Stock market investing is all about making the right choices, starting with the company whose stock you pick. If you consume luxury goods then you might wonder whether investing in these stocks makes sense or not, so what are the key factors to take into account?

There’s no simple definition of what makes a luxury stock. You’ll see the likes of Apple and Tesla included on some lists, but not everyone agrees that these are luxury brands. LVMH Moët Hennessy Louis Vuitton is one of the names that most people agree should be on the luxury stocks list. With brands such as Louis Vuitton, Fendi, Givenchy and Bulgari under its wing, this company’s shares are traded on the Paris Stock Exchange

Richemont is another name that has to be part of this conversation. As one of the biggest companies on the Swiss stock exchange, it controls brands such as Cartier, Montblanc and Dunhill. Like LVMH, part of their success is due to offering a huge range of diverse products across different sectors, including fashion, jewellery and accessories.

Are They Good Investments?

Like any sector, luxury companies can suffer changing fortunes that cause their share prices to fluctuate. No matter how well-established and much-loved a brand is, there’s as much risk of them losing money due to changing trends and emerging technology as with other stocks. That’s why many investors look at conglomerates like those mentioned earlier, as their presence in numerous markets helps to lower the risk.

While investing in a single company leads to potential volatility, an index can help you to diversify and lower risk. The S&P 500 futures chart includes companies that make up 80% of the overall market capitalisation on the New York Stock Exchange and the NASDAQ exchange. This is one of the Standard and Poor indices that attract trillions of dollars of investment, and while they don’t have a luxury focus, they include brands such as Apple and Tesla that could be considered as luxury, alongside everyday brands like Starbucks and Coca-Cola.

An example of the risks in the luxury sector comes from the recent news about Watches of Switzerland, which is a company that distributes Rolex and Patek Philippe models as well as other high-end watches. The move by Rolex to take more control of their retail operations by buying the Bucherer network of stores caused their share price to drop, with analysts undecided whether it will bounce back soon.

If we go back to LVMH, they’ve recently been announced as a Premium Partner for the Paris 2024 Olympics, which should raise their global profile even further. Other news stories in the last month or so report that their sales have slowed down in the US but recovered in China, indicating how difficult it can be to get an overall picture of the current situation for such huge companies with a presence in numerous global markets.

Like any stock market investment, luxury brands can be volatile. However, you may feel that picking a company that you trust and have a good relationship with is a worthwhile way of choosing your next investment.