The Finer Things

We all like to indulge in the odd luxury from time-to-time, but how does that factor into your financial planning? Is spending on the finer things holding back your objectives or contributing to your goals?

In recent years, Europe and North America have seen a big increase in the demand for non-traditional or ‘alternative’ tangible investments such as jewellery, art, classic cars, wine, watches, and even handbags. The growth of celebrity collectors and online influencers broadcasting their love for shiny things has prompted many people to part with extra cash for luxury items, sometimes hoping that they will hold their value or even become more valuable over time as an investment. At the same time, quality brands and high-ticket items have become more accessible to everyday consumers and are increasingly marketed beyond their super-rich, traditional clientele.

I am a firm believer that you shouldn’t starve yourself today to feed yourself tomorrow, and to some extent, the same principle applies to luxury items or consumer goods that make you feel good about yourself. However, big-name spending is a major contributor to lifestyle creep and enjoying the finer things today might just be restricting your lifestyle in later years.

We at Black Swan Capital understand that it’s nice to have nice things, and that’s just fine (pun intended). The problem, as with any form of investment, is when the line begins to blur between your money for fun or enjoyment and your savings for future financial goals. So how can you make sure that your gold-class tastes don’t cut into your golden years?

Firstly, there is the question of budgeting. I’m not talking about penny-pinching here, as that will rarely be a consideration when buying some shiny new designer thingy or rare, antique whatchamacallit. I’m talking about understanding which parts of your bank balance are for investment and which are for consumption, and whether this particular splurge of your hard-earned cash is going to fall under title A or title B.

We are always talking about focusing on objectives, and that is just as vital here. A delicate, designer handbag or classic example of fine watchmaking might well appreciate in value, but probably only if kept in its packaging and never worn. A rare wine or whisky could be a great store of value if carefully and professionally cellared. If you want to drink the rare wine and carry the beautiful handbag, that’s no longer an investment for financial gain. The goal of feeling good and having things that make you happy is just as valid as longer-term goals, but understand that the two may be conflicting.

Secondly, and closely related to the objective, there is the matter of how you choose your high-class items. Are you picking up something that you like to add to your collection or are you deliberately buying for the secondary market? If you plan to sell on a collector’s item or hand it down to future generations, it might be sensible to take some professional advice about which purchases are most likely to be tomorrow’s most-wanted.

Thirdly, understand that there may be hidden costs to alternative investments. Storage, protection and maintenance of tangible assets can often be expensive and is not always clear in advance. A vintage car might need regular servicing and proper storage, fine art could need to be cleaned and preserved, a complicated watch may need to be serviced or polished and, of course, if you keep expensive things in your home or carry them with you, they should always be properly insured against theft, loss or damage. These bills can quickly accumulate and eat away at the potential gains you could realise from selling the item.

The subject of insurance is an important additional consideration. Typically, home and contents insurance comes with certain caveats regarding expensive or rare possessions and total value of coverage. It is quite normal for a standard home insurance policy to set a single-item limit of €3,000 to €10,000 so if you have something really special that is lost in a fire or flood or if you are the victim of a burglary then it might not be covered by your policy. Be sure to check that your arrangements are appropriate for your situation and seek out additional cover if you need it. Some policies will require that you keep expensive jewellery in a safe at home or when travelling, and not all will cover your items outside your home, so you must understand the details of your protection.

Ultimately, carefully selected examples of the finest craftsmanship could be an unconventional but perfectly valid method of diversifying your investments, but enjoying a little bit of luxury can be a financial objective all of its own. Speak with your financial advisor about your personal goals and how the things you love to buy might help or hinder those plans.