Buying Jewelry for Investment and Source of Emergency Fund

Posted by under Personal Finance . Published: January 29, 2018

Is it a good idea to invest in jewelry? How about using them as a source of your emergency fund?

Some people think so. Particularly because the value of gold and precious gems can appreciate through the years. So it follows that it is a good investment, right?

Well, that’s not necessarily true.

Jewelry as Investment

Jewelry prices can be quite subjective. And the value of precious metals and gems, such as gold, silver, and diamonds, are incredibly volatile.

In fact, their prices go up and fall down at a greater pace and magnitude than the stock market. This makes it relatively a more risky investment that stocks.

Here’s the 100-year historical US Dollar price of Gold. Notice how there’s no significant trend to the price, or at the very least, it’s just a sideways movement.

And here’s the 100-year historical price of the Dow Jones Industrial Average, which is like the Philippine Stock Exchange Composite Index. While the price fluctuates, it nevertheless shows an upward trend.

Both charts are inflation adjusted, and thus accurately shows how investing in gold is more nerve-wracking and panic-inducing, especially for long-term investors.

Additionally, as I’ve observed from those who like buying jewelry, most of them actually have no plans of selling them for profit, especially when gold prices are up.

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If that’s your mindset, then whenever you buy jewelry — you’re simply acquiring an asset and not an investment. Because an investment should make you money.

In fact, the only time they’d consider selling their jewelry is when they really need cash. Which brings us to the second reason why people foolishly buy them — as a source of emergency funds.

Jewelry as Emergency Fund

When you need money, you can pawn your jewelries to get cash. But is that a smart money move? Apparently not.

Pawnshops will only give you up to 70% of the value of the jewelry as cash. And you need to pay the interest if you want to get it back.

So wouldn’t it be better to just put cash in the bank as your emergency fund? This way, when you need money, you can get 100% value and there’s no interest fees to pay.

Of course, there’s also the option of selling them.

But there’s a financial emergency and time is of the essence. This means you’ll most likely sell them at a discounted price, that is if you can find a buyer at all, which is another challenge in itself.

In the end, having cold, hard cash saved in the bank or tucked away in a low-risk investment is still the best option for an emergency fund — not jewelry — and similarly, not designer bags, not luxury watches, not antiques, not artwork.

In Summary

There’s nothing wrong with buying jewelry. Go ahead and buy them if you’re fond of wearing them, or as a gift for your loved ones.

But never buy jewelry if your mindset is to have it as an investment or a source of emergency funds. It’s better to just invest your money in paper assets or keep your cash handy in a savings account.

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