Passion & Luxury Investing

Wealth diversification takes many forms, and for affluent investors, that wealth offers the ability to pursue personal passions and interests. Investments in this category, termed “passion investments" or "luxury investments," combine the potential for financial return with the personal enjoyment derived from owning rare collectables and valuable items. In this article, we explore the unique assets high-net-worth (HNW) investors purchase to diversify their portfolios. We also talk about some of the reasons behind these acquisitions and, most importantly, the kinds of returns some luxury investors have seen over the last 20 years. Who knows – you may find a few ideas that spark your interest too!

Collectibles: The Heart of Passion Investments

Collectibles are a primary avenue for passion investments. These assets typically appreciate as well as offer one personal satisfaction and cultural significance. Unlike traditional investments, collectibles such as fine art, watches, wine, automobiles, and boats offer a tangible connection to history, craftsmanship, and artistry that resonates on a personal level.

Collectibles often come with stories, heritage, and an aesthetic appeal that enrich the investor's life beyond mere monetary value. The joy of owning a rare painting, a vintage timepiece, or a classic car offers emotional appeal and potential increased investment returns. These benefits make collectibles the quintessential expression of passion-driven investing. Come along as we discuss several popular categories of luxury collectibles among affluent investors.

Fine Art

Investing in fine art is a popular choice for many wealthy individuals. The art market has a long history of potentially delivering substantial returns. Masterpieces by renowned artists have the potential to appreciate significantly over time. The value of works by artists like Picasso, Warhol, and Monet have consistently risen, often fetching millions at auctions. Beyond financial returns, owning fine art allows investors to enjoy and display beautiful and culturally significant pieces.

Over the past 20 years, the art market has shown impressive resilience and growth. According to the Art Market Report by Art Basel and UBS, the global art market reached $64.1 billion in 2019, with a compound annual growth rate (CAGR) of around 6% from 2000 to 2019. High-quality pieces by established artists tend to be the most lucrative.

Watches

Luxury watches are another favorite among HNW investors. Brands such as Rolex, Patek Philippe, and Audemars Piguet are renowned for craftsmanship, exclusivity, and historical significance. Values of collectible watches offer the potential to appreciate, especially those categorized as limited editions or vintage models. A more recent example includes Paul Newman's Rolex Daytona watch, which sold for $17.8 million in 2017, highlighting the significant returns rare pieces achieve.

The watch market has seen consistent growth, with some timepieces appreciating at a CAGR of 5-10% over the past two decades. Collectors and investors value these watches, not only for their investment potential, but also for engineering marvel and timeless designs.

Wine & Bourbon

Fine wine is another asset that appeals to wealthy investors. Rare and vintage wines from prestigious vineyards like Bordeaux, Burgundy, and Napa Valley can appreciate significantly over time. Wine investments offer the unique advantage of being both a collectible and consumable asset.

The fine wine market has shown steady growth, with indices like the Liv-ex Fine Wine 100 demonstrating a CAGR of approximately 8% over the past 20 years, driven by limited supply, increasing global demand, and the intrinsic pleasure of enjoying a fine bottle of wine.

Additionally, bourbon collecting emerged as a growing passion for investors, blending connoisseurship with potential financial returns. As interest in premium spirits, particularly bourbon, continues to rise globally, rare, and limited-edition bottles are highly sought-after commodities among collectors. High net worth individuals appreciate bourbon collecting not only for its investment potential, but also for the cultural and historical significance. Distilleries with centuries-old traditions, coupled with the scarcity of certain releases, contribute to the exclusivity and value of these spirits. Beyond financial gains, bourbon collecting offers enthusiasts the opportunity to appreciate craftsmanship, explore flavor profiles, and build curated collections that reflect their personal tastes and preferences. With some bottles appreciating significantly over time, bourbon collecting stands as a sophisticated niche investment, appealing to those who appreciate both the artistry and the potential profitability of rare spirits.

Automobiles

Classic and exotic cars are popular investments for those passionate about automobiles. Brands like Ferrari, Porsche, and Aston Martin are not only status symbols, but also investment assets. Rare models, especially those with historical significance or limited production, have the potential to appreciate considerably.

The classic car market has experienced robust growth, with some models appreciating at a CAGR of 10-15% over the past two decades. The joy of owning and driving these mechanical masterpieces adds an emotional return in addition to possible financial gains.

Boats

Luxury yachts and boats are another category of passion investments, offering the ultimate in leisure and lifestyle, providing both pleasure and potential financial return. Custom-built yachts and those from prestigious manufacturers can hold or even increase in value, particularly when maintained in excellent condition.

While the luxury boat market is more volatile than other collectibles, values are more heavily influenced by trends and the economic climate, but the lifestyle benefits are unparalleled.

Real Estate: Beyond Traditional Investments

Real estate is a cornerstone of diversification for many affluent investors. Beyond traditional property investments, HNW individuals often invest in unique listings and luxury properties, including vacation homes, historic estates, and urban penthouses.

Luxury real estate offers investors a tangible asset with lifestyle benefits. Over the past 20 years, prime real estate markets like New York, London, and Hong Kong have shown impressive appreciation. According to the Knight Frank Wealth Report, luxury residential property in these cities has seen a Compound Annual Growth Rate (CAGR) of around 5-7% over the past two decades.

Business Ventures: Combining Passion and Profit

Investing in business ventures allows affluent individuals to combine a passion for entrepreneurship with the potential for significant returns. Examples include funding startups, acquiring existing businesses, or investing in private equity and venture capital.

Successful business ventures potentially offer substantial returns, often outpacing traditional investments. Historically, early-stage investments in tech companies yielded extraordinary returns over the past 20 years. Beyond financial gains, these investments allow investors to influence and contribute to industries they are passionate about.

The Fun Side of Affluent Investments

Affluent individuals typically invest in assets that not only promise financial returns, but also offer personal enjoyment and satisfaction. Over the last 20 years, passion, and luxury investments such as fine art, watches, wine, autos, and boats have delivered some impressive returns, while real estate and business ventures continue to be popular options for wealth diversification.

Understanding the complexities and potential returns of these unique investments is crucial. While the financial gains can potentially be substantial, the personal enjoyment and lifestyle benefits these assets provide are equally valuable on a personal level. For wealthy investors, combining passion with investment strategy creates a fulfilling and potentially lucrative approach to wealth management.

At ClearPlan Wealth Management, we enjoy exploring passionate investments too! We offer exclusive bourbon tasting events to explore unique collections and batches. Come out and join us! Contact us or email us directly for details on the next event.

About the Author:

Troy Brewer has a talent for connecting successful people while serving as a respected mentor on the path to prosperity. By facilitating an all-encompassing approach to wealth management, Troy utilizes his extensive network of resources including investment bankers, estate planners, accountants, and business leaders to develop creative financial solutions for his clients. By fostering meaningful relationships, orchestrating financial strategies, and serving as a trusted confidant, Troy helps his clients achieve their desired life and legacy.

Troy has spent more than 25 years in the financial services industry, focusing on maintaining tight multigenerational relationships through a process-driven approach. As a Chartered Retirement Plans Specialist^® and member of the Baltimore Estate Planning Council, Troy specializes in low-cost investments, complex / multigenerational wealth planning and tax efficiency. His clients include business owners, corporate executives, and affluent families. Learn more about Troy or schedule a consultation.