They were all over my latest copies of Forbes and the Economist: glossy ads for enormous luxury wristwatches -- excuse me, chronographs -- with even more gigantic price tags. "You never actually own a Patek Phillipe," the back cover of both my copies informed me, alongside a picture of a father and son. "You merely take care of it for the next generation."
The millionaire's choice
All these fancy timepieces reminded me of a book I read about in February's Motley Fool Green Light newsletter: The Millionaire Next Door. According to the authors, 10% of millionaires never spent more than $47 for a wristwatch. Half of them never spent more than $235. Even when adjusted for a decade of inflation (about 35%) since the book's 1996 publication, these are admirable examples of frugality. In today's dollars, that $47 watch would cost about $63, while the $235 timepiece would ring up at $317.
Sure, you could spend hundreds of times more on a fancy watch. But would self-respecting millionaires-next-door put down that kind of cash? Nope. They'd buy a cheap watch and invest the rest. Taking Patek Philippe's advice to heart, here's how those investors would fare if they earned 10% on their money long enough to pass it down to the next generation:
|
Designer Watch |
List Price |
20 yrs |
30 yrs |
40 yrs |
|---|---|---|---|---|
|
Montblanc TimeWalker |
$3,930 |
$26,439 |
$68,576 |
$177,869 |
|
Ebel 1911 Discovery |
$4,850 |
$32,628 |
$84,630 |
$219,507 |
|
Patek Philippe 5146G |
$29,700 |
$199,807 |
$518,247 |
$1,344,200 |
Maybe I lack the sentimental gene, but I think my future grandchild would rather have $1,344,200 than a hand-me-down watch.
Targeting your urge to splurge
The makers of these luxury items understand consumer psychology. They know that the holiday spirit fosters extravagance, and they "time" their ads accordingly. Wristwatch ads seem to proliferate as the holidays approach.
But instead of buying a pricey watch, consider buying shares in the companies that sell them. Movado (NYSE:MOV) shares, for instance, have risen more than 700% since its IPO in 1993, and that's not even including dividends. In 2007, luxury pinnacle Tiffany (NYSE:TIF) has significantly outperformed the S&P 500, with a year-to-date gain of around 22%. Coach (NYSE:COH) also offers some mighty fine watches, and its stock has risen about 14-fold in the past seven years.
Our consumer-based economy depends on a certain amount of holiday exuberance. But if you need a little budgetary restraint (and who doesn't?), try out our Motley Fool Green Light service. Co-advisors Dayana Yochim and Robert Brokamp lead the ideal support group for financial self-control. For access to money-saving tips, members-only discussion boards, and sage advisor blogs, start your free 30-day trial today!
