Jewellery As An investment

Author: Lawrence Chard - Director and Expert Numismatist

Published: 14 Nov 2018

Last Updated: 19 Aug 2019

Not a day goes by where we are not asked about buying jewellery as an investment.

We are often asked about buying jewellery as an investment. Even more frequently we get customers telling us that jewellery in an investment, or so they have always believed. Just today two LOL's (Little Old Ladies) who told us that "they always say jewellery is a good investment". We asked them who said it, which seemed to confuse them slightly, one answered "exactly", and the other one said "everyone", but sounded a little uncertain about it.

Old Wives' Tales

What is likely is that their peers or relations at some time have given them some homely advice about how to spend their money. It was probably quite good advice within its context as consumer advice, but not accurate as investment advice. We have noticed that amongst people over a certain age, there is a general belief that jewellery is a good investment. At the risk of disappointing them, we inform them that, in our opinion, it is not correct to buy jewellery primarily as an investment. We are happy to explain why.

Consumer Advice

If we consider what else a consumer can spend their money on, there are very few consumer purchases which will retain much of their value over a long period of time. Cars are probably the largest consumer spending item, but whatever car you buy new, you would probably have to pay somebody to tow it away in 20 years time. Clothes, shoes, computers, televisions, telephones will show a similar pattern. They variously will wear out, go out of fashion, break down, or otherwise deteriorate. Some consumer items can be repaired, but it is becoming increasingly common for repairs to be uneconomic compared with buying a new replacement, which may be more advanced or superior in some other way. One way or another, most consumer items become unsaleable or worthless within a relatively short timespan, say one to twenty years. Compared with almost all other consumer purchases, a piece of gold jewellery or a diamond ring will retain some of its value, and may appreciate in value over a long period of time. The LOL's advice might have been quite good after all.

Investment Advice

As pure investment advice, it is very unlikely that buying jewellery of any kind will prove to be a good financial investment. There will be exceptions to this, but the exceptions will be a tiny minority. Please do not take this statement as advice not to buy jewellery or diamond rings. In some circumstances buying a diamond ring could be an extremely good investment, and we will explain below.

Luxury Goods and Retail Margins

Most jewellery is sold as luxury goods. This means that the buyer will expect to be able to select it in sumptuous surroundings. Even if you buy it from a High Street multiple retailer (chain store), it is likely to be bright and attractively shopfitted, furnished, illuminated, and staffed with smart and helpful salespeople. All this costs money, and the money it costs can only come from the profits on the jewellery sold. Most jewellery stores, at least in the UK, are in prime High Street locations, with high rents, rates and other operating costs, wages, display material, packaging, insurance. It is often believed without question that competition drives prices down, but it can work in the opposite direction. There is competition among retailers including jewellery retailers, to acquire the most attractive premises in the most popular locations. These units have the highest rental costs. It follows that jewellers who who occupy these premises need to make more profit, and also the jewellers who make the most profits can afford the best locations. Consumers buying luxury goods expect a wide range of choice, but this costs more to provide. Most consumers expect to 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 their customers, 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 levied on or included in the selling price, and is unlikely to be recovered when selling.

Manufacturers and wholesalers also expect to make profits to pay for their services, and here again greater selection costs more to provide and finance.

Quality Counts

As with most things in life, buying high quality will cost more initially, but there is more chance that a high quality item will hold its value better than a poor or mediocre quality one. Most of the valuable antiques in existence were of high quality design, construction and materials originally, and have survived because they were more durable or desirable than their cheaper counterparts. So it is likely to be in the future with modern goods. The higher quality more durable pieces will survive, the lower quality items will wear out and be discarded.

Add back the pleasure and enjoyment derived from owning and using better things, and it can be seen that there is a strong case for buying the best quality and design available, this will usually cost more than lower quality goods, but not always.

Obtain Value at Acquisition Time to Retain Value

If you pay too much for a thing when you buy it, it can never recoup the value lost through buying it badly. Lets give an example. Assume two people bought identical gold sovereigns 100 year ago. If one bought his at face value (£1) for his, and the other person paid £2, then both will be able to make a substantial profit when selling. Assume a trade buying price for sovereigns is £50, then the first man can sell his for 50 times his cost price (a 4,900% profit) , the other can "only" get 25 times his cost (a 2,400% profit).

