Buying Jewellery as an InvestmentJewellery as an InvestmentWe are often asked about buying jewellery as an investment. Even morefrequently we get customers telling us that jewellery in an investment,or so they have always believed. Just today two LOL's (Little OldLadies) who told us that "they always say jewellery is a goodinvestment". We asked them who said it, which seemed to confuse themslightly, one answered "exactly", and the other one said "everyone",but sounded a little uncertain about it.Old Wives' TalesWhat is likely is that their peers or relations at some time have giventhem some homely advice about how to spend their money. It was probablyquite good advice within its context as consumer advice, but notaccurate as investment advice. We have noticed that amongst people overa certain age, there is a general belief that jewellery is a goodinvestment. At the risk of disappointing them, we inform them that, inour opinion, it is not correct to buy jewellery primarily as aninvestment. We are happy to explain why.Consumer AdviceIf we consider what else a consumer can spend their money on, there arevery few consumer purchases which will retain much of their value overa long period of time. Cars are probably the largest consumer spendingitem, but whatever car you buy new, you would probably have to paysomebody to tow it away in 20 years time. Clothes, shoes, computers,televisions, telephones will show a similar pattern. They variouslywill wear out, go out of fashion, break down, or otherwise deteriorate.Some consumer items can be repaired, but it is becoming increasinglycommon for repairs to be uneconomic compared with buying a newreplacement, which may be more advanced or superior in some other way.One way or another, most consumer items become unsaleable or worthlesswithin a relatively short timespan, say one to twenty years. Comparedwith almost all other consumer purchases, a piece of gold jewellery ora diamond ring will retain some of its value, and may appreciate invalue over a long period of time. The LOL's advice might have beenquite good after all.Investment AdviceAs pure investment advice, it is very unlikely that buying jewellery ofany kind will prove to be a good financial investment. There will beexceptions to this, but the exceptions will be a tiny minority. Pleasedo not take this statement as advice not to buy jewellery or diamondrings. In some circumstances buying a diamond ring could be anextremely good investment, and we will explain below.Luxury Goods and Retail MarginsMost jewellery is sold as luxury goods. This means that the buyer willexpect to be able to select it in sumptuous surroundings. Even if youbuy it from a High Street multiple retailer (chain store), it is likelyto be bright and attractively shopfitted, furnished, illuminated, andstaffed with smart and helpful salespeople. All this costs money, andthe money it costs can only come from the profits on the jewellerysold. Most jewellery stores, at least in the UK, are in prime HighStreet locations, with high rents, rates and other operating costs,wages, display material, packaging, insurance. It is often believedwithout question that competition drives prices down, but it can workin the opposite direction. There is competition among retailersincluding jewellery retailers, to acquire the most attractive premisesin the most popular locations. These units have the highest rentalcosts. It follows that jewellers who who occupy these premises need tomake more profit, and also the jewellers who make the most profits canafford the best locations. Consumers buying luxury goods expect a widerange of choice, but this costs more to provide. Most consumers expectto be able to pay by credit card or be offered interest free credit,this also costs money, and retailer need to recoup the costs from theircustomers, even if these costs are concealed.For these and other reasons, the mark-up on jewellery is very high,typically at least 100%. There is also VAT (in the EU, and sales taxelsewhere) levied on or included in the selling price, and is unlikelyto be recovered when reselling.Manufacturers and wholesalers also expect to make profits to pay fortheir services, and here again greater selection costs more to provideand finance.Quality CountsAs with most things in life, buying high quality will cost moreinitially, but there is more chance that a high quality item will holdits value better than a poor or mediocre quality one. Most of thevaluable antiques in existence were of high quality design,construction and materials originally, and have survived because theywere more durable or desirable than their cheaper counterparts. So itis likely to be in the future with modern goods. The higher qualitymore durable pieces will survive, the lower quality items will wear outand be discarded.Add back the pleasure and enjoyment derived from owning and usingbetter things, and it can be seen that there is a strong case forbuying the best quality and design available, this will usually costmore than lower quality goods, but not always.Obtain Value at Acquisition Time to Retain ValueIf you pay too much for a thing when you buy it, it can never recoupthe value lost through buying it badly. Lets give an example. Assumetwo people bought identical gold sovereigns 100 year ago. If one boughthis at face value (
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