As South Africa and the world faces financial turmoil and political upheaval many people are wondering how to hedge against economic uncertainty.
Market volatility, inflation and geopolitical unrest have led to traditional financial investments like stocks taking a battering, making them more risky and less attractive.
Here, we discuss how and why luxury assets can serve as a hedge against economic uncertainty in South Africa.
Why luxury assets can hedge against economic uncertainty
During economic downturns, luxury assets, such as fine art, classic cars and rare watches, often retain, or even increase, their value.
This is because tangible assets are not subject to the usual market fluctuations that stocks and other financial investments are. Gold, for example, usually increases in value during periods of inflation.
How luxury assets diversify a portfolio
For many investors, especially ultra-high-net-worth-individuals (UHNWIs), luxury assets are now an integral part of a diversified portfolio.
Over the past year, as many as 70% of UHNWIs increased their allocation to luxury investments, according to the Knight Frank Wealth Report 2024.
UHNWIs know that while these tangible assets offer a hedge against traditional market fluctuations, their stability and long-term value can make them sound financial investments.
Luxury assets as a financial investment
Many people think of luxury assets as “toys” for the very wealthy who want to convey status and indulge their passions for quality.
In reality, they can function as sound financial investments that offer returns that are comparable to, or even surpass, traditional options like stocks and bonds.
As well as a hedge against economic uncertainty, compelling reasons to invest in luxury assets include:
- diversification
- tangible
- inherent quality
- passion and expertise
- appreciation in value
- global demand.
Luxury assets as legacy investments
Increasingly, not just UHNWIs recognise the significance of luxury assets beyond statement items and financial gain.
Rare luxury assets – such as classic cars and works by important artists – carry cultural and historic heritage. These items connect collectors to a legacy that bears significant value.
Inherent risk of luxury assets as investments
Of course, all asset classes carry inherent risk. The tangible nature of luxury assets exposes them to physical risks – fire, theft, loss, flooding, accident, incorrect storage – that non-tangible assets don’t face.
Equally, the market value of an asset can crash in a moment if demand or supply change, or there’s a perceived shift in a luxury asset as a “store of value”.
Low liquidity of luxury assets
One downside of luxury assets is their lower liquidity compared to traditional financial assets.
If you need cash fast, it can take time to determine a fair and reasonable price for your treasured asset. Finding interested buyers takes dedicated resources, a commodity you don’t have if you need cash quickly.
Usually, the sale of a luxury item also commands a fee and/or commission.
Unlocking the value of luxury assets with LoanAgainst
Your luxury assets may be a hedge against economic uncertainty in South Africa, but they can also be used as collateral against a loan.
At LoanAgainst, we make it possible to access the value of a luxury asset without having to sell it. We offer short-term loans against a range of luxury assets, including artworks, jewellery, watches, gold and designer handbags.
The process is quick, discreet and convenient, and no credit checks are made. We’ll do a quick remote appraisal of the luxury item based on recent sales and market demand, and make a fair offer right away.
That’s followed by a physical appraisal at a LoanAgainst branch before the agreement is signed, the item handed over for safe-keeping and the funds disbursed into your account – all within 24 hours.
Contact us for more information or simply complete and submit our online loan application.
