Before we dig into the ‘what, why, and how’ of investing in alternative assets, I want to share a theory. Namely, sometimes I feel like millennials have been raised to be collectors.
From Beanie Babies to Pokemon cards, Polly Pockets to Neopets, we were surrounded by games and toys that required collecting – gotta catch em all, after all – and from the very beginning there was a sense that some of them could be worth real money in future.
Who remembers the warnings not to take the labels off your Beanie Babies? Or the suggestion that the Princess Diana or Millennium bears should be kept in their boxes just in case? Who recalls those discussions of whether your shiny Charizard was really worth trading a whole pack for? Or have you thought about all the Hot Wheels that your parents gave away to a younger cousin? Or your Disney VHS collection? Or your hard back, bought-at-midnight Harry Potter books?
Growing up, collecting was just part of a kid. Trading was too. Negotiations over what cards, what characters, what the value of this was over that – it was all part and parcel of 90s and 00s pre-teen culture. The internet was still in its infancy then, but even digitally we were starting to collect and trade: games for our consoles, skills or weapons or outfits for our characters… the list goes on.
For Vlad, a millennial collector, those childhood habits are at the heart of why he now has a growing collection of limited-edition games and television memorabilia.
“I’m mostly doing it for sentimental value,” Vlad explains. “Collector’s edition games that I used to play as a kid, comic books that I used to read as a kid, items from movies that I enjoy (ie. there is a superman statue in Jerry Seinfeld’s bookcase in most of the Seinfeld episodes and I wanted one like it). Or I used the play a lot of World of Warcraft, and the company auctioned the servers that were running the game when they had a hardware update. To me and other people who played it, having a physical representation of the world that you spent countless days in is priceless.”
It’s the same for many of us. Amongst my friends, there are a number who have collected all sorts of things out of sentiment or passion. It ranges from what we affectionately call ‘nerdery’ – the Warhammer 40k or vintage comic book collections – all the way through to those of us who have burgeoning quantities of special run sneakers or handbags. It usually starts with one thing – a Hermes scarf inherited from a grandparent; a set of figurines that you painted with your dad at the kitchen table – and only later in life dawns the realisation that you own something others yearn to possess.
As Vlad tells us, “I only realized some of [my collection] could be alternative assets when I wanted to buy a different version of something I had and I realised, my version, was worth 100x on eBay.”
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Wait, what are alternative assets?
Good question. Let’s back up a little.
Alternative assets are simply investments that fall outside of the conventional categories of equity, cash or income. This means that instead of being stocks, bonds, or funds, they tend to include things like fine wine, whisky, watches, pieces of art, jewellery, and other luxury collectibles. Some types of real estate investment are also categorised as alternative assets, as well as things that look more traditionally financial – like cryptocurrencies, crowdfunding, or litigation funding (where you financially back a legal case in exchange for a share of the proceeds from the case).
“[Alternative assets] are a great way to mix investments with passion and purpose,” explains Iris ten Teije, co-founder of alternative investing platform, Koia. “Not everyone is into the stock market, financial markets can be complex and not everyone has time to conduct extensive research. But they have things they’re passionate about, that they care about or know a lot about already. In some cases, it’s possible for that passion to become an alternative form of investment.”
There are potentially significant benefits to having alternative assets
The biggest upside to investing in alternative assets is probably the most important one: diversification.
“If there’s one thing investment professionals agree on, it’s the importance of portfolio diversification,” says Teije from Koia. “As it’s impossible to fully predict things like consumer trends, you typically wouldn’t want to put all your money into stocks of companies operating in the same industry, but rather spread it out over a variety of companies. Alternative assets are another way to diversify.”
How? Because one of the key characteristics of alternative assets compared to other forms of investing, is that they have little to no correlation to the performance of the stock market. Their value does not rise and fall like stocks or bonds, which means that if the market does drop then there’s less likelihood it’ll have an impact on their value.
Of course, alternative assets are not necessarily stable (consider the soar and plummet movements of crypto in recent months), but certain assets have proven to be far less volatile during major events, as seen in the price of fine wine during Covid-19.
“Often alternative assets hold their value despite the stock market, and because you’re passionate about what you’re collecting and it ties into your interests, you’re more likely to understand how and why it goes up in value too,” says Teije.
Teije also emphasises that another positive to alternative investing, particularly in luxury goods or high-end collectibles, is their high return potential. For instance, according to Knight Frank’s Wealth Report, classic cars have returned 193%, fine wine 127% and handbags 108% over the past 10 years.
“With things like watches and wine it’s a very, very stable asset class,” ten Teije explains. “People have invested in it for decades. There’s historic data you can look back on and lots of information available so you can make informed purchases or investments. You can look for certain factors to ensure what you’re investing in is worth it – like only certain wine producers are investment grade or the scarcity or rarity of what you’re buying.”
But what are the risks to alternative investing?
Like with any investment, there’s always an element of risk – with some assets being more speculative than others.
As we’ve discussed in previous articles, things like crypto have been increasingly discussed as an alternative asset class – particularly in the wake of Bitcoin’s rise throughout 2021. The same goes with crowdfunding, which involves investing in often very early-stage startups, and to an extent litigation finance too. These are quite the opposite of the more stable ‘collectibles’ that Koia offers.
