Some people collect luxury goods such as investment pieces. Think of a Birkin bag, art by the legendary Jean-Michel Basquiat or a Rolex. Anything considered timeless or high-quality and that appreciates in value can be called an investment piece.
The luxury market tends to be more resilient than other sectors during economic instability because of high demand, among other factors. That said, is this inflationary period a good time to invest in luxury goods?
BUYING LUXURY GOODS AMID INFLATION
The U.S. Federal Reserve has raised interest rates 11 times since March 2022 in an attempt to cool inflation. Interest rates are the highest they’ve been in 22 years, and consequently, we’ve seen the cost of borrowing increase and spending on nonessential goods decrease.
While Americans have cut back on spending, the demand for luxury goods is still strong. Research by J.P. Morgan shows a 7% year-over-year increase in the luxury goods market in the fourth quarter of 2022, despite significant price hikes.
Luxury brands raised the prices of their products by almost 17% in 2020 and early 2021 in response to lower sales during COVID-19, according to a 2022 study by KPMG International. This change is significant considering typical price increases are 5% to 10%. These price increases didn’t only benefit luxury brands; people who invested in these goods in prior years may have also seen gains.
Gloria H. Gill, a retiree who we spoke to on Facebook Messenger, said the value of her large classic Chanel bag has more than doubled in about seven years. Gill purchased the bag for $4,800 in Paris in 2016. It now has a market value of around $10,000.
“I have sold bags before, but I doubt I’ll sell this one,” Gill said. “It’s listed in my will, and my sons are aware of its high value.”
Luxury goods can sometimes hedge against inflation when they appreciate in value, says William Huston, founder of Bay Street Capital Holdings, which has offices in Los Angeles, New York and Fremont, California.
“These luxury goods, they do protect against inflation, but they don’t outperform the general stock market,” he says.
As with any investment, there are risks. As Huston points out, your money could potentially earn a higher rate of return elsewhere. Also, your item could get lost or destroyed, or it may be difficult to resell.
ASSESS YOUR FINANCIAL FOUNDATION FIRST
Before investing in anything, assess your financial situation. For instance, is your emergency fund well stocked? Keep in mind that possessions are considered “illiquid assets” — not quickly convertible to cash if you need it in a pinch.
Also, saving for retirement comes before investing in luxury goods, says Dora Meyer, a certified financial planner at WellAcre Global Wealth Advisors in Santa Monica, California.
“Make sure you are taking advantage of any tax-advantaged accounts, so your 401(k), your Roth IRAs, before you look at investing in something like this. (And) your HSA,” she says.
Meyer also advises, “Be careful (with) buying on credit, especially in this environment when interest rates are a little bit higher.” And she recommends buying from a reputable source to avoid knockoffs.
INVESTING IN TIMELESS PIECES
Valerie Schwank owns the Fashionista Consignment Boutique in Coconut Grove, Florida, where she buys and sells luxury goods. Schwank has seen a significant boom in her business since the pandemic began and is an advocate for investing in luxury pieces. She recommends buying timeless and high-quality pieces, as they tend to hold their value.
“I always recommend that you buy a staple,” she says. And by staple, Schwank means “the Chanel classic double flap, no-nonsense handbag, which has been around forever.”
Think about factors like the color and materials of items, too. That often differentiates timeless luxury goods from ones that won’t hold as much value over time. Keeping your items in good shape, especially if you plan to resell, is also important, Schwank says.
CALCULATING YOUR POTENTIAL RETURNS
Research how an item has historically performed before purchasing to ensure it’s a worthwhile investment. You can go to luxury resale sites such as Vestiaire Collective, The RealReal and Rebag and check how pieces have appreciated over time.
Huston advises having a financial plan before making a luxury investment. “With the financial plan, you’d be able to see, ‘I’m 30 years old, I’m gonna save $300 a month,’” he says, as an example. That plan can give you context to decide, “‘That’s a meaningful amount of money to me and I can afford that $300, and it’s better for me to save $300 in my 401(k) than to buy a watch,’” he says.
You can also improve your investment returns by negotiating when it comes to items like art, he adds.
“A lot of this luxury stuff is negotiable because again, it’s illiquid” and not easily converted to cash, he says. “So if you find the right person selling the right thing at the right time, you can get it for a really good value because they just want to get some of their money back.”
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This column was provided to The Associated Press by the personal finance website NerdWallet. The content is for educational and informational purposes and does not constitute investment advice. Elizabeth Ayoola is a writer at NerdWallet. Email: eayoola@nerdwallet.com.
