Investing is often best approached with a calm mindset and rationality. However, for some investors, passion is the primary driver of their investment.
Passion investing is exactly what it sounds like – investing in things you love, non-traditional assets that generally allow you to enjoy ownership while watching them potentially increase in value.
Most traditional investments consider time horizons, risk appetites, and investment capital appreciation goals. While financial considerations may dictate the passion investor's investments to some degree, they are strongly influenced by more than market returns and want to invest and collect in a way that supports their interests and passions.
The growth of passion investing
Australians certainly love collecting – according to the eBay State of Collectibles report, Australians also care about the financial implications of their collections. More than one in four Australians collect goods such as coins, toys, sneakers and art. More than 40% of those collectors could be considered passion investors as they have a financial objective in mind.
The top ten luxury passion investments
While buying and selling on eBay is one end of the scale, the other end is the luxury passion investments. For those who have the cash to spare, some high-end investments can prove very lucrative.
According to Knight Frank’s Luxury Investment Index, the top ten most successful passion investments, ranked in order from those generating the highest returns, are; art, jewellery, watches, coins, coloured diamonds, wine, furniture, luxury handbags, classic cars and rare whisky. While major auction houses indicated record sales last year, the Luxury Investment Index recorded a marginal decline of -1%, largely due to a drop in the rare whisky index of -9%. This overall decline followed an impressive 16% increase the previous year, highlighting the unpredictability of the whisky market.
Art typically produces the most gains, as investors pay stellar prices for museum-quality works of art. Several single-owner collections have produced totals above US $2.5 billion. Other niches are also setting records, for instance a US $143 million Mercedes-Benz Uhlenhaut Coupé set the benchmark for the most expensive car ever sold, and the most expensive watch, a 1957 Patek Philippe 2499, sold for almost $10 million.
Exploring other passions
Passion investing extends beyond the collection of exclusive, luxury goods. The biggest online database for collectibles is Lego. Lego sets now worth $1.2bn, and investors realise profits between 150% and 250%.
Sneakers have also grown to become another hugely popular passion investment. More than just comfortable footwear, sneaker reselling is a $6 billion industry globally, with the most sought-after limited-edition shoes commanding six-figure prices on the resale market.
Things to consider
While collecting items you love may seem like an exciting way to park some extra capital, there are multiple things to consider with passion investing.
Passion investments are highly vulnerable to value fluctuations, and selling luxury niche items can be challenging during economic downturns.
It can be difficult to know what to look for and nearly impossible to predict what will interest collectors in years to come. As with more traditional investments, you usually need to hold on to passion investments for some time for their value to grow. They are rarely a ‘get rich quick’ scheme.
You also need to consider where, and how your objects are stored to ensure they don’t lose value. Insurance is also a consideration when you possess items of significant value.
Next steps
Passion investments bear the name for a reason. Any investment you are strongly attached to can potentially cloud your judgment when making decisions about buying, selling, or holding onto them.
Collecting things that bring you happiness is a wonderful pursuit to enjoy. However, it is important to be informed and approach with caution when mixing passion with investing.
Speak with your local Nexia Adviser today to navigate and understand passion investing further.
