My own definition of an investment – which has stood the test of a changing lifestyle – is:
Something that I can put time or money into, which can be a reliable or predictable store of value, a source of income, or an effective offset to a cost that I have.
Before you even start to look at making investment decisions, let’s look at what is not an investment. The following are all items that sophisticated investors (ahem, rich people) have tried to convince me* are good investments:
- Lottery tickets;
- Holiday time shares;
- A Birkin Bag;
- Jewellery & watches;
- Cars, motorbikes, bicycles and boats;
You may laugh – but stop for a moment and think about how some people defend or justify spending money on some of the items listed. Phrases like ‘it’s an investment in myself’ are much easier to trot out rather than ‘I’ve had a rubbish day, and I’m feeling fat, so I’ve decided that a nice new dress will make me feel better’. ‘Wine is a great investment’ is better than saying ‘I really want to demonstrate to you how much spare money I have that I can literally afford to drink it in my spare time. I’m that successful, ya’see.’
New cars lose their value as soon as you drive them off the lot – and a vintage car may only hold its value if it is extremely rare (or there’s some other enthusiast out there bidding up the price). So, a big reason you get a vintage car is to flag that you are successful enough to sink money and time into an old machine. That is not an investment, it’s an expensive hobby. Some cars and other vehicles may offset your transport costs, but unless you are getting an extremely inexpensive second-hand model which is very reliable – you may not be effectively offsetting those costs. More likely you will increase your transport costs for the sake of comfort, speed and having a vehicle which looks good. And boats are never never a good investment – they are big enjoyable toys to sink your money into.
True, some of the listed items may hold their value, and some may even go up in value. However, for most, their future value will either diminish or be determined by the whims of fashion and popularity. The luxury industry has grown very well by convincing wealthy people that certain consumables are investments. Most of the items above do not reliably store value, and they don’t provide income. They are simply expensive (but rather nice) ways to spend money (and to tell the world that you have money to spend). I would like to talk about investing. Spending money on the things above is…spending money.
* These are all things that real people have tried to convince me in the past to ‘invest’ in.
Contact me to book a free virtual consultation here.