TORONTO – Canada’s main stock index was down more than 200 points in late-morning trading, weighed down by losses in the technology, base metal and energy sectors, while U.S. stock markets also fell.
The S&P/TSX composite index was down 239.24 points at 22,749.04.
In New York, the Dow Jones industrial average was down 312.36 points at 40,443.39. The S&P 500 index was down 80.94 points at 5,422.47, while the Nasdaq composite was down 380.17 points at 16,747.49.
The Canadian dollar traded for 73.80 cents US compared with 74.00 cents US on Thursday.
The October crude oil contract was down US$1.07 at US$68.08 per barrel and the October natural gas contract was up less than a penny at US$2.26 per mmBTU.
The December gold contract was down US$2.10 at US$2,541.00 an ounce and the December copper contract was down four cents at US$4.10 a pound.
This report by The Canadian Press was first published Sept. 6, 2024.
TORONTO – Canada’s main stock index was up more than 150 points in late-morning trading, helped by strength in technology, financial and energy stocks, while U.S. stock markets also pushed higher.
The S&P/TSX composite index was up 171.41 points at 23,298.39.
In New York, the Dow Jones industrial average was up 278.37 points at 41,369.79. The S&P 500 index was up 38.17 points at 5,630.35, while the Nasdaq composite was up 177.15 points at 17,733.18.
The Canadian dollar traded for 74.19 cents US compared with 74.23 cents US on Wednesday.
The October crude oil contract was up US$1.75 at US$76.27 per barrel and the October natural gas contract was up less than a penny at US$2.10 per mmBTU.
The December gold contract was up US$18.70 at US$2,556.50 an ounce and the December copper contract was down less than a penny at US$4.22 a pound.
This report by The Canadian Press was first published Aug. 29, 2024.
The crypto market has recently experienced a significant downturn, mirroring broader risk asset sell-offs. Over the past week, Bitcoin’s price dropped by 24%, reaching $53,000, while Ethereum plummeted nearly a third to $2,340. Major altcoins also suffered, with Cardano down 27.7%, Solana 36.2%, Dogecoin 34.6%, XRP 23.1%, Shiba Inu 30.1%, and BNB 25.7%.
The severe downturn in the crypto market appears to be part of a broader flight to safety, triggered by disappointing economic data. A worse-than-expected unemployment report on Friday marked the beginning of a technical recession, as defined by the Sahm Rule. This rule identifies a recession when the three-month average unemployment rate rises by at least half a percentage point from its lowest point in the past year.
Friday’s figures met this threshold, signaling an abrupt economic downshift. Consequently, investors sought safer assets, leading to declines in major stock indices: the S&P 500 dropped 2%, the Nasdaq 2.5%, and the Dow 1.5%. This trend continued into Monday with further sell-offs overseas.
The crypto market’s rapid decline raises questions about its role as either a speculative asset or a hedge against inflation and recession. Despite hopes that crypto could act as a risk hedge, the recent crash suggests it remains a speculative investment.
Since the downturn, the crypto market has seen its largest three-day sell-off in nearly a year, losing over $500 billion in market value. According to CoinGlass data, this bloodbath wiped out more than $1 billion in leveraged positions within the last 24 hours, including $365 million in Bitcoin and $348 million in Ether.
Khushboo Khullar of Lightning Ventures, speaking to Bloomberg, argued that the crypto sell-off is part of a broader liquidity panic as traders rush to cover margin calls. Khullar views this as a temporary sell-off, presenting a potential buying opportunity.
Josh Gilbert, an eToro market analyst, supports Khullar’s perspective, suggesting that the expected Federal Reserve rate cuts could benefit crypto assets. “Crypto assets have sold off, but many investors will see an opportunity. We see Federal Reserve rate cuts, which are now likely to come sharper than expected, as hugely positive for crypto assets,” Gilbert told Coindesk.
Despite the recent volatility, crypto continues to make strides toward mainstream acceptance. Notably, Morgan Stanley will allow its advisors to offer Bitcoin ETFs starting Wednesday. This follows more than half a year after the introduction of the first Bitcoin ETF. The investment bank will enable over 15,000 of its financial advisors to sell BlackRock’s IBIT and Fidelity’s FBTC. This move is seen as a significant step toward the “mainstreamization” of crypto, given the lengthy regulatory and company processes in major investment banks.
The recent crypto market downturn highlights its volatility and the broader economic concerns affecting all risk assets. While some analysts see the current situation as a temporary sell-off and a buying opportunity, others caution against the speculative nature of crypto. As the market evolves, its role as a mainstream alternative asset continues to grow, marked by increasing institutional acceptance and new investment opportunities.
