Despite historically being reserved for the wealthiest of individuals, investing in luxury goods is fast becoming a viable investment option for a much broader range of people with the emergence of fractional investing.
By Eran Peer, Co-Founder and CEO of Konvi
One in 10 people invest in luxury goods, such as fine wines, whiskies, classic cars and watches. This is a growing trend, particularly as the investment landscape becomes harder to navigate and people lose faith in traditional asset investments.
The luxury goods investing market presents an opportunity for everyday investors. Investing in luxury goods is becoming more accessible to a wider range of people, and many are noticing the strong yields that carefully chosen assets can make.
Hermès’ famous Birkin bags, for example, tend to double in value every five years, presenting a promising investment opportunity. However, with issues such as regulation, market fragmentation and the availability of good quality advice becoming more critical, does this market have the potential to take off?
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Luxury goods are turning heads
Luxury assets are becoming alluring investments, given the high returns they can offer. Indexes on classic cars, watches and fine wines rose by 25%, 18% and 10% respectively in 2023. Rare whiskies also tend to perform particularly well, their value jumping by 280% over the last decade.
These asset classes have traditionally been inaccessible to the vast majority of investors. High up-front costs and low market availability of such assets often mean that only the wealthiest of individuals are able to enter the market and capitalise on these opportunities.
In addition to this, a high degree of expertise is necessary to achieve success in this market. Such niche, in-depth knowledge within a specific class of luxury asset is something that most people lack, and good advice is often hard to come by or too expensive to make an investment worthwhile.
However, the advent of fractional investing, which enables the purchase of a fraction of a share, has changed the game. Fractional investing means that people are now able to invest in luxury assets at a much lower cost, buying a small portion of an asset, rather than having to purchase the entire item.
A number of platforms offering fractional investing in luxury assets have arisen, and good knowledge and advice are now becoming more broadly available. This makes luxury asset investing more accessible to a wider range of investors.
With the rise of these platforms, and as young investors turn away from traditional investment routes, we’re likely to see luxury asset investing become more prevalent in the near future.
Challenges to the growth of luxury asset investing
Luxury asset investment platforms face some hurdles on their path to growth. For instance, regulation and compliance will be a crucial challenge to overcome for the progression of luxury assets as investments. Regulating the space will be difficult given the dynamic and evolving nature of this asset class, being spread across such a wide variety of asset types.
There has also been some fragmentation within the luxury assets investing space. There is now a wide variety of platforms specialising in specific types of luxury assets. This makes the market difficult for investors to navigate, as analysing a wide range of similar offerings can be confusing. However, in recent months the market has started to consolidate behind leading platforms. This provides investors with a simpler and higher-quality investment experience, in addition to increased security.
In addition, a critical challenge for fractional investing platforms will be carefully managing the advice and expertise they offer their users to ensure good quality recommendations are being made. Investors must be able to trust that their money is going into high-calibre investments. To win this trust, platforms must be sure to commission true experts within different types of assets that are focused on the quality of investments, rather than the volume sold.
The path ahead for fractional investing
As the market begins to tackle these challenges, and with increased levels of awareness and education around this asset class, luxury asset investing is set to continue its growth journey.
Consolidation of luxury fractional investing platforms is already underway. This will ensure that luxury asset investors can buy and sell fractions of assets on secure platforms and gain more accessibility to returns from this fast-growing market.
