Whether you enjoy whisky, wine, watches or art, investing in your passion is not only satisfying emotionally but also it can be rewarding financially. Luxury collectables that are investment grade are a great way to diversify your portfolio while also expanding your own collection. With passion investments on the rise, we look at the benefits of art over other asset classes.
The idea of collecting luxury items as a financial investment originates from the Victorian era with the phenomenon of elite members of society collecting rare curios from travellers who ventured far and wide. More than just enjoyed and displayed in Cabinets of Curiosities, these rare items were traded or sold on for profit, acting as a harbinger for the way ultra-high net worth individuals invest in passion assets today.
Investment-grade collectibles provide diversification benefits for portfolios and also help to hedge against inflation. With the COVID-19 pandemic proving the need for diverse assets, there has been a move towards passion investment in recent years. The average lot value at Christie’s for luxury sales online was over three time more in 2021 compared to 2019, with the average values being £14,200 and £4,500 retrospectively. In 2021, all the major passion asset categories saw an increase in price over the course of the year including rare books increasing by 5.7%, jewellery increasing by 2% and art increasing by 13.5%. More than ever, investors are realising that they can turn their passion into profit.
The breadth of passion investment is ever-growing with a range of luxury collectables all being considered investment grade assets. However, how we consume each of our passions is unique to their category. For fine wines and limited-edition whisky, we might wait for a special celebration to open and drink it. For handbags and watches, we may wear it to momentous occasions, making an extra effort to remain careful as not to damage their condition. For classic cars, we might take them for a spin once a year. All these luxury assets, although intrinsically linked to investor’s hobbies and personal interests, cannot be freely enjoyed without depreciating in value. As we consume or use these items, their potential for financial returns decreases.
In contrast to this, to enjoy art, we must simply look at it. As a result, art is one of the only passion investments that can appreciate in value as you appreciate it in your home. As the enjoyment of it and its value retention are not linked, it is no surprise that Deloitte notes that 85% of wealth managers recommend including art in a balanced portfolio.
According to Arts Economics 2021, 61% of high-net-worth collectors reported allocating over 10% of their overall portfolios of wealth into art and this can be linked to the multitude of financial benefits that investing in art possesses. Investment-grade artwork is distinct from other asset classes in that its returns have a low correlation with the return on stocks and bonds. This lack of correlation reduces risk levels and volatility. As a result, historically, art outperforms the stock market during economic downturns. In addition, art is considered a refuge during periods of high inflation, so when the purchasing power of currency deteriorates, art retains its value.
However, it is not just the financial benefits that has led to 30% of millennial collectors having more than 30% of their wealth held in art (Arts Economics 2021). Owning art has many emotional benefits that arguably far outweigh the consistent economic returns that come with investing. It is proven that owning art enriches your quality of life, improving your personal well-being through the aesthetic pleasure of enjoying artwork in your home. The rich history of art means that collecting will challenge and stimulate you intellectually, giving you a unique insight into a human experience that can only be accessed through the power of art.
Yet, more importantly than all this, art tells a story. The story of the artist, the story of an era, the story of you. Starting an art collection speaks to who you are as a person. It becomes a physical representation of your beliefs and passions, as well as starting a legacy for you to pass on to younger generations.