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Are luxury assets the next mainstream alternative asset class to diversify your portfolio?

Lena Sonnen

Luxury rolex watch

Traditionally, optimal asset allocation of one’s financial portfolio is said to include equity, bonds, cash and commodities such as gold. Since luxury investments have become another alternative investment strategy to consider over the past years, there is an increasing trend to sustainably include luxury investments into the optimal asset allocation equation and rethink traditional strategies.

Statements such as “The Birkin bag is a better investment than gold” arise more frequently than ever. While these promising luxury items do not only refer to handbags or watches, also art, fine wines, whiskey or cars can be promising assets that combine passion, status and financial return. Clearly, the fact that returns on luxury items are negatively correlated with those on equities, bonds, and other collectible investments, makes them a great addition to one’s investment portfolio in order to ensure strong diversification.

Nevertheless, finding great assets to appreciate is an art in itself. Do not mistake the growing trend of luxury investments with the fallacy that just any expensive watch or fine wine will appreciate - and potentially even outperform the S&P 500! In fact, finding the right items to invest in requires a high level of market knowledge. Looking at a specific example, the Rolex Submariner has appreciated by +297% between 1994 and 2016. Yet, what sounds like an amazing investment opportunity might blind some investors today expecting the model to keep the appreciation trend for the next 20 years. In reality, the model could as well stagnate in value while there is even a chance that it decreases in value again. Of course, naturally investing comes at a risk. Yet, the advantage of expertise and market knowledge especially for newly released luxury items is that the next big hit can be better forecasted, e.g. for a newly released limited edition timepiece by Patek Philippe. While it is often not the obvious that will face the highest appreciation in value but rather a timepiece so rare that you never heard of it and would certainly not think about investing in it.

Since wealthy people are increasingly buying into these “real” luxury assets such as watches, art, wine etc, the broader population is starting to consider these strategies as well. Therefore, while the trend of luxury assets becoming the next widely used alternative asset class is growing substantially, it requires either some substantial research or a trusted expert, like Konvi, to benefit from high value appreciation. However, as the sweet spot of highly appreciating items is said to lay within watch items above $250K, it is hard for normal people to overcome these high entry barriers in terms of minimum ticket size. Konvi is a crowdfunding platform that allows the broader population to overcome these barriers while being able to access the rarest and highly priced luxury watches with a minimum value of $250K.

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