Investment In Watches

Are Luxury Watches A Good Investment?

Most luxury watches are made by a handful of well-known brands, and these companies have decades, if not centuries, of experience in creating beautiful timepieces. A watch can be an excellent investment if you know what to look for in terms of quality and design.

The prices of watches are no different than other luxury products, and they follow the same simple principle of demand and supply. If the demand is higher than the supply, such as for a stainless steel Rolex sports model, the price will be higher on the second-hand market.

Looking at the past prices, following the trends, and predicting future demand may result in you purchasing a watch that will increase in value over time. However, like with many things in life, there are no guarantees that the watch you consider will actually be an investment.

Why Invest In Luxury Watches ?

There are typically 3 key reasons to invest in luxury watches:

Increase in value: Luxury watches have potential to increase in price, with various reasons for why these investment watches can go up in value.

Diversification: Real assets can act as a good hedge against inflation, as well as providing a way to diversify your investment portfolio.

Passion: The goal of an investment is to make money, but if you’re interested in watches it can simply be more fun to invest in (and wear) a watch than invest in a mutual fund, for example.

What affects the price of Luxury Watches?

Anyone with an interest in luxury watches, such as those produced by Rolex, Audemars Piguet and Patek Philippe,
knows to expect to have to pay high prices for the top brands. However, one of the noticeable trends since 2020 has
been a rapid increase in prices, even above what you might typically anticipate. Here are just a few reasons behind
this:

    • The issue of Supply and Demand
    • Discontinuation of popular models
    • COVID-19 and the Pandemic Effect
    • Resellers and Grey Market Dealers
    • Long Authorised Dealer waiting lists
    • Investors / Speculators

The price of luxury watches has increased since 2020, with a variety of different factors influencing these price rises,
including the COVID-19 pandemic, limited watch availability and increased demand for the most desirable models.

Pros and Cons of Luxury Watches as an Investment

PROS

Potential for appreciation:Some highend watches can appreciate in value over time, particularly if they are rare, limited edition, or have historical significance.

Tangible asset:Watches are physical assets that can be held, admired, and enjoyed. They can also be passed down as a family heirloom or sold for profit.

Low correlation with other assets:Watches have a low correlation with other asset classes, such as stocks and bonds, which can make them a valuable addition to a diversified portfolio.

Enjoyment and passion: Collecting watches can be a hobby and a passion, which can make investing in watches enjoyable and rewarding beyond just financial gains.

CONS

Risk of depreciