Non-Traditional Investments -> Luxury Goods

I typically focus on traditional investments like stocks, bonds, real estate and commodities, but I want to mix it up today. There are other investments that may be more interesting and, certainly, more tangible / usable.

Knight Frank, global real estate consultants, compiles a luxury investment index that includes:

  • Fine art
  • Wine
  • Watches
  • Coins
  • Jewelry
  • Collectible autos
  • Stamps
  • Furniture
  • Colored diamonds
  • Chinese ceramics

What you’ll notice is that this list is populated with luxury goods that can be used or enjoyed within your home on a daily basis. There is something to be said for having some portion of your net worth invested in quality items that will last and can be enjoyed for many lifetimes.

You don’t have to be uber-wealthy to participate…even younger folks can dip their toe in the water. In fact, it’s probably more advantageous for younger folks to participate because they get to enjoy these luxury items for longer. For example, a person just graduating from college and embarking on their first job may fill their apartment with Ikea stuff to cover the basics but then gradually add nice, quality pieces they love over time.

The trick with luxury goods, however, is that you have to be somewhat knowledgeable, if not an outright connoisseur, to know what the heck you’re buying. Because there is so much money in these items there are fakes and folks selling overpriced items to unassuming buyers. So, as with any investment, do your research and know what the heck you’re buying! I actually think the research would be a fun activity with a spouse. It may become a new common interest and activity in which you both participate… learning together.

At an absolute minimum, buy quality pieces that really speak to you whether it be fine art, furniture or anything else. After all, the assumption is you’re spending good money on these items so it better be something you love. Don’t buy these items merely to make a quick buck or to “keep up with the Jones’.” Invest in items that you’ll truly enjoy, cherish, and value over time.

Besides, if an item speaks to you that loudly then chances are it speaks to someone else just as loudly and will stand the test of time. Those are the items that hold their value, or even appreciate, over time.

Knight Frank produces returns of their luxury good index along with returns of the individual components. See below for 12-month and 10-year performance. Notice furniture appears to have been lagging. The biggest returns over the last decade have been in collectible autos. Art provided the best returns in 2017 as a result of the Salvador Mundi painting that sold for $450 million.

 

Of course, there are many risks to investing in luxury goods (1) outright fraud, (2) opaque markets, (3) illiquid, (4) subjective valuations, (5) potential for price depreciation in deflationary environments, etc…. But, again, all that speaks to the reason for only buying things you’ll enjoy for many years to come.

Past performance is no guarantee of future results. This is not intended as a recommendation but merely general education.