For many people, the purchase of a luxury watch is a one-off experience. Something you save up for over a long time and treat yourself to for a special occasion or as a reward for a goal you have achieved. However, it’s worth noting that a luxury watch can also be a worthwhile investment beyond saving arrangements with building societies or real estate.
What is an investment?
Before you are presented with one possible investment opportunity after another, it is important to clarify what an investment actually is and what it can and cannot do. Here, an investment is a product that you can purchase and accumulate wealth with. However, there are differences in the financial expense and in the time period when an investment pays off. In addition, it also comes down to the type of investment that you prefer. Would you rather invest in secure assets or do you revel in the idea of investing in risky assets? Every form of investment has its own advantages and disadvantages, which we would like to discuss in more detail below.
What should you invest in?
Many people choose to invest in assets, so that they know that they are safe and secure and, in the best-case scenario they can make a profit from a possible resale. From real estate to luxury watches to cars – the choice is huge. It is therefore always an advantage if you are knowledgeable and passionate about the area you choose to invest in. To give you an overview of possible areas to invest in, we have put together some of the most popular investments below.
High on the list: Gold and other precious metalsTime and time again there is speculation whether gold is a secure crisis currency in unsettled political and economic times. However, the year 2019 provided several good arguments that prove this is indeed the case. The farce surrounding Brexit and the trade dispute between the USA and China caused all kinds of unrest on the world markets. So it’s unsurprising that in 2019 the price of gold rose to its highest level in six years (since April 2013). Analysts predicted that the threshold value of $1400 an ounce was going to be broken. By the middle of the year, it had happened. The new decade began with another significant rise in the price of gold, which is currently well above $1500 an ounce. Presumably, the price of gold will witness another boost, as various algorithms will take effect now that impact the gold market.
Small but classy: Luxury watches as an investmentLuxury goods such as watches also benefit indirectly from rises in the price of precious metals. The watches that are consistently championed as worthwhile investments are timepieces from Rolex, which is why some special models are sometimes only available if you endure long waiting lists. However, the myth that a Rolex can be exchanged for its full value anywhere in the world is definitely not true. This would by no means be a successful investment either.
ROLEX DAYTONA 116508
It doesn't matter if you build a watch collection or just want to invest in a single watch: the safest basis is investing in a watch with a strong liquidity profile, which you can quickly sell for cash if ever necessary. Only then should you speculate on exotic models that seemingly promise to increase in value over time. Conducting extensive research is an absolute must. For example, search for sales prices at auctions to estimate potential increases in value of certain models. You can also check if the model is well liked and what others are saying about it on the usual forums. Remember that a lack of information doesn’t necessarily mean that the watch is a rarity. Only watches with an accessible history and models that have been frequently written and spoken about have a real chance of breaking through and increasing in value. For this reason, make sure that all components of the watch are still original parts and have not been replaced by new parts or parts from other manufacturers. Additionally, in the watch industry, when fewer models of a specific series are produced or are in circulation, the more likely it is that their value will increase. If you want to achieve a greater return on your investment, you should therefore think about investing in the right watch and search for models with a history. Rolex watches, worn by famous actors, for example, can occasionally sell for record prices. As was the case in 2017 when Paul Newman’s Rolex Daytona sold for a hefty price of $17.75 million.
Since watches usually only increase in value over a longer period of time, it can also pay off to invest in vintage models. The difficulty is, of course, to invest in the right watch. In this instance, it is helpful to compare the market value and the technical value of a watch. The luxury watch market isn’t always easy to gauge and is subject to fluctuations over time, in which models develop into new favourites or old favourites fall out of favour. Therefore, although you can usually narrow down the market value, it is difficult to ever determine it with any certainty. That being said, the technical value refers both to the finer details of the art of watchmaking such as complications and to visual variations such as special dials like those of the Submariner, which can significantly increase the market value of a model. Thus, buying a luxury watch can definitely pay off, but a carefully considered approach is required.
