Alternative Investments – Luxury Collectibles, A Growing Asset Class
In our new infographic below, we examine a unique alternative investment category — luxury collectibles. Along with the infographic, download our latest article on alternative investments here – https://bit.ly/3gKB4KM
Alternative Investments: Luxury Collectibles as a Growing Asset Class
In the wake of the 2008 financial meltdown and the uncertainty of the global pandemic, investors have increasingly turned to alternative investments. Concerned that traditional stock markets no longer offer reliable capital preservation, many have sought new opportunities. Luxury collectibles, such as fine wine, art, jewelry, and watches, have become popular asset classes, offering low correlation to the market and potential for high returns.
Fine Wine
Investing in fine wine has gained traction as an alternative investment, particularly in times of market instability. After the 2008 crisis, the Liv-Ex 100 Index saw a remarkable 40.5% return. Even more recently, fine wine prices have continued to climb, with a 5.16% quarterly growth in 2021. The wine market is influenced by factors like weather conditions and vineyard locations, which can limit supply and drive up value. Additionally, the growing demand from Asian markets, especially for Bordeaux wines, has further fueled this growth.
Art Investments
The art market has also seen significant returns, with a valuation of $67.4 billion in 2018. According to Citi, art investments, particularly in contemporary works, have yielded an average annual return of 7.4% from 1985 to 2018. However, art markets are subject to fluctuations based on demand, taste changes, and economic conditions. New sectors like NFTs have brought fresh interest but remain highly speculative.
Jewelry and Watches
Jewelry and watches are other appealing alternative assets. The jewelry market reached $264 billion in 2020, and luxury items like rare gemstones and high-end timepieces have appreciated significantly. For instance, colored gemstones have seen a 70% increase in value over ten years. These items provide diversification, as their value does not correlate directly with stock market movements.
Risks and Considerations
While alternative investments in luxury collectibles can be profitable, they come with risks. These markets lack liquidity and pricing transparency, making them challenging for inexperienced investors. Additionally, the risk of fraud, as seen in the case of counterfeit wine, adds another layer of caution. Many collectibles also require maintenance, storage, and insurance, further increasing costs.
In conclusion, luxury collectibles offer a compelling option for portfolio diversification and hedging against traditional market volatility. However, investors must carefully consider the unique risks and market conditions associated with these assets.
