How Investing in Luxury Goods can act as a money safe keeping ?
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“A dollar today will not buy the same value of goods in ten years. This is due to inflation. Inflation measures the average price level of a basket of goods and services in an economy; it refers to the increases in prices over a specified period of time. As a result of inflation, a specific amount of currency will be able to buy less than before. Therefore, it is important to find the right strategies and investments to hedge against inflation.” KATELYN PETERS, Investopedia
Traditional ways to hedge against inflation
“JC Parets, founder of allstarcharts.com suggests: "If you want to buy gold and think it goes higher, buy gold - don't worry about inflation. If you want to buy Crypto - then buy crypto - don't worry about inflation. And if you want to own stocks - buy stocks - don't worry about inflation."” Ines Ferré, Yahoo Finance
1. Gold
“Gold has often been considered a hedge against inflation. In fact, many people have looked to gold as an "alternative currency," particularly in countries where the native currency is losing value. These countries tend to utilize gold or other strong currencies when their own currency has failed. Gold is a real, physical asset, and tends to hold its value for the most part. (...)” KATELYN PETERS, Investopedia
“ (...) The problem with most inflation hedges is that they don’t really hedge. Supposed havens often have risks of their own. Consider gold, the traditional refuge of those who don’t trust paper currencies. Bullion did a stellar job in protecting investors from surging inflation in the 1970s. Sadly, though, in the 1980s or 90s, as inflation continued to erode purchasing power, it lost ground. Over the past year, as inflation has surged, it has done very little.
So gold isn’t really an inflation fighter. Rather, its price reflects real interest rates – that is, interest rates after inflation is subtracted. As real interest rates go up, gold’s price goes down, and vice versa. (...)” Ian McGugan, TheGlobeAndMail
2. Commodities
“ (...) Before investing in commodities, investors should be aware that they are highly volatile and investor caution is advised in commodity trading. Because commodities are dependent on demand and supply factors, a slight change in supply due to geopolitical tensions or conflicts can adversely affect the prices of commodities.
A 60/40 stock/bond portfolio is a straightforward, easy investment strategy. But like all investment plans, it does have some disadvantages. Compared to an all-equity portfolio, a 60/40 portfolio will underperform over the long term. Additionally, over very long time periods, a 60/40 portfolio may significantly underperform an all-equity portfolio because of the effects of compounding interest.
It's important to keep in mind that a 60/40 portfolio will help you hedge against inflation (and keep you safer), but you'll likely be missing out on returns compared to a portfolio with a higher percentage of stocks.” KATELYN PETERS, Investopedia
3. Real Estate Income
“Like any investment, there are pros and cons to investing in real estate. First, when purchasing real estate, the transaction costs are considerably higher (as compared to purchasing shares of a stock). Second, real estate investments are illiquid, meaning they can’t be quickly and easily sold without a substantial loss in value. If you are purchasing a property, it requires management and maintenance, and these costs can add up quickly. And finally, real estate investing involves taking on a great deal of financial and legal liability.” KATELYN PETERS, Investopedia. “(...) Real estate investment trusts (REITs) beat inflation over the long haul, but they can suffer in the short term from rising interest rates.
The best strategy may be to ask yourself what you want to achieve. If it is to protect yourself against a short period of rising inflation ahead, real-return bonds have some appeal. But if it is to protect your purchasing power over the long haul, stocks and REITs seem more attractive.
Cash may have its place, too. Your potential loss in real terms is equal to inflation. But since periods of high inflation are usually also periods of high economic uncertainty and rising interest rates, losses on cash could be less than on competing assets. At the very least, holding a modestly higher level of cash than normal gives you the option to buy other assets if an opportunity presents itself.” Ian McGugan, TheGlobeAndMail
Luxury Goods as a money safe keeping
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“ (...) In theory, investing in luxury goods is always a good choice. Why? Because, even if some luxury goods may have a decreasing perceived value over time, the largest part of the “true luxury goods” will see their perceived value increasing or, at least, remaining stable over the time. For some items, the perceived value may also skyrocket making the investments very profitable. The monetary value of any good at a given moment depends on the perceived value of it at this moment. The perceived value is “the value of a product based on how much customers want or need it, rather than on its real price” (Cambridge Dictionary’s definition). (...)
The perceived value of most of the luxury goods will increase, or at least will remain stable over time. In fact, by essence, a “true” luxury good is a valuable product because of its attributes: quality, craftmanship, shapes, materials, expertise, details, design, advanced technology, etc. For a same product, each year, mostly all the brands in the luxury industry tend to increase their products prices to convey the exclusivity and the “not for everyone” image but also to maintain or increase their profits.”Maxence Bouton, Agence Tiz
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The most interesting category of luxury goods to invest in is obviously the one that can bring huge profits. This category gathers in general collector’s items, rare and vintage goods, limited editions, very old piece of history, discontinued products, high demanded products.
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Conclusion
Inflation measures the average price level of a basket of goods and services in an economy. To hedge against it, assets like gold, commodities or REITs might be used but there are pros and cons to invest in. besides, the perceived value of most of the luxury goods will increase, or at least will remain stable over time. So Luxury Goods can act as a money safe keeping.
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