The investment potential of anything depends substantially on its cost price. This is a simple but obvious statement. the difficulty often lies in knowing what is the "correct" price to pay. As with most things in life, there is no single "correct" answer, although there could be many incorrect ones. To be able to ensure a good investment it is normally necessary to ensure that you obtain good value at purchase, to buy an item which endures, and be in demand at the likely disposal time. The difficulty comes in knowing how to tell whether you are paying the right price, or getting the best value when buying.

Ownership Costs

There are ownership costs involved with jewellery as with most goods. Insurance and maintenance are just two. The more a piece of jewellery is worn, the more likely it is to get damaged or worn making repair and maintenance necessary. The answer is not to lock it away in a safe, because then you lose out on the main benefit of ownership, which is to wear and enjoy it.

How to Judge Value When Buying?

It usually pay to shop around, but it is not the amount of shopping around which will guarantee the best deal. It will help to learn something about the subject before you buy, which means doing some work on research. It is likely that the more you know, the more money you may spend, because you will have a better appreciation of quality, but the research should help you to avoid making a poor purchase. If you are aware that High Street retail shops have high costs and profit margins, than at least you will be aware that there are more cost effective ways to buy.

Commodity versus Luxury

There has always been an argument within the jewellery industry against "price-cutters" and traders selling jewellery as a commodity rather than as an expensive luxury item. Both sides of the argument contain merit, but as a consumer, you can make a conscious choice between the two. For example by keeping to a simple classic style of mount, you may be able to pay substantially less for a similar quality and size of diamond, but do be aware that it does not automatically follow. Most of the time, a wide selection and greater choice will mean a higher cost to the distributor, and therefore a higher profit margin, meaning you end up paying more for a similar item.

Why Are you Buying It?

Ask yourself why you are buying the piece of jewellery. Is is because you will get pleasure from owning, wearing or giving it. If the answer is "yes", then the reward for your investment will be the value of the pleasure you get. Any residual value in the item in the future will simply be a bonus. If you are buying it purely as an investment, what will you buy with the proceeds, and what pleasure will you ever get from its ownership? If you are the sort of person who will get more pleasure from the thought of the profit you are accumulating while the item is stored safely in your bank deposit, then fine, but Charles Dickens wrote a novel called "A Christmas Carol", and it would repay you dividends to read it, and you may recognise the central character.

A Diamond Ring as a Good Investment

We said earlier that buying a diamond ring could be a good investment. Let's say you spend £1,000 on a diamond engagement ring. As a result, the beautiful princess is persuaded to marry you, and provide love and affection for the next fifty years, bears your children, keeps house, maybe also earns an income, cooks, and cleans for you. Your £1,000 investment will have earned at least 1,000% dividend every year. You can't get a much better investment than that, ever, anywhere.

Now you may correctly deduce that this paragraph was written light-heartedly, with tongue firmly in cheek, and you would be right, but...

...there is a serious message contained in it. One of the most important aspects of an engagement ring is its symbolism. First it makes a number of direct statements to the recipient, this is how much I love you, respect you, honour you, value you, want you and your company for the rest of my life. Second it makes a number of statements to anybody else who ever sees it including her friends and family, some of these are reflections of the previous points, but it also makes a statement about you, such as how good a breadwinner you are, how serious you are as a mate, your status, perhaps says to other males keep away from my woman unless you can buy her a bigger and better diamond ring.

You may consider some of the sentiments corny, but they do reflect the actualities of life whether you care to admit it or not.

Why Are We Telling You All This?

There are at least two reasons for us to take the time and effort to write this page. First, we don't like to see people labouring under an misapprehension. Secondly we don't like to think that salespeople talk people into buying jewellery by falsely telling them what they want to hear, that it is a good investment. Thirdly, it is our experience that a better informed customer is a better customer for us, we try to sell good quality items at good value prices in simple surroundings or by mail order.

Further Reading

You may wish to view all of our articles on our gold guide

This guide and its content is copyright of Chard (1964) Ltd - © Chard (1964) Ltd 2020. All rights reserved. Any redistribution or reproduction of part or all of the contents in any form is prohibited.

We are not financial advisers and we would always recommend that you consult with one prior to making any investment decision.

You can read more about copyright or our advice disclaimer on these links.