Traditional investing can be traced back to the early 1600s, when the Dutch East India Company issued the first recorded stock certificate to raise capital, an innovation that led to the creation of the Amsterdam Stock Exchange. Over the next four centuries, stock trading evolved into a global financial system, with major institutions like the London Stock Exchange and the New York Stock Exchange emerging as dominant forces in the market.
The investment world has since evolved to include a broad range of asset classes – from traditional equities, real estate, gold and bonds to alternatives such as private equity and debt. When most people think of stable investments, they picture these. But, in the world of high fashion, a handbag has outshone them all. According to experts, a Hermès Birkin bag has now become a safer investment than gold, with some models estimated to sell for up to €300,000 (£252,551) at auction, due to their exclusivity. It is latest example of a less conventional asset class that has been quietly gaining popularity: passion investing.
What is passion investing?
Passion investing involves allocating funds to assets that investors have a deep interest in, such as fine art, classic cars, vintage wines or rare books. Such a practice has been around for hundreds of years. Cleopatra VII had lavish taste and built an impressive collection of luxury items and exquisite jewellery. Likewise, Emperor Augustus collected Greek sculptures from ancient Rome.
The desire to own beautiful or rare objects allows investors to customise their portfolio with collectibles that speak to their culture and personal taste. On a more practical level, such assets often move independently of the stock market, adding diversification to portfolios and providing a useful way to hedge against inflation and economic turbulence.
The potential for passion investments to outperform traditional markets and to deliver both emotional satisfaction and financial returns is drawing increasing attention from investors seeking alternative assets.
The risks and rewards of passion investing
Traditional investment markets are highly regulated, which comes with the benefit of transparent values, interest-earning options, clear transaction costs and quick liquidity. Conversely, the world of passion investing is risky and volatile.
Price increases for passion assets tend to fluctuate, driven by trend cycles and changing demand, which makes passion investing a gamble. Many investors may choose to hold on to items that are losing value, waiting for the asset to appreciate, only to find the market for that item may not return.
With rare collectibles, beauty is in the eye of the beholder. An item one person deems of great value may be worth much less to a potential buyer since appraisal values are highly subjective. These values can vary based on trends and personal taste. Some even feel sales prices are opinions rather than accurate valuations.
There is also the consideration of preservation. Fine art needs to be stored at precise temperatures with low humidity and kept away from damaging factors such as water or insects. Wine collections need dimly lit cellars that prevent temperature fluctuations which can cause damage to the cork and oxidation of the wine. Vintage vehicles may also need special care. Storage facilities must be set specifically for preservation to prevent materials from degrading or being destroyed.
Despite these challenges, passion investing allows for a more modern and personal way to build wealth. Advancements in technology and digital platforms, meanwhile, have made passion investing more accessible, allowing a broader range of investors to participate in markets previously dominated by the ultra-wealthy.
Passion assets offer more than financial returns; they provide personal enjoyment and a hedge against market volatility.
Traditional investing can be traced back to the early 1600s, when the Dutch East India Company issued the first recorded stock certificate to raise capital, an innovation that led to the creation of the Amsterdam Stock Exchange. Over the next four centuries, stock trading evolved into a global financial system, with major institutions like the London Stock Exchange and the New York Stock Exchange emerging as dominant forces in the market.Â
The investment world has since evolved to include a broad range of asset classes – from traditional equities, real estate, gold and bonds to alternatives such as private equity and debt. When most people think of stable investments, they picture these. But, in the world of high fashion, a handbag has outshone them all. According to experts, a Hermès Birkin bag has now become a safer investment than gold, with some models estimated to sell for up to €300,000 (£252,551) at auction, due to their exclusivity. It is latest example of a less conventional asset class that has been quietly gaining popularity: passion investing.Â
