Luxury goods are generally seen as products we purchase when we’re looking to treat ourselves. Not many people view them as “investments” in the traditional sense of the word, like stocks, bonds or even gold.
While buying the latest handbag or watch might not be seen as a wise investment, certain luxury goods can hold value and, over time, can even increase in value. That makes them good investments – but only for those who are aware of the types of luxury goods that can increase in value.
Here’s why certain fine wines, as well as luxury watches and handbags, can track, and even beat, inflation for discerning investors who are willing to think long-term.
#1 Time For Luxury Capital Appreciation
While many luxury products can have their value inflated by the brand behind them, some specific items can hold value and even increase over time after purchase.
If we look at timepieces (i.e. watches), there are many illustrious brands out there that have the history and prestige of timekeeping. Certain ones, for example, the Rolex Submariner, stand out as an iconic watch that holds value because of its history and status as one of the most resilient watches out there.
Furthermore, many top watch brands (like the Rolex Submariner) have limited production runs – meaning that only a finite number is produced each year. Couple that with high demand for these types of watches and investors (and collectors) can frequently find themselves paying more than the original retail price.
Out of the big watch brands that have investment appeal, investors typically look at the “Big Three” of Rolex, Patek Philippe, and Audemars Piguet. Indeed, from August 2018 to January 2023, luxury pre-owned watches from the Big Three saw an average compound annual growth rate (CAGR) in their value of 20%.
Average value of pre-owned luxury watches versus the S&P 500 Index
Sources: Boston Consulting Group, quillandpad.com
That beat out the independent watch brands’ average CAGR of 15% over the same timeframe and easily outperformed the 8% p.a. that came from S&P 500 stocks.
Judging by these returns, watches easily beat inflation too. While prices have subsided in the post-Covid period – when demand skyrocketed and supply was constrained – there is still big appeal in holding a rare watch that has the potential to increase in value.
Read Also: The History Of Rolex: How It Evolved To Become One Of The World’s Most Sought-After Watch Brands
#2 Carrying An Investment In Luxury Handbags
Luxury handbags offer consumers an instantly recognisable brand that can come in many different designs every season. Again, though it might not appear like the best investment, there are in fact many handbags that can give investors a positive return on their investment.
The perfect example of this phenomenon is the Birkin bag by the French luxury house Hermes. Supply of Birkins is controlled by Hermes, which requires shoppers to spend a significant amount of money in their store before they can even be considered to purchase a bag. Even when you are eventually granted the right to buy one, you are limited to one bag per year and you don’t get to choose the model or colour you want.
As a result, the second-hand resale market is extremely popular and can see Birkin bags change hands for much higher prices than were originally paid – given there is more choice for buyers and fewer restrictions.
Although not in the same tier of pricing, other handbags such as the Chanel classic flap bag can also fetch higher prices in the resale market given its enduring appeal as an iconic handbag along with quality craftsmanship.
Read Also: 5 Things To Consider Before Investing In A Hermes Handbag
#3 Savouring An Investment In Wines
There are also fine wines that can be sold at extremely high prices. As a joke, there’s a saying that “you can at least drink your investment if it loses value”!
But what is definitely not a joke is that the most expensive bottle of wine was sold at auction in 2018 – a 1945 Domaine de la Romanee-Conti Grand Cru – that went for US$558,000.
Most investors won’t be buying bottles worth hundreds of thousands of dollars. Instead, the fine wine exchange – Liv-ex – has an index (the Liv-ex Investables Index) that tracks the performance of fine wines by providing data on certain wines dating back to the 1980s. This makes it useful for long-term analysis on how fine wines have performed as an investment.
CAGR rates for the Liv-ex Investables Index – 1988-2024
Source: wineinvestment.com
As you can see, the market is extremely volatile and over the past 36 years, there have been periods where the prices of fine wines have dropped sharply. However, like stocks, if you had been a buy-and-hold investor for the long term, your annual market average returns of about 10% over the period would have roughly matched global equities.
CAGR rates over various time horizons and their averages
Source: wineinvestment.com
Like handbags and watches, fine wines work on the premise of scarcity. Certain producers only bottle a small amount of a specific vintage year, which, along with the reputation of the producer, can be big factors in determining prices and potential capital appreciation.
Luxury As An Alternative Investment
Like any alternative investment, people buy assets (outside of traditional asset classes, such as stocks, bonds and gold). While part of the reason can rooted in their interest, alternatives can also provide some level of diversification and – hopefully – beat inflation.
With luxury goods, such as watches, bags, and wines, you also get the added advantage of enjoying your investment in the process. You can wear your watches, carry your bags and drink look at and talk about your fine wine.
As with any investment, it’s critical that investors do their research and understand the dynamics of the particular luxury market before making any purchase on the basis of an investment.
The post Watches, Bags, Wines: 3 Luxury Products That Can Track (Or Even Beat) Inflation appeared first on DollarsAndSense.sg.
