For some investors, the digits and graphs of a monthly statement - even one yielding positive returns - simply isn't all that engaging or satisfying. They want to put their money to work in a different way, earmarking at least a portion of their funds for buying up tangible assets that bring a bit of color and personality to their portfolio while (hopefully) appreciating over time.
If that kind of glamorous investing sounds intriguing, this primer can help you dive in.
Why invest in luxury items?
Many invest in tangible assets out of pure passion for a particular item - say, sculptures or classic cars - hoping to turn an interesting pastime into a winning investment. It also can be a great avenue for diversifying your portfolio - which most financial advisors will agree is a smart move that may help ensure you aren't exposing all your assets to the potential turbulence of the financial markets.
Of course, this strategy will only work if your luxury item of choice proves to be a sound investment for the long term.
Choosing items for investment
So how do you turn a personal affinity into an investment boon?
The first step is to recognize that, though there is a wide array of luxury items from which investors can choose, some tangible assets are obviously more likely to appreciate than others.
For instance, the value of classic cars increased 400 percent between 2005 and 2015 according to the Knight Frank Luxury Investment Index - good news for those with an affinity for 1960s Mustangs or Lincoln convertibles. Likewise, if you purchase a collection of your favorite artist's paintings at the right time and price, you could bask in the process of acquiring these works while also building a rich legacy to leave your children. Or you could wear fine watches or jewelry now and cash them in for a profit down the road. If wine is your thing, you may not get to enjoy drinking any rare bottles if you view them as investments, but you may relish the experience of locating, selecting and maintaining them. (According to Knight Frank, the value of rare wines has increased 240 percent in the past decade.)
Real estate is a more common investment than some of these other items, but it can be equally profitable - and enjoyable. When you purchase a second home or recreational property, it can offer entertainment and enjoyment as well as an appreciable asset.
The key is to do your research and find the points where your personal interests and the chance for profitability intersect.
Making it work
Interested in investing in luxury items? Think carefully about your goals and timing. If, for example, your item of choice will likely take 20 years to appreciate significantly, but you want to see a return in 10 years, it won't be a wise investment. If your ideal investment timeline complements the appreciation timeline of your items of interest, however, you’ve potentially found a good fit.
Another smart strategy is to consider acquiring an entire collection - such as a series of prints from a favorite artist or a compilation of first-edition books from a famous author - even if it will take several years. Serious investors in luxury items usually don't just have one classic car or work of art - they usually have an entire collection, which makes each part of the whole more valuable.
And finally, you'll need to pay for upkeep, storage, maintenance, and insurance to maintain your investment, so, before you move forward, remember to factor the costs involved in keeping your investment safe and in optimal condition into your decision-making process. For example, if you're investing in rare wines, you may need to construct temperature-controlled wine storage. Or if you're hoping to collect vintage automobiles, you'll need appropriate garage space.
If the luxury items that interest you appear to be a good fit for your investment strategy, you may find that they become more than treasured possessions - they may also add profitable gains to your portfolio.