As Scott Sciberras, co-founder and CEO of cask whiskey investment firm, Whiskey and Wealth Club told Proactive Investors, “The main risk to the [crypto] asset class is its high volatility…it is very dramatic and very hard to track, as well as ‘rumour-based’.”
Some collectibles could arguably face the same issues, such as tradable cards, which have seen meteoric interest in the last few years. According to eBay, sales of Pokémon cards in the US shot up 574% between 2019 and 2020; trade in football cards grew by a staggering 1,586%; across all types of cards, sales in Europe have more than doubled, and in the UK they’ve tripled. It’s a booming market, with some collectors holding millions in the form of cards alone.
“There’s no guarantee these will hold their value,” notes Teije. “As a collector you might be very passionate, but some are very speculative, and you have to ask yourself as an investor: Is it sustainable? Is it stable?”
ten Teije also notes that almost all alternative assets tend to be more illiquid and (traditionally) more expensive too. This means that they’re harder to sell and take the value out from, compared to other traditional investments.
She adds, “Like with all forms of investing, before you invest in alternative assets or collectibles, you should consider your risk tolerance and financial resilience – some forms of collectibles are far more speculative or illiquid than others. Choose your investment style and think of it as a long-term investment in your passions.”
So how can you start investing in alternative assets?
Traditionally, investing in alternative assets does not come cheap. You need a good chunk of change to buy an investor grade bottle of whiskey or wine – let alone a classic car or significant work of art. You can, of course, go through specialists funds and such, but this too can require a hefty deposit.
But perhaps it’s no surprise that just as millennial preferences have revolutionised everything from food delivery to dating, now we’re also making our presence known as both investors and alternative investors alike.
In fact, millennials appear to be the generation with the largest number of collectors globally. We’re the generation with the highest percentage – 11% – of our assets in gold and even real estate. Likewise, the Art Basel and UBS Global Art Market Report, shows that affluent millennials are now the fastest-growing constituency of collectors, and at the top end of the market, they buy more art and spend more on it than any other demographic.
Koia, for example, offers a broad selection of traditional collectibles but at more accessible prices thanks to fractional ownership. “We let anyone invest in what they know and love,” explains ten Teije, “At the moment that means tangible collectables: fine wines, watches, classic cars. The idea is that we fractionalise ownership of these assets, so that you don’t need to have £100k to get started. [It also] helps create liquidity, meaning that you can more easily convert the investment into cash when you want to sell your ownership stake.”
Other platforms, like StockX, Stadium Goods and Goat, focus on more specific areas of collectibles (in this case the increasingly lucrative niche of sneakers, streetwear, and apparel), which allows them to focus on solving problems such as authentication and compliance.
Similarly, whiskey and wine funds, platforms and clubs can support not only the buying and selling of rare bottles or brands, but also their insurance, storage and illiquidity. If this is more your vibe, you might like to check out the Bordeaux Index, VinX or the Whiskey Wealth Club.
And then, as I’ve discovered in the last few years, there are plenty of places to look at art and design as well. Forums like the Affordable Art Fair and Other Art Fair are great places to learn more about up-and-coming artists, as well as discover hidden gems from some of the big names in art.
Is investing in alternative assets right for you?
The thing to note is that many of the more traditional clubs and funds do still require a bigger upfront deposit compared to the growing number of more affordable digital platforms.
For people who perhaps haven’t invested outside of stocks and shares before, digital offerings can be a powerful gateway to learning more about alternative assets and the collectibles that you’re passionate about. They offer both access and insight to help you make decisions about what you want to invest in. Given that ikigai is also all about empowering you to reach your goals and live your best life, looking at how you can save towards these passion points and build them into your portfolio is also a very exciting opportunity for new investors.
Consider your interests and do your research before going too deep – as we see with memestocks, it can be too easy to fall for the hype.
And ultimately, passion and sentimentally are at the heart of many alternative investors.
For Vlad, that meant games and memorabilia. For me, that’s meant a growing collection of art for my new home.
For Adam, 29, its meant using part of an inheritance to start collecting whiskey due to the connection it had to his grandfather. “I’ve not put everything into it, obviously, but my grandad and I were both really into whiskey. So, I wanted to put some of my inheritance into this thing we both enjoy. I did consider wine, but after looking into it, my concern was around how long you have to store it and issues of corkage too. Whiskey, it’s also such an exciting and growing area with Japanese whiskey’s being an interest of mine now, so I’m looking forward to visiting distilleries in the future and building that collection.”
For platforms like Koia or StockX or the Affordable Art Fair, it’s meant creating a space that allows people who are collectors at heart, like many millennials are, to connect and learn and invest in the things that they love.
Because here’s the thing: with all alternative assets, you’re probably investing out of more than a desire to grow your wealth. There’s something about these collectibles that you find fascinating or enthralling or inspiring. It’s not like a general investment or your ISA, where it’s numbers moving in an account. Go into it with your eyes open about the reality: not all art will be worth hundreds of thousands, not all wines or whiskeys or Pokémon cards or sneakers will be valuable in the long-term. Whilst there are genuine benefits to investing in alternative assets, it’s worth remembering that it is about supporting a thing that you love – and that can be priceless.
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