CHOPARD PRINCE OF WALES 15/2235
Investing in vintage cars: Experts are at an advantageIn comparison to watches, there is a clear limit to when a car can be considered a classic or vintage. In Germany, you can get a vintage H license plate after 30 years, and with it certain advantages such as lower vehicle taxes and free travel in cities, regardless of exhaust emissions. Of course, you shouldn’t underestimate the overall costs when buying a classic car or an “oldtimer” as they are called in Germany. If you don’t maintain the car properly when it’s off the road, damage may occur. If you drive it regularly, signs of wear and tear are sure to appear. Maintenance costs are thus unavoidable. Any insurance costs should also be taken into consideration. Nevertheless, vintage cars shouldn’t be underestimated as a viable investment. Between 2008 and 2018, the number of registered vintage cars grew from 282,000 to 675,000 – an average increase of 8.2%. The classic car indexes published by the German Association of the Automotive Industry and Südwestbank also highlight a clear increase in value.
However, the problem is that the vintage car market is limited and not centrally regulated. Consequently, it is more difficult to sell your car for the price you think it merits. The rules for which models make the highest profit are similar to those of the luxury watch industry. The rarer and more exclusive the history of the model, the higher the price. For example, a Ferrari 250 GTO, of which only 36 exist, was sold at auction for $48.4 million. As is the case with watches, it is always important to sell the car in the best possible condition and to be able to demonstrate the history of the model through original papers and maintenance and restoration documents.
Long-term investment in real estateAlthough investment in real estate left a bad taste in the mouths of many when the US real estate bubble burst in 2007, thus triggering the financial crisis, all consultants and analysts still indicate that apartments, houses and land are safe investments if you are in doubt and can also constitute a profitable investment. It is definitely worth making the distinction between buying a house because it is cheaper in the long term than continuing to pay rent or investing in property to make a profit. In theory, the latter is very simple: you buy a house, renovate it if necessary and sell it a few years down the line at a much higher price to make an attractive profit. Tax benefits are also part and parcel in the case of real estate since redecorating and renovation costs can be offset against tax.
The problem here is that the property market is often very capricious, and you can never predict which areas will experience the highest price increases. Furthermore, buying a property is generally a much larger investment than buying a classic car or luxury watch. So if you take a gamble on the market with the choice of the property, it can lead to huge financial losses very quickly. In addition, the capital remains tied up and, unlike the sale of a classic car or luxury watch, the investment cannot be liquefied as quickly. However, one advantage of investing in real estate is that you don’t have to pay the full amount for a property outright. The property loan can also be paid off, for example, through rental income or by reselling the property. In summary, you should never rely on a guaranteed increase in the value of a property in the short term, but they are certainly interesting options for a long-term investment.
Fine wines and spirits and eco-friendly alternativesDifferent types of investments are also constantly appearing in the portfolios of analysts and investment advisors. An option that always comes up in conversation is the possibility of investing in whiskey. One lesson from previous financial crises is that wealthy people often become even wealthier as a result of them. Thus, there is always a demand for luxury goods in some shape or form. However, it should be noted that when you hear about increases in value in the region of 400 per cent, this is not the case for any old bottle of whisky. As is the case with luxury watches, it is also true here that investing in particularly rare varieties is worthwhile. However, there is still no guarantee that bidders will be keen to buy the particular variety that you may have invested in. The same applies to wine. The boom for expensive wines, and French wine, in particular, had settled down by the end of the 90s, but this also means that new vintages and varieties can now be collected with a clear purpose and understanding, which may help you achieve higher prices when selling in a few years down the line ‒ especially German grape varieties such as Riesling from the Mosel or Saar regions. However, you should refrain from rashly buying wines that have been proclaimed as vintages of the century. Often it can be worth investing in the wines produced in the years following these famous vintages which are likely to have a similar taste and style.
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Eco-friendly and ethical investments deviate somewhat from the classic investment model. This type of investment means boycotting companies or products that support child labour, arms companies or climate-damaging products. This type of investment is one that focuses more on the long term. Given that taking action to protect the environment and climate has become more and more important, these investment opportunities are becoming increasingly popular.
Which investment works best for you?
It is virtually impossible to generalise and say which is the best investment for you. Neither the real estate industry nor the automotive or watch market can give you one hundred per cent certainty that you will make a profit in the end. However, the risks in the real estate market are arguably lower than for classic cars or vintage watches, but they also demand significantly higher transaction costs. In the luxury watches market, it mainly depends on your prior knowledge, understanding and your ability to weigh up your personal taste with the most economically advantageous option. For instance, the watch that promises the highest potential value isn't always the one that you personally like the most. However, with a classic “oldtimer” car, for example, you should also expect higher additional costs in comparison to a luxury watch.
At Watchmaster we are always happy to advise you on the options available in the luxury watch market and also help you, should you decide to invest in a luxury watch.