically move with market prices. In addition to the raw materials of jewellery increasing in price, certain brand names will further help boost your jewellery to retain and appreciate in value. Here are some luxury jewellery brands to look out for:
- Cartier: In 1970, Cartier’s iconic Love bracelets sold for just $250. With today’s inflation, the bracelet would cost $1,647. However, the standard-sized Love bracelets are sold for $6,550 today.
- Van Cleef & Arpels: The brand’s iconic Alhambra pieces are very desired and popular. Based on estimations, items from Van Cleef & Arpels can have as much as a 74% short-term resale value.
- Tiffany & Co.: This is one of the best-known and loved jewellery brands. Not only are their contemporary pieces loved, but so are their vintage pieces. While Tiffany & Co. jewellery is available at a wide array of price points, it’s some of their vintage fine jewellery pieces that offer the best investment potential.
Keep in mind that jewellery is often a long-term investment game. Specific brands, such as the above, can retain their resale value well even if resold within a couple of years. However, any significant appreciation in value often happens after years or even decades.
Buying, selling and holding limited-edition sneakers has become increasingly popular in recent years. In 2020, the sneaker resale market was valued at an astonishing $28 Billion (£20.6 Billion).
According to HuffPost, some sneakers could be a better investment than gold. For instance, Nike SB Dunk Low Reese Forbes Denims originally sold for $65 in 2002 and are now reportedly worth over $4,000. Another great example is Yeezy 2 “Red October” which retailed at $250 in 2014 and is now worth $5,655. Financially speaking, that’s obviously a great return on investment.
However, unlike certain designer bags and watches, sneakers’ potential resale value can be more tricky to accurately predict. This is because the sneaker reselling market is much more volatile.
When it comes to the value of a sneaker, there are various factors that come into play. The value can be defined based on things such as brand (Nike is the king of sneaker resales), limited edition, condition, celebrity collaborations, unique design and hype around certain pieces.
Should I invest in luxury items?
While luxury items come with large price tags, they can be worth it in the long run. Whether it means you don’t need to buy another coat for 20 years or are able to pay off your remaining mortgage thanks to a clever handbag investment. If you focus on classic or limited-edition pieces and take good care of them, you’re more likely to be rewarded in the end.
Another good news for luxury investors is that collectables, such as vintage accessories, are exempt from capital gains tax in the UK. This means that you pay zero tax on the profits you make.
But like with every method of investing, there can be risks involved when making luxury purchases. Although some designer pieces have proven to appreciate in value over time, it’s essential you have your finances in order before investing in luxury goods. Make sure you do your due diligence and diversify your investments to ensure your portfolio doesn’t just consist of luxury goods in your wardrobe.
Before thinking about luxury items to invest in, it’s worth considering other investment opportunities such as stocks, bonds and property investing. Learning how to invest the right way is an essential part of financial success. Creating multiple streams of income and becoming a savvy investor will enable you to live the kind of life you want to live – and invest in a few designer pieces if you wish to do so!