True value of a 100% tradeup policy (geeks welcome!)

[echelon6]

Date: 8/8/2007 8:20:16 AM
Author: strmrdr

Date: 8/8/2007 2:39:34 AM
Author: echelon6
Again, all those non-monetary values (e.g. ability to change your mind, etc) fades away to nothingness after 7-10 years.

Well if someone really cared about investing the money they wouldnt put the money in diamonds in the first place.
I got a upgrade policy I wont use and saved a large chunk of money over buying local. Im happy :} oh not too forget most important a kicken diamong that wifey2b loves :}
I think I won on that deal :}

Agree.

But your point doesn''t really clash with mine at all. All I''m saying is that the tradeup policy is only useful for the short term. From what I''ve observed, consumers unrealistically overvalue the usefulness of this policy, and expect to use it 10+ years down the track (as reflected by questions such as "will thsi vendor go bust in 10 years time?")

No doubt the policy has value, just not as much value as what some may intuitively perceive it to be...

 

[strmrdr]

Date: 8/8/2007 8:26:50 AM
Author: echelon6


Agree.

But your point doesn''t really clash with mine at all. All I''m saying is that the tradeup policy is only useful for the short term. From what I''ve observed, consumers unrealistically overvalue the usefulness of this policy, and expect to use it 10+ years down the track (as reflected by questions such as ''will thsi vendor go bust in 10 years time?'')

No doubt the policy has value, just not as much value as what some may intuitively perceive it to be...

ok, in your opinion on a $10000 diamond how much is the policy worth?

 

[denverappraiser]

It’s useful for anyone who finds utility in it and for others it’s pointless. The question asked in your headline is a setup for confusion because there really is no such thing as ‘true value’. In an accounting sense it’s possible to assign a number given whatever assumptions you want to include but your formula ignores the very attributes that people find to be valuable about it, as demonstrated by the comments above.

Neil Beaty
GG(GIA) ICGA(AGS) NAJA
Professional Appraisals in Denver

 

[echelon6]

Date: 8/8/2007 8:34:49 AM
Author: strmrdr

Date: 8/8/2007 8:26:50 AM
Author: echelon6


Agree.

But your point doesn''t really clash with mine at all. All I''m saying is that the tradeup policy is only useful for the short term. From what I''ve observed, consumers unrealistically overvalue the usefulness of this policy, and expect to use it 10+ years down the track (as reflected by questions such as ''will thsi vendor go bust in 10 years time?'')

No doubt the policy has value, just not as much value as what some may intuitively perceive it to be...

ok, in your opinion on a $10000 diamond how much is the policy worth?

Around $3,500 assuming 60% resale ratio, if you intend to upgrade in 2-3 yrs time (i.e. short term)

It really depends on your assumptions, but its exact value can definitely be measured for those intending to use it.

The number above is the value-added due to the policy''s existence. i.e. but for the said policy, you''d pay $3,500 more.

 

[WorkingHardforSmallRewards]

te:[/b] 8/8/2007 8:26:50 AM
Author: echelon6

Author: echelon6

"Agree.


But your point doesn't really clash with mine at all. All I'm saying is that the tradeup policy is only useful for the short term. From what I've observed, consumers unrealistically overvalue the usefulness of this policy, and expect to use it 10+ years down the track (as reflected by questions such as 'will this vendor go bust in 10 years time?')


No doubt the policy has value, just not as much value as what some may intuitively perceive it to be...[/quote]"



I haven't had anytime to look at your equations but it def. makes perfect sense. But, I know myself and others have made comments such as those when someone, in particular in a recent convo, was talking about continuous upgrades every few years until reaching the final ct goal. Of course, in that situation the upgrades would be very useful and the business going out of business or changing their upgrade policy would be a significant roadblock.

 

[aljdewey]

Date: 8/7/2007 9:21:49 PM
Author: echelon6

It''s hardly rent-free possession of your first diamond since appreciation at the rate of inflation is generally half the risk free rate of return. (i.e. put your money in the bank and you''d be better off) I did the sums, basically you end up paying around a dollar a day if you bought your 1ct, then trade-up to 2ct in 5 yrs time - that''s your rent (not to mention the risk of chipping/damage/loss during that period, which should be factored in, but wasn''t)

That''s only true IF you plan to bank the money......and if you plan to bank the money, then it means you don''t have anything to wear in those five years. So, you''re sacrificing enjoyment for the sake of investment....which is fine, except that it''s realy pretty irrelevant. (Although, I highly doubt by any number-crunching model that it amounts to $1 a day.)

People do things for enjoyment all the time; they go out to eat, they take vacations, they buy things that are non-essential to life (xbox, jewelry, home decor items).....things that you don''t *have* to have do or buy to survive, but things that enhance the quality of life.

All of this number crunching is a cute premise, but in all seriousness......if someone has to sweat the loss potential appreciation on a jewelry purchase TEN YEARS after the purchase?......s/he probably cannot afford to be considering what amounts to a luxury purchase in the first place.

 

[aljdewey]

Date: 8/7/2007 11:17:17 PM
Author: Stone Hunter

Timely thread. I like the idea of having the trade up policy. I''m not 100% sure I would use it unless I planned it out ahead of time. Like Alj seems to have done.

In truth, I never did "plan it out" ahead of time. When I purchased the .39 earrings, it was because I already had that size in the Zales stones, and I simply wanted to replace with better performing stones. At the time, I didn''t want to go bigger.

I never planned to upgrade them, but then I found a set of stones that I thought would be lovely and decided I really wanted to go bigger.

Similarly, when I bought the solitaire pendant, I did so intending for it to stay as a solitaire pendant---something to wear when I was dressing fairly casually. It was only after owning it for several months and wearing is less than a handful of times that I thought, "well, this seems to be a waste of a lovely stone. How can I parlay it into something that I''ll get more use out of?"

 

[aljdewey]

Date: 8/8/2007 12:37:27 AM
Author: echelon6
I think I''m still being misunderstood here re the true value of a tradeup policy

In the most basic term: the tradeup policy is illusory for long term exercise (i.e. anything greater than 7-10 years) and is only valuable to those who plan on trading up in the short term.

It''s not that I misunderstand your premise, echelon.......I just don''t agree with it.

You''re trying to assign a monetary value to something that isn''t meant to be an "investment" vehicle.

Some things have monetary value (a broom). Other things have emotional/quality of life value (a hug). Some things have both (a diamond).

For those items that have both monetary and emotional value, the balance of importance between monetary and emotional value depends strictly upon the individual involved. If it gives someone peace of mind to know that a vendor is likely to be stable and in business ten years later, giving her the option to trade-up her stone, that peace of mind has a value to her.

 

[partgypsy]

I love the idea of a 100% trade in/up policy, but I thank you for crunching the numbers.
To me it''s all about peace of mind. I am inherently indecisive, and diamonds are alot of money! It would be hard for me to make a buying decision to say get a pendant, without wondering, should have I gone for the stud earrings instead? Or getting a certain size stud earrings, but wondering well these seem like a great size now for me but what if I change my mind and want larger later on? If there is a trade up policy that resolves alot of those nagging questions. One has not lost all the money sunk into the previous diamond(s) but it can be put towards another purchase that better suits one''s "needs". For me there is a finite amount of money that can be spent on jewelry and this way the money can be recycled.
You know, all this information is simply going to be used for evil purposes. I can already hear "but honey, this guy scientifically calculated that you don''t get your money''s worth from a trade in unless it''s done in 7 years, so we gotta do it now!"