The Birkin index: Should this pricey handbag be part of your portfolio? | Canada Voices

Jane Stoller purchased her second-hand Hermès Birkin 35 in Orange Togo leather from Fashionphile for around US$7,000 in 2022.

If the 44-year-old Vancouver-based chief executive of Drink Glimmer Wine were to sell the bag today privately, she could make around US$14,000, doubling her money.

Back when the original Birkin debuted in 1984, the bag retailed for US$2,000. Today, the highly coveted bag is a status symbol for the uber-wealthy, starting at US$10,000 and rising to hundreds of thousands of dollars.

Given the rise in value, could a Birkin handbag be part of your portfolio?

You can’t just waltz into an Hermès store and ask to buy a Birkin. You have to build a relationship with a sales representative, often spending tens of thousands of dollars before you are offered one.

Alternatively, you can try your luck in the second-hand market where prices for Birkins tend to be even higher: They can sell for between US$28,000 and US$35,000.

Alternative assets are typically more suitable for higher-net-worth investors because of their minimum investment sizes, hold periods and lack of liquidity, says Clark Linton, a senior wealth adviser and portfolio manager at Raymond James Ltd. in Vancouver.

From 1984 to present day – the same period that the Birkin has been around – the compounded annual growth rate for fine wine has averaged a 7.97-per-cent return, art a 5.3-per-cent return, and gold a 5.94-per-cent return annually.

But before treating the bag like an asset, it helps to understand why the bag holds value at all. The luxury brand has created artificial scarcity through what many call “the Hermès game,” where buyers compete with each other, spending thousands on non-bag items for the mere privilege of being offered a Birkin bag.

People want to feel like they belong. Even those who are in a different tax bracket want to be welcomed into a community, and the Birkin bag is a status symbol of conspicuous consumption that helps achieve exactly that.

The scarcity is what makes the resale market and a private investment fund possible. New York-based Luxus gives those who are serious about Birkins as an asset class, in both Canada and the United States, an opportunity to invest.

Ironically enough, the majority of investors in their Birkin and Kelly fund are men, who see the fund’s returns and want access to the asset class.

Kendall Brodbeck, chief of staff at Luxus, says the company tries to solve this question: “Why aren’t women treating these assets the way men treat watches and cars?” Luxus raises capital from investors and deploys it to purchase Birkins second-hand from verified retailers. They are stored in a secure warehouse and resold when their value has increased.

Their first fund raised US$1-million, with a minimum investment of US$100,000. Luxus has said the fund will return 44 per cent to investors, before fees. The fund is currently limited to accredited investors because the buy-in threshold is so high.

How to approach your portfolio when markets test your nerves

Mr. Linton cautions that purchasing a Birkin for investment purposes adds additional liquidity risk to a portfolio. He said this kind of investment should only be considered for high-net-worth individuals, where less than 2 per cent of a portfolio would be in the alternative asset class.

You can sell a stock in seconds with low transaction costs, as compared to the high transaction fees, storage and insurance costs you would face when buying an actual bag.

Comparing the underlying equity’s return to that of the physical asset shows investing in the Hermès stock (RMS) yielded an 18 per cent compounded annual growth rate. That outperforms the return of the Birkin bag substantially since the company began trading publicly.

Ms. Stoller has always loved luxury bags and was excited to add one to her collection. At first, she was nervous to use her highly coveted Birkin, for fear of decreasing its value. But now she looks at it as less of an investment and more of a statement piece.

Ultimately, adding a handbag to your investment portfolio probably only makes sense for high-net-worth individuals. But if you enjoy owning luxury items, such as watches, sports cars or Birkins, Mr. Linton says they are one of the rare assets that can appreciate over time, even if you are using them.

So buy the Birkin because you’ll carry it, not because you expect it to carry your portfolio.

Janine Rogan, CPA, is a bestselling author and founder of The Wealth Building Academy.