• Investing in luxury goods can be a source of instant gratification, while simultaneously diversifying a portfolio.
• Merely being expensive isn’t enough to make a luxury item collectible and by extension, an investment.
• Rarity, craftsmanship, desirability and critical acclaim are among the traits that make a luxury good investment quality.
Portfolio diversification as a hedge against market volatility is a strategy with which most investment experts agree. Alternative investments with minimal public market correlation can be a good way to accomplish this. Real estate, private equity, venture capital, digital assets and collectibles are among asset classes deemed “alternative investments.” Within this former category reside luxury goods such as automobiles, motorcycles, timepieces, wines, art and jewelry.
In addition to the shield from market swings, these items offer the opportunity to own something truly exquisite you can enjoy, even as it appreciates in value.In other words,, these assets can deliver instant gratification when compared to equity investments. After all, one can drive a vintage car, wear timepieces and jewelry, and display fine art or a rare wine in their home. Simply put, luxury goods can be physically enjoyed, even as they add value to an investment portfolio.
Any discussion of luxury must begin and end with the twin notions of scarcity and exclusivity. There is value in rarity., whichs is particularly true when it comes to items one does not need, but are looked upon within a society as being exceptionally desirable. Another key component of luxury is price. Luxury items fulfill wants, rather than needs, and their prices tend to be quite high.
Combined, all these factors confer a degree of status upon their owners, which only serves to make them even more desirable. This, in turn, drives their prices higher. In fact, as the price rises, desirability usually increases in direct proportion. The difficulty associated with acquiring an item adds to its value.
A good example of this is the seven-figure transaction prices for artworks by artists such as Rembrandt, Michelangelo, Da Vinci and Caravaggio. Regardless of quality, the fact that the artworks lack ready availability infuses them with an aura of exceptional value. Moreover, the fact they are longer are produced makes them more valuable as the passage of time increases the difficulty of obtaining them.
Classification as a luxury item does not automatically confer investment value. Rarity, exclusivity, the reputation of its maker, the degree of craftsmanship evident and a host of other qualities must be present to make an item collectible.This, in turn, informs its value as an investment.
To date, the highest price ever paid at auction for an automobile is $142 million. The 1955 Mercedes-Benz 300 SLR Uhlenhaut Coupé is known throughout the automotive community for its beautiful design, engineering genius, outstanding capabilities and yes, its rarity.
Only two prototypes were built. Named for its designer and chief engineer, Rudolf Uhlenhaut, the car was intended to be raced. However, Mercedes-Benz withdrew from racing after a tragic crash at LeMans in 1955, so the cars never saw action.
Thus, we have age, rarity, originality, beauty, a strong pedigree, outstanding condition and an interesting history. These are chief among the factors that make an automobile collectible as an investment. Celebrity ownership can also add value, as can association with noted automotive luminaries.
Neiman Marcus enjoys the status of garnering the highest price ever paid for a motorcycle. The company’s Neiman Marcus Limited Edition Fighter is notable for its futuristic design, carbon fiber frame, and V-Twin engine capable of propelling it to speeds approaching 200 miles per hour.
While this is a one-off bike, the Limited Edition Fighter possesses qualities valued by motorcycle collectors. These include originality, rarity, engineering innovation and, of course, good looks.
Also widely sought are bikes that sold for a lot of money when they were new, limited production handmade motorcycles, and those with an interesting history. Motorcycles fitting this description include the Vincent Black Lighting, of which less than 40 were ever built. A land speed record was set at Bonneville in 1948 on a Black Lightning.
Originality is another quality that is highly valued by collectors. An old bike with all original parts and paint will find lots of suitors. Next in line are old bikes restored to original factory specifications.
Market significance can add considerable value as well. The 1969 Honda 750 is a good example of this. With its four-cylinder engine, disc brakes, electric starter and unassailable reliability, the Honda was everything the British bikes of that time were not. As such, the 750 is credited with revolutionizing the motorcycle marketplace.
Watches, like cars and motorcycles, are machines. The difference is that a watch is a machine one can strap to their wrist and wear. This imparts a personal quality to watches that is lacking in automobiles in motorcycles.
Among the primary criteria for a collectible watch is the legacy of its brand. The age of the company, along with its reputation for quality and accuracy figure prominently. Stories associated with watches enhance their desirability as well. The Omega Speedmaster Professional, also known as the Omega Moonwatch, enjoys the cachet of being the timepiece worn by NASA astronauts on the moon.
