When I read about a new Louis Vuitton handbag the other day, my eyebrows hit the ceiling. The bag's appearance alone might have done the trick, as it's exceedingly ugly. But it was the price tag that really got me: $42,000.
OK, you deserve a shock, too -- so go ahead and take a peek. As you can probably tell, it's a patchwork piece, featuring a bunch of different patterns from past handbags. Apparently The New York Post has dubbed it "Frankenbag," which fits it well.
Reading about it, though, made me think of two things. First off, it's hard to believe, yet true, that some people can think of no better use for $42,000 than to buy a ghastly handbag. The sum isn't too far off from the down payment on my house! You could invest that $42,000 in an S&P 500 index fund, and if it earns the market's historical average annual return of 10% over the coming 20 years, you'll end up with close to $300,000. If you invested instead in some carefully selected companies that grew by an annual average of, say, 13%, in 20 years you'd have close to $500,000. And you might fare even better. For example, over the past 20 years, Target
My next thought stemmed from a feeling of internal smugness as I gazed on this train wreck of a handbag. I was thinking about how smart I was, to not be interested in wasting money like that. But then I realized how often I (and others) do spend huge amounts on dumb things. It kind of depends on how you look at it. For example, let's say I'm drooling over a bright red front-loading washing machine. But it costs $1,200, while I can buy a perfectly good traditional top-loader for $600. If I bought the less expensive one and invested the $600, it would grow to more than $4,000 over 20 years in my index fund. So by buying the more expensive item, I'd be giving up $4,000 that I could enjoy as I approach retirement. Would it be worth it? Perhaps -- the more exciting washer would offer more enjoyment, and some energy savings to boot. But it's worth considering alternatives. If I spend $500 spiffing up my backyard myself instead of spending $6,500 on a landscaper, I can invest $6,000 and end up with $40,000 in 2027.
Next time you find yourself mulling over a big, discretionary purchase, ask yourself whether you're staring at the equivalent of a $42,000 handbag.
Of course, if you're looking to do better than an index fund, you'll have to find stocks that will get you there. Over the past five years, recommendations from our Motley Fool Stock Advisor have racked up a solid record of outperformance, beating the S&P 500 by 40%. You can take the service out for a spin for free with no obligation.
Longtime Fool contributor Selena Maranjian appreciates your feedback. She does not own shares of any company mentioned.
