Buying luxury goods is rooted in psychological factors. They are a sure indicator of wealth, good taste, and can inspire admiration and respect. It means these qualities are more important to consumers than practicality, utility, or durability. Examples include cars with a symbolic brand name, whose price is much higher than other substitutes, but the brand is more representative. On the other hand, luxury goods are great investment opportunities with promising returns. Find out what is the best way to make money. In this article, we discuss how whiskey compares to other investment goods. 

What are luxury goods?

Let's start with the most important thing: defining a luxury good? It is not that simple. The main principle is that functional utility is not relevant. More essential is prestige. It is a kind of consumer good with high quality, a recognizable brand name, and a high level of uniqueness, whose functional utility compared to the price sometimes is very low. These goods usually command a higher price because they have exceptional aesthetics or design, are unique or antique, come from a unique source, or have a remarkable story behind them. The popularity of a good can also be influenced by hype, market prosperity, or vanity.

Even though the common law of demand states that as the good’s price increases, demand for it decreases, in the case of luxury goods, there is Veblen's paradox, which states that as the price of a good increases, demand also increases. This means that the fewer people who have access to a good, the greater the demand for it.

Engels' law is an economic theory that states that as income increases, the proportion of income spent on food will decrease while the proportion spent on other goods and services will increase. In other words, as people's income increases, they tend to spend a smaller percentage on necessities like food and a larger percentage on non-essential goods and services like travel, entertainment, and luxury items. Luxury goods are used to satisfy the extravagant needs of consumers who aspire to a life of superior luxury, comfort, and abundance.

Luxury goods are only available to a few people, but for those who have them, they show how unique and wealthy they are. Despite their high prices and low functional utility, many still choose to buy them. Many people treat it as an investment good whose value increases over time. 

There are a variety of luxury goods, which can be classified in different ways. The most common include clothing and accessories, luxury cars, art, luxurious tourism, beverages (wines, whiskies), real estate, precious stones and jewellery, luxury cosmetics, and perfumes. Of course, this is not a complete list; depending on society's preferences and culture, many other goods can be classified as luxury goods. They all share common characteristics - they are considered products of high quality, high price, and uniqueness.

Investing in luxury goods - is it worth it?

The Knight Frank Luxury Investment Index is a proprietary index published in Knight Frank's annual report called "The Wealth Report." The publication provides detailed information on the performance of collectible luxury assets. The indexes included in the report are widely recognized as a reliable source of knowledge about luxury and collectible assets. The report's authors point out that the global population of "UHNWI" (ultra-high-net-worth individuals), whose net worth is more than $30 million, grew by 9.3% in 2021, while the group saw a 2.4% increase in 2020 and is equal to the total of 610,568 people in the world. The report's findings are directly related to the coronavirus pandemic - around the world, pandemic-related restrictions and lifestyle changes have led to an accumulation of savings and an increase in wealth levels not seen in years.

Luxury goods (for example, rare or limited editions of luxury goods) can maintain their value over time and in some cases, can become highly sought after by collectors and enthusiasts, increasing their value. However, it should not be forgotten that, as with any investment, there are certain risks that must be considered. The market for luxury goods can be unpredictable, and consumer tastes and trends can change rapidly, affecting the value of items. Additional costs may be required to maintain and upkeep luxury goods, which can negate potential returns.

Investing in whiskey vs. other luxury goods

During the last decade, whisky has become a strong alternative investment asset. The index, which examines changes in the value of rare whisky, rose 9% in 2021, the same as the average for the entire luxury goods index. And the whisky market alone was valued at $79.6 billion and was projected to grow to $109 billion by 2025. Whisky is second to none - it has overtaken that of vintage cars (up 164%), wines (up 137%), and luxury watches (up 108%) - with an uprise as high as 428%!

Investments in luxury spirits are becoming increasingly popular. They are relatively immune to market fluctuations compared to other alternative investments. However, to invest your money properly, you must know a few rules that govern the alcohol market. Foremost, it is a luxury good, which should serve primarily to diversify your portfolio. To minimize risk from the investment in alcohol, investing only a portion of your spare funds is advisable.

Irish and Scottish markets are considered to be the cradle of this drink. Single malt whisky, which accounts for 4.5 % of the world whisky market, while that produced in Scottish distilleries is only 0.2 %, is mainly used for investment purposes. For example, brands such as Macallan, Port Ellen, Dalmore, and Bowmore also have investment value. The growing interest in whiskies from the Far East, Canada, Australia, and New Zealand is also noticeable. The results of the most prestigious competitions can be a valuable indicator of which whiskies are worth investing in.

How has blockchain changed the way to invest in luxury goods?

The development of blockchain technology has opened a new chapter in investing in luxury goods. They are no longer reserved only for the wealthiest.

Tokenization of luxury goods means the creation of digital versions of expensive products in the form of tokens or ownership shares. It makes it possible for anyone to invest in luxury. It is no longer necessary to have a lot of capital.

Projects create tokens corresponding to a single product or ownership stake in a liquor collection. It is a much simpler and less risky way to start investing. Firstly, tokens are easier to buy and sell. Secondly, you don't need specialized knowledge of bottle storage. The company that issues tokens handles it professionally. Tokens are stored on cold or hot crypto wallets, giving easy access to assets all day long. 

Summary

Recent years have shown there is a tremendous interest increase in luxury spirits investment. Whisky is particularly popular. Since the luxury industry is, as a rule, crisis-proof, investments in luxury assets are associated with uninterrupted upward waves and steady returns. Of course, like any investment, allocating all of one's funds to one purpose is not sensible. Before making an investment decision, it is necessary to first do your own research, assess the risks and consider how much you can lose. But is it worth it? The market is opening up to new ways to invest in tokenized goods, attracting new interest and opportunities. If you are looking for a way to earn passive income, it is worth looking into. 

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