The comparison between the Hermes Birkin and other types of investments stems from a 2016 study by BagHunter, an online secondary marketplace for luxury handbags. They suggest the value of a Hermes Birkin outpaced the price of gold and S&P 500 index returns over the last 35 years.
*Spits out mojito*
Disclaimer #1: I fawn over the beauty, scarcity, and appeal of the Hermes Birkin as much as the next fashionista. If one of these gorgeous leather creations were to somehow make its way into a price bracket that would allow me to sleep at night, it would be mine in a heartbeat. No questions asked.
Disclaimer #2:I am an advocate for investment portfolios as diversified as my shoe collection, and you could argue that a Hermes Birkin is an investment piece.
However, there are some [several] factors that make taking your chances in the stock market a better long-term investment for you, your future-self, and your future shoe closet.
While I recommend you chat with your financial advisor (shoot me a note if you need help finding one) to determine the best investment mix for you, I guarantee you the Hermes Birkin does not protect you from inflation risk, falling short on liquidity needs, and missing out on compound interest.
Brush up on the concepts below to keep your savings in style – with or without a Birkin in tow.
Inflation
Simply put, this is the increase in price of your favorite bronzer, while the amount of dollars you have to spend (your purchasing power) has not. Read more examples here.
Your Birkin bag will only yield a positive return and keep up with inflation so long as the the supply for your leather work of art remains extremely scarce and the demand extremely high. Oh, and you’d have to sell it (realized gain).
Liquidity Needs
Assets like art, real estate, and, well, your luxury handbag are considered illiquid assets. This means it’s not a quick and easy process to obtain their cash value if you needed to.
It’s likely that if you own a Hermes Birkin, you probably aren’t concerned about having cash available to meet your living expense (however, if you are, I can help).
Regardless, let’s discuss the importance of knowing your number.
No, not that number. I’m talking about the magic number that represents the amount of liquid, readily accessible cash you need to have at your fingertips to be able to sleep at night.
Everyone’s magic number is different. After all, everyone’s cash flow is different. Figure out how much cash you need on hand to feel safe, secure, and – most importantly – fiscally fabulous.
Compound Interest
“On the eighth day, God made compound interest. Also Chanel.”
-The Finance Fashionista
Fact: Sometimes I can be as dramatic as a high-end perfume commercial.
If you are not taking advantage of the beautiful phenomenon that is compound interest, focus closely on what I’m about to share, or risk showing up on the worst-dressed list of life.
Compound interest is the interest calculated on your initial principal (i.e. initial investment amount) plus all of the interest accumulated previously on this principal amount. Think of it as “interest on interest.”
This miraculous concept of exponential growth is said to have originated in 17th century Italy. Not only did the Italians give us gorgeous cars, shoes, men, handbags, and pizza, but also the ability to double our money in 10 years. Grazie’.
Exhibit A: If you start out with $10,000, compounding at 7% annually (average stock market return), and contribute $250 every month…
In 10 years, your investment will have grown to over $60,000. Can a Birkin do that?
Check out this nifty calculator from Money Chimp to see for yourself and create your own Exhibit B:
Compound Interest Calculator from Money ChimpSo, how do you get your hands on compound interest? By making deposits and investing in vehicles that create it!
Stocks, bonds, ETFs, mutual funds, even money market funds generate compound interest. Not familiar or comfortable with these just yet? Treasury securities and insured bank CDs, while very conservative, will help you at least beat the rate of inflation.
Ready for more? A great, built-in starting point is contributing to your company’s retirement plan or an IRA. I talk more in-depth on the different types of retirement accounts here.
Why Not Have It All?
But really, why not?
I am a firm believer in the power of our thoughts. Self-limiting beliefs are what hold us back most of the time – not the external forces that often take the blame.
My mission is to empower you with the tools you need to design a fiscally fabulous life. You want a Birkin bag because you’ve been working your boss babe behind off and you’ve earned it? You have my blessing. But remember…
Style Tip: You don’t need permission from me, or anyone else, to create a life you love.
On that note, my advice is this:
While you’re admiring your new Birkin’s perfect, hand-stitched, butter-smooth leather existence, remember to use the powerful financial tools available to you to avoid having all your net worth hanging in your closet.
How will these tips help you step up your saving style game? Share your ideas below!
Xx, The Finance Fashionista
P.S. Are you in the know on my latest fiscal fashion tips? Subscribe to my newsletter and never miss a trend.
