Everyone owns things that don't gain in value as time passes. Talk about home appliances, furniture, clothes and electronic gadgets. In finance parlance, they are called depreciating assets.
These are the kind of stuff that don't provide you some financial gain should you decide to re-sell them in the future. Actually, they've been decreasing in value since the day you purchased them. They're the opposite of things that you can make money out of, such as a property or a sought-after art piece.
The reality is it's hard to avoid not buying any depreciating assets because many of them are essential to our survival. Consider the most basic things like clothes, if you don't have them, how do you think you will survive? Financial experts are quick to point out that people purchase things because of their utility, not because they will gain in value over time.
That's why the general definition of an asset, according to James Thomas of Acuma Wealth Management, is "a resource with economic value that is owned with the expectation that it will provide future benefit."
"So by this definition, very few assets are knowingly purchased if they will fall in value. Accountants sometimes refer to depreciating assets, but this is generally a term to show how a particular item has fallen in value," Thomas explains.
"The item was never purchased to increase in value, it was purchased to perform a function, and that function was worth enough to the company [or person] to actually buy the item in the first place and examples could be computers or cars or machinery."
To keep your finances sane, it is crucial therefore that when buying something, you should consider if you can live without it or if it's worth spending your hard-earned dirham on. With this in mind, we have asked financial experts to identify which big-ticket items will not offer you some financial gain in the future and if you have any plans of buying or investing in any of them, it is worth weighing the pros and cons.
Many women love jewellery. Who can resist the allure of a sparkling pair of diamond earrings, a bracelet of fine silver or a stone-studded necklace? Before you make a dash for your nearby jewellery shop and grab one, consider that the bulk of your money spent will be gone for good.
No matter how much people say that buying jewellery is a form of investment, those who tire themselves of their ornaments and re-sell them in the future always end up losing a part of their capital.
"Jewellery is like a new car — take it away and lose half the price paid immediately," says Steve Gregory, managing partner at Holborn Assets.
Sarah Lord, wealth planning director at Killik & Co (Middle East and Asia), however, says that whether or not used jewellery will gain in value is very much dependent on the item purchased. She notes that with the appreciation of the yellow metal's prices, quality gold jewellery has also increased in value. "Jewellery tends to be a longer term play in that it is likely to increase in value over the longer term. The key as far as jewellery is concerned is whether it is being purchased for pleasure or as an investment. If for pleasure, then typically less attention is paid to the actual item and its likely value in the future," she says.
"Whereas, if you are purchasing jewellery as an investment, careful consideration needs to be given to it and a number of factors such as the material used (example silver, gold, platinum), the quality of the material used, the style of the item."
Owning a boat is a dream for some people, but this may not be a good investment because it is expensive to maintain and it devalues as the years go by. "Owning a boat is typically a very expensive pastime as there are a number of associated costs, most notably the marina fees where it will be berthed while it is not in use," says Sarah Lord. "Typically, other maintenance costs can be high too, so anyone who is looking to invest in a boat needs to ensure that they have done their homework as to the full annual cost they are likely to incur to maintain the boat."
Steve Gregory, managing partner at Holborn Assets, agrees, saying that boats are "expensive to buy, expensive to run, expensive to service and difficult to manage." "Some owners make a full-time business from marketing and managing short-term rentals, and do so profitably. Larger boats require staffing and full-time experienced staff are not cheap. With time, most boats depreciate in value, as they become more prone to repair needs when older."
Experts calculate that as a rule of thumb, a vehicle loses about 15 to 20 per cent of its value every year. In fact, if you went out last weekend and splurged Dh100,000 on a spanking-new four-wheel drive, it now costs thousands of dirhams less. So if you change your mind and decide to return it today, you're not likely to get back the original purchase cost.
"Most new cars will depreciate in value, with different brands depreciating at different rates," says Thomas.
"Typically, as soon as you drive a car away from the showroom it has lost money," adds Lord.
Generally, if you buy a timeshare, you earn certain rights to use a property, such as a suite, a condominium unit or a lodge at a luxury ski resort. Timeshare holders are entitled to a certain amount of time every year, say one week, in which they may stay in the property.
Most timeshares are popular among vacation-goers who have plenty of cash to spare. You probably think you have earned enough money to buy one, but it is strongly advised you think it over first. Some financial advisers argue that the value of timeshares tends to depreciate over time and if you decide to sell them later, you're not going to recover what you had originally spent.
"Timeshares generally fall in value and there are a number of reasons for this," notes Gregory.
"Usually, the marketing costs are a major part of the payment made to a timeshare company. People who buy popular timeshare locations are not the ones that want to sell a few years later, but those who wish to have access to properties in less popular places and find it difficult to arrange swaps or to sell their ownership. Where there is no demand, values fall."
But Lord says it all depends on the location of the property you choose to invest in. "Timeshares are very much dependent on their location as to whether they maintain their value over the longer term. If it is a timeshare in a sought-after location, it is far more likely to hold its value and indeed in some cases where there is limited supply the value can increase," says Lord.
"However, timeshare properties can be, for many, a depreciating asset as historically more timeshares have appeared in the same vicinity and therefore there has been more supply with less demand, which typically pushes the prices down."