The investment piece: One investment that’s no investment at all
It never fails. Whenever I venture into a store, especially a clothing store, I inevitably hear the phrase that makes me want to stage an impromptu personal-finance intervention: “It's an investment piece.”
As in, “This jacket is a little pricey, but it's a classic — an investment piece.” Or, “I need to invest in a pair of versatile black dress shoes.”
I hear it in stores, I read it in magazines, and it makes me cringe. I feel like I should carry copies of J.D.'s book with me to pass out to my fellow shoppers. (I think that scenario plays out differently in my head than it would in reality, though.)
Investopedia defines investment as follows:
An asset or item that is purchased with the hope that it will generate income or appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or appreciate and be sold at a higher price.
Blazers and shoes do not create future wealth. Neither do luxury cars. That twists the definition of investment to classic, quality, versatile, etc.
Let's say I buy those black dress shoes. They're pricey, but I can wear them with everything, and they're classic, so they won't go out of style anytime soon. Great. But think for a moment about what happens when you wear a pair of shoes a lot. They hit the pavement. They get scuffs and marks. They're subjected to all kinds of weather. Taking your dress shoes out for a night on the town? You can bet other people will step on them. Or worse, spill a drink on them.
By the time those shoes have reached their expiration date, they certainly won't provide income or be sold at a higher price than what I paid for them.
While some luxury brands do hold their value — vintage Chanel, for example — it's not common. Most purchases depreciate over time, especially if they've been used and abused. No one is going to pay me retail price (let alone more) for a pair of worn-out dress shoes.
“Investment” as a Justification
When the word investment is misused to describe luxury or quality Stuff, it makes you feel okay about spending more. You aren't frittering away your money or blowing your budget — you're investing. And investing sounds like a smart thing to do. But it's not investing at all; it's still just buying Stuff.
Take a luxury car, for example. It's expensive, it loses value every day, and then there are the insurance and maintenance costs — you won't make that money back when you sell it. Fundamentally, you just need a way to get from point A to point B. Paying more for a sleek automobile isn't an investment. Of course, there are times when a particular kind of car might be required for your line of work, such as a cargo van or a work truck, but even then the rule applies: Those items will lose value. They're not investments, and it's wise to keep that in mind when determining how much you want to spend.
Buying Quality vs. Investing
Now, there's still a lot to be said for buying quality items.
A cashmere sweater does last longer, if properly cared for, than a cheap acrylic blend that'll last maybe one season before pilling and losing its shape. I prefer to own less and save longer to afford quality, and after downsizing my closet, I've become a stickler for fabric and fit.
Several years ago, I would have used those reasons to label cashmere as an investment. But let's think about what I'm really buying and its purpose: A sweater keeps me warm, but I can accomplish that with one fleece zip-up from L.L. Bean, which comes with a lifetime guarantee.
Paying off credit cards is a good investment. Funding my Roth IRA is an investment. Cashmere is a luxury and a want. I don't need it for anything other than my own enjoyment.
So Long as We're Clear…
I don't really describe myself as frugal. I try to be smart with my money, but I like indulgences, too. And it's okay to spend extra on things you want, but don't confuse wants with investments to justify the expense. Money for these so-called “investment items” should still come from your fun money part of the budget. Savings and investments should be completely separate budget categories.
When you're going to make a purchase, think about what you need, your real reasons for buying it, and whether you can afford it. You aren't likely to make money when you sell it, so purchase with the intention of using it and enjoying it yourself.
If you happen to sell it later on, that'll just be a nice bonus.
What do you think? Do you consider quality or luxury items to be “investments”? Have you ever called something an investment to justify spending a little more? (I know I have!)