Rolex, easily the best-known luxury timepiece brand, is well respected for the durability of its watches, as well as their accuracy and beauty. Experienced collectors and laypeople alike appreciate the brand’s reputation for fine craftsmanship, recognizability and continuous improvement.
Lesser known, but even more valuable brands include Patek Phillipe, Breguet and Vacheron Constantin.
Topping the list of the most expensive bottles of wine ever sold is a six-liter bottle of The Setting Vines 2019 Glass Slipper Vineyard Cabernet Sauvignon from California’s Napa Valley. A collector paid $1 million for it at an auction in 2019. Remarkably, a 750-ml bottle only costs $185, which brings us back to the perceived desirability of an object. Here again, though, exclusivity is a factor, as only 900 bottles of that vintage were ever produced.
The primary factors that go into making a wine collectible are its producer, scarcity, vintage, reputation for longevity, and critical acclaim. Among producers commanding a premium based upon their character are Chateau Mouton Rothschilds, Screaming Eagle, Dom Perignon and Petrus.
Longevity is critical, as wines have a shelf life by which they should be consumed. That said, this shelf life could be as high as 50 years or more in the case of a cellar-worthy wine. The vintage year is another strong determinant of value, as it has a direct impact upon the flavor of the wine — even within the same varietals. Wines produced during years considered exceptional for their type will command a higher price and appreciate in value more.
Once you get beyond the reputation of the artist, the value of a piece of art is determined largely by its history, condition and significance. The medium in which the piece is rendered plays a role as well. The style of the work also figures into its relative collectability.
Documentation of the provenance of the piece is another significant factor. Who were its previous owners? Celebrities, noted collectors and well-respected galleries figure prominently in this regard.
The historical significance of a piece to the world of art can be a powerful factor. Imagine how much one would have to pay to own the Mona Lisa or Michelangelo’s David. These pieces enjoy a prominence in the consciousness of nearly everyone, even people have no interest in art. Authenticity is another major consideration. This is particularly true today when forgeries can be produced quite easily.
Another consideration is the notoriety of the artwork’s maker. Does the artist have a compelling backstory? Did they produce a lot of highly acclaimed work? Was their career (and thus their output) cut short by an untimely death?
The subject portrayed plays a role as well. Some new collectors are surprised to learn that images of women tend to bring more than those of men. Brightly illuminated landscapes are more popular than gloomy ones and images of ships blithely sailing on calm seas tend to attract more buyers than renderings of vessels struggling in turbulent waters.
Much of what holds true for collecting art carries over to jewelry. After all, jewelry is art that can be worn. Here too, rarity, craftsmanship, materials and provenance figure strongly into determining value. This holds just as true for contemporary pieces as it does for vintage. As an example, Paris-based JAR (Joel Arthur Rosenthal) produces fewer than 40 pieces annually, guaranteeing exclusivity. As a result, his one-of-a-kind pieces — crafted beautifully with the highest-quality gemstones and precious metals — are routinely destined to perform well as investments.
Older pieces from Van Cleef & Arpels, as well as Cartier and Bulgari, attract a great deal of attention at auction. These makers are noted for their exquisite designs, unimpeachable craftsmanship and exclusivity. The period during which pieces were produced plays a role as well. Products of Van Cleef & Arpels’ Art Deco period, as well as those of Cartier are particularly coveted. So too, is work from Bulgari’s La Dolce Vita era.
Precious jewels finding the most favor among collectors include diamonds, emeralds, rubies and sapphires. Perfection in gemstones is exceedingly rare and rewarded accordingly. The origins of stones also figure prominently. The pigeon’s blood red Burmese ruby is among the most desirable of gemstones. Colombian emeralds and Kashmir sapphires enjoy elevated status as well. Recent certificates of authenticity from independent labs, along with letters from previous owners, further amplify value.
Investing in any of these items can be a clever way to diversify an investment portfolio. As mentioned earlier, diversification can serve as a hedge against both inflation and market volatility. Traditional portfolio asset allocation envisions a 60% public stock and 40% fixed income allocation. However, a more balanced 60/20/20 or 50/30/20 split incorporating 20% alternative assets may make a portfolio less sensitive to public market short-term swings.
Real estate, private equity, venture capital, digital assets and collectibles are among the asset classes deemed “alternative investments.” These were traditionally accessible only to an exclusive base of wealthy individuals and institutional investors who buy in at very high minimums — often between $500,000 and $1 million. However, Yieldstreet was founded with the goal of dramatically improving access to alternative assets by making them available to a wider range of investors.
Learn more about the ways Yieldstreet can help diversify and grow portfolios.
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