Section One: Introduction
In the current setting, when financial markets are extremely volatile and stable traditional investment options yield very little, an increasing number of investors tend towards a unique and extravagant avenue of luxurious items. In this article, we will discover recent trends in luxury investments, as well as discuss whether such options are at all viable in delivering higher returns than more common options.
Section Two: Recent Growth Spikes.
When considering luxury items for investments, the biggest argument in favour has been the seemingly unstoppable rise in value. A popular example of the above is luxury watches. Rolex Daytona 116500LN, retailing for just under ￡13,000, can be resold the same day for over ￡31,000, a staggering 138% yield. As seen from the chart below, luxurious watch brands have been consistently outperforming both the S&P 500 and the Bitcoin Cryptocurrency, with Patek Philippe and Audemars Piguet pulling noticeably ahead in the sprint.
In considering the reason for the unthinkable growth of such assets, conspicuous buying cannot be underestimated. The allure of owning a highly sought-after collectable goes beyond the intrinsic value of the item. This leads to growing aftermarket prices, which only further creates an image of desirability, boosting the demand again, and creating a looping chain that only keeps increasing the prices.
Section Three: The Detriments
However, it is also important to note that investment in luxury items comes with its own set of risks. First and foremost, the market is easily influenced by several factors, such as consumer preferences and shifts in cultural trends. Such changes may reduce the value of the good, and in severe cases, may bring it lower than even the retail price.
Aftermarket prices of Yeezy 350 V2 sneakers - StockX
Another important detriment to consider is authenticity assurance and condition. Generally, such goods only keep their value for as long as they appear unworn and unused, so any visible damage may cause the market value to decrease. Furthermore, the authenticity of a lot of the items is unverifiable, which discourages potential buyers from extravagant purchases. Storage costs must also be noticed, as such intricate items will likely require careful storage, which also comes at a cost.
Last but not least, such items are oftentimes relatively illiquid. Although a certain item may be desirable and have a high market value, the effective demand for it will be much lower, as a high upfront cost may discourage buyers from purchasing the good on the secondary market in favour of waiting far longer on the retail market. Thus, a designer handbag, for example, will sit on a shelf for a very long time until sold, making it illiquid, in addition to a likely depreciation in its value over time.
Section Three: Key Takeaways and Conclusions
Overall, luxury goods have become legitimate investment possibilities, however, returns may only be maximised when the investor has pre-existing connections with the brand, as otherwise it is unlikely that they get their hands on a desirable item. In addition, the investment of choice must be prudently chosen, and authenticity and condition must be verified, as illegitimacy may render the product valueless.
Sources:
“The Top 5 Investment Watches of 2022.” Chrono24 Magazine. Accessed May 22, 2023. https://www.chrono24.co.uk/magazine/the-top-5-investment-watches-of-2022-p_87084/#gref.
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