July 26, 2016
If you imagined that buying a smartphones in this day and age would be a good investment, then you may want to rethink your investment strategy. While smartphones are certainly popular and retain a lot of nostalgic value, the unfortunate truth is that they tend to rapidly decrease in monetary value.
Smartphones have a cost depreciation problem which makes them a poor choice for an investment tool. While other collectables, such as old toys tend to increase in value over time, smartphones simply do not have the ability to retain their release date value even over the short term. To give you some idea how serious this problem has become, it will help to look at what has been occurring with smartphone values over the last few years.
Your Car Depreciates Slower Than Your Smartphone
In a recent study, smartphones were pit against automobiles to determine which product produced the highest amount of depreciation. Immediately after driving your car off the dealer’s lot, the average rate of depreciation your car will experience is around 20-percent. While this is a relatively decent amount of depreciation, the average amount of depreciation for smartphones has shown to be more than three times that amount: reaching around 65-percent depreciation.
The shocking difference is not so much how wide the gap in depreciation is between these two product types, but in how fast they depreciate. For smartphones, this average rate of depreciation can occur as quick as a month after the purchase has been made. In the case of automobiles, the 20-percent rate of average depreciation holds strong for at least the first year after purchase. One reason often overlooked for the depreciation of smartphones is the fact that so many smartphones of a given type are made. This factor alone exposes that modern mobile phones, in general, lack overall scarcity; hence, making it difficult for smartphones to retain value even in terms of a collectability strategy.
However, as time goes by and more smartphones are damaged and trashed, this may make finding mint condition models difficult to obtain. If this happens, it may eventually create a demand for hard to find models. Otherwise, there will be little hope in the long term outlook of smartphone values rebounding to at or above their release date price.
Android Versus iPhone Depreciation
While one might expect mobiles to depreciate about the same amount across the board, the numbers show that iPhones have a tendency to depreciate slower than Android smartphones. As far as Android products go, the HTC One M9 experienced a 65-percent rate of depreciation within the first month of its release. By comparison, the Samsung Galaxy S5, fared slightly better only experiencing a rate of depreciation of 50-percent two-months after its release.
On the iPhone end of the market, depreciation rates were less pronounced, except in the case of the 16-GB iPhone 5, which actually experienced a 66-percent rate of depreciation within eight-months of its being released to market. Some analysts cite the reason for this hefty rate of depreciation to be related to the release of the iPhone 5s occurring too close to the release date of the iPhone 5. On the other hand, the iPhone 4 only experienced a 61-percent rate of depreciation in the first five years since its 2010 release. This works out to being only about one-percent depreciation per month over the five-year duration.
Tech Changes Create Depreciation in Smartphones
As with many computers, which are no longer sought after today, smartphone values suffer from the introduction of newer, faster technology coming to market. Consumers see little value in holding on to slower technology, when they could be operating at much higher speeds and acquiring smartphones that sport the latest bells and whistles. As a result, the perception of demand for last generation smartphone products tends to decline as soon as something more impressive is available for consumer purchase.
Smartphones have also seen a steady increase in price over the years, with premium models of today easily costing $1000, which just goes to show how important they have become in our lives. It is uncertain how this trend will change, if at all, when smartphones truly reach the limits of their mechanical evolution.
Most Smartphones Simply Can’t Retain Their Value
Whether you are an iPhone or Android user makes little difference. Smartphones, in general, tend to have a difficult time retaining their value. Within a short time, after being released, most smartphones experience upwards of a 65-percent drop in value. In short, this rate of depreciation tends to suggest that smartphones are not a sound investment vehicle: either for long-term collectability or short-term use.
In other words, if you buy a smartphone today, you should expect to sell your smartphone at a significant loss down the road, if you can find anyone interested in buying your used smartphone at all. Of course, you should ask yourself, why would anyone want to buy your used smartphone when they are always releasing newer, faster models?
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