Investing 101: Luxury Fashion vs. the S&P 500, Which Has the Higher Rate of Return?

As a fashion blogger, I often get asked about the idea of treating luxury fashion as an investment, especially compared to traditional financial investments like the S&P 500. While the two are vastly different, both have their pros and cons. Here’s a breakdown to help you decide where your money should go.

Investing in Luxury Fashion

Luxury fashion is no longer just about owning beautiful items; it’s also seen as a way to diversify your investment portfolio.

Pros:

1. Tangible Assets: Unlike stocks, luxury items are physical assets you can see, touch, and enjoy. A Chanel flap bag or a Hermès Birkin isn’t just a fashion statement—it can retain or even appreciate in value over time.
2. Cultural Value: Iconic pieces often become more desirable with age, especially if they’re limited edition or discontinued.
3. Emotional Return: Let’s face it—wearing your investment is far more satisfying than staring at a stock chart!
4. Market Trends: The resale market for luxury fashion has boomed, with platforms like The RealReal and Vestiaire Collective making it easier than ever to cash in.

Cons:

1. Maintenance Costs: Items require proper care—think storage, cleaning, and sometimes restoration—to retain value.
2. Subjectivity: The value of fashion pieces depends heavily on trends, brand reputation, and rarity, which can fluctuate unpredictably.
3. Lack of Liquidity: Selling a luxury item can take time, and you may not always get your asking price.
4. Depreciation Risk: Not all luxury items appreciate; many lose value the moment you buy them, especially seasonal pieces.

Investing in the S&P 500

The S&P 500, a stock market index of 500 leading U.S. companies, is a more traditional investment route with proven long-term returns.

Pros:

1. Compound Growth: Historically, the S&P 500 has delivered average annual returns of around 10%. Thanks to compounding, your investment can grow significantly over time.
2. Diversification: By investing in the index, you’re effectively putting your money into 500 companies across various sectors.
3. Liquidity: Stocks can be sold quickly, often within seconds, making your investment more accessible.
4. Lower Risk Over Time: Despite market volatility, long-term investments in the S&P 500 have historically been reliable.

Cons:

1. Market Volatility: Stock prices can swing wildly in the short term, which may be stressful for some investors.
2. Lack of Tangibility: Unlike luxury fashion, you can’t wear your shares in Apple or Microsoft!
3. Emotional Disconnect: For those who enjoy a personal connection with their investments, the S&P 500 might feel impersonal.
4. Inflation Risk: Returns may sometimes struggle to outpace inflation, especially in periods of economic downturns.

Why the S&P 500 Is Worth More as an Investment

1. Long-Term Growth: Historically, the S&P 500 has provided consistent returns averaging around 10% annually. Over time, this compounding growth can significantly increase your wealth.
2. Diversification: With exposure to 500 major companies across industries, the risk is spread out, making it a safer investment compared to a single item or brand.
3. Liquidity: Stocks can be sold quickly, providing easy access to your money if needed. Luxury fashion items may take weeks or months to sell, and the resale value isn’t guaranteed.
4. Lower Risk: While the stock market has volatility, the S&P 500 has proven resilience over decades, bouncing back from recessions and market crashes.

When Luxury Fashion Might Be Worth It

Investing in luxury fashion is a niche strategy. It makes sense if:

• You are a fashion enthusiast with deep knowledge of what items retain or appreciate in value (e.g., Hermès Birkin bags or Rolex watches).
• You can store and maintain these items properly to preserve their condition.
• You’re okay with taking higher risks, as not all items will increase in value.
• You value the emotional and lifestyle returns of owning these pieces, in addition to potential financial gains.

Verdict

For most people, the S&P 500 is the better investment due to its predictable returns, lower risk, and ease of management. The only exceptions being the Hermès Birkin and Rolex watches. Luxury fashion can be a fun and rewarding secondary investment if you’re passionate about it, but it shouldn’t replace a solid financial foundation.

If you’re in a position to do both, invest in the S&P 500 for long-term security and treat luxury fashion as a side investment or indulgence that could pay off—but only if you choose the right pieces. Think of it as the cherry on top of your financial strategy, not the whole sundae! 🍒

With Love,

Eliza Rose ♡