Speculators Disappear as Luxury Investments Lose Their Luster
Focus: ALTERNATIVE INVESTMENTS
The economy is firing on all cylinders, but why are luxury investments fading? Here's how the decline will affect you even if you’re not invested, writes Steve Pomeranz, CFP, who is the host of an investment program on NPR affiliates.
The U.S. economy appears to be firing on all cylinders with near full employment, hardly any inflation, and a soaring stock market. Still, there are signs of drag in luxury markets like high-end condos, fine art, wine, and collectible cars, among others.
These markets have become more appealing in recent years to rich investors and traders who are wary of low-interest bonds and high-flying stocks, yet don’t want to let their cash just sit on the sidelines.
Of course, they may also have a passion for art or cars beyond whatever monetary value these items may have as investments ready to be sold at the right price, but it’s safe to say that many of them do see luxury products as an alternative asset class to bonds and equities.
One major difference with alternative asset classes is that they tend to be more difficult to assess and price their risk compared to stocks and bonds.
The problem today for some of these investors is that this risk is now at their door, and the value of their luxury property appears to have stalled out and may now be in the process of deflating. The returns for these asset classes are starting to sag and, in many cases, are actually tumbling.
The venerable British real estate company Knight Frank tracks a luxury investment index, and in 2016 it posted its weakest performance since 2009.