Family Investment – How “Hobby” Investing Often Make Good Money in the Process

Family Investment – How “Hobby” Investing Often Make Good Money in the Process

The next time somebody tells you that you have an expensive hobby, think about it like this: increasingly more American investors are adopting a new kind of hobby called “hobby investing”, which is more like a hobby that gives them the chance to make some money along the way too. The principle applied is a rather simple one: since you like to spend money on things you already like (e.g. stamps, art, classic cars, wine), why not attempt to transform that hobby into an investment? This way you can have both of two worlds: fun and cash. This new approach can diversify your current investment portfolio too; and it might even bring you substantial returns. Poorly yielding bonds, high priced stocks, and general fears of inflation are persuading investors to turn to assets that are palpable.

family investment

Americans are diversifying their investment portfolios with “hobby investments”

Increasingly more American investors, who can afford to spend money, have turned their attention to hobby investments. They actually believe that their passion is worthy of being included into their portfolio. But then again most of them don’t expect colossal returns on their investment. Nearly 62% of hobby investors are doing it for the thrill. 40% have another goal – to pass their hobby onto their heirs, and who knows, maybe they’ll make more money from that initial investment that started as a hobby.

Only 39% of hobby investors have high hopes and believe they can make good money with their passion. If you were to believe for a second that a bottle of wine or a nice car is a financial instrument, we might observe that the general attributes of those items are pretty appealing. Diversification is without a doubt the most compelling. Let’s have a closer look at fine wine for a moment. Wine has a 15% correlation in the investment marketplace, according to Trellis Fine Wine Investments president Mark Ricardo. Fine art and antique cars have similar correlations. When the recession struck the global economy, these assets were slightly affected, and didn’t sink like other more common forms of investment.


Investment portfolio diversification has its perks

President of the Art Fund Association Enrique Liberman, argues that collectible assets should cover 3-8% of an investors typical portfolio. Diversification comes with great perks, and many of today’s richest investors see classic cars or fine wine as a viable hedge against the current market; or at the very least, as an unconventional type of investment. Financial advisors would say that if an asset doesn’t move within the market, its typical return remains small. Nonetheless, hobby investments have managed to prove them wrong. Believe it or not, these can offer high returns and low correlations. In the fine wine market for example, we’ve seen many unexpected things happening over the years.

Between the years 1993 and 2013, an investor with a diverse wine portfolio of top-quality grade wines has witness returns of 13%, which is double the percentage of S&P 500. During that same timeframe, fine art investments have seen returns of 6%. However, the most significant type of “hobby investment” was based on collecting classic cars. The value appreciated 430% during that same timeframe.

hobby investing

Should you be paying more attention to hobby investing?

Even though hobby investing might seem like a good idea, this doesn’t mean that everyone should put their money into art or classic cars, and hope for the best. This type of asset is rather tough to deal with. For many investors, the chance of making money or even entering this domain is just off limits. Top-tier private collectors have extensive expertise in the niche; they most likely spent years building connections and spotting the best deals.

Furthermore, there’s an important economic barrier you need to surpass: you certainly don’t want your retirement years to depend on a bottle of wine. Investing in fine wine is not that easy. You need to know the market very well, and you must be willing to invest in storage. Proper storage conditions are fundamental. Why is fine wine the best type of hobby investment? Because you can’t lose; even if you can’t make money, you’ll see have good-quality wine to enjoy.

By Charles Goodwin and!