Investors better off buying stocks over luxury goods: experts

TORONTO -- There's an old adage that clothes make the man, but can they ever make you money?

Rarely, according to experts, who caution that although investing in luxury goods like clothes, handbags and shoes can sometimes result in a return, it is almost always more lucrative to put your money into other types of investments.

"People buying luxury goods often justify their purchase by saying it's an investment," said Rona Birenbaum, a certified financial planner at Queensbury Strategies in Toronto.

"But to be considered an investment, you should be able to put your money in with the expectation that it will generate you income or appreciate in value. Luxury goods don't normally have these attributes."

There are certain luxury items that can increase in value, such as art, vintage jewelry, and even limited-edition designer handbags.

But before shoppers pull out their credit cards, there are other considerations to be taken into account, Birenbaum said.

First, what kind of condition will the item be in when you want to resell it? Usually, apparel needs to be in good to mint condition, and there is still some stigma associated with buying used goods, even if they are high-end.

Second, consider the fees associated with the sale. You might be able take the do-it-yourself approach by selling on websites like Kijiji or Facebook, but that could limit the pool of interested buyers. Sellers listing with an auction house or consignment shop can face commissions of 20 to 50 per cent.

Lastly, Birenbaum says spending $10,000 on a handbag may bring joy, but from a purely financial perspective, you lose out on the opportunity to invest that money elsewhere.

"If you've got enough money to do that, without compromising the wealth building you need -- which is to invest for the future -- and you want to spend your discretionary money on these things, then go for it," she said.

"But if I see somebody who is investing in high-end luxury goods at the expense of building a portfolio or paying down debt, then that's just plain old foolish."

Consignment store owner Vanessa Stein says designer handbags are the most lucrative in her business, especially ones from top-tier designers such as Hermes, Chanel, Prada and Louis Vuitton.

These items can be resold for up to 90 per cent of their original retail value, depending on how long ago they were purchased, their condition and availability in the market.

For example, in 2005, Stein purchased a new Louis Vuitton Speedy handbag for $600. The same handbag now is worth $1200 new and she was able to sell it used last week for $750 -- $150 profit.

Birkin bags by Hermes are also one of the hottest commodities in the designer recycling market, says Stein. These bags start at US$11,500 and can go all the way up to US$150,000 depending on whether they are made from exotic animals like alligator or ostrich and the quality of gold hardware on the bag.

There are long waiting lists for the coveted Birkin bags, so those looking to resell them at a consignment shop level will often be able to recoup their whole costs and even make a profit -- no matter when it was originally purchased.

Stein said the worst investment in luxury goods is clothing, which loses 50 per cent of its value the moment it leaves the store, even if the tags are still on.

The one exception is the classic Chanel tweed jacket, which she was recently able to sell for $1400 after buying it used for $900. It can cost up to $5000 new.

"The sooner you get things out of your closet that you're not using, the more money you're going to get for them," said Stein. "Somebody is going to remember seeing that in the stores and get excited and want to pay more money for it."

Certified financial planner Blair Guilfoyle said that with all high-end goods, whether it be shoes, wine, art, or even real estate -- value is ultimately tied to demand.

"Any of these things are only worth what someone else is willing to pay for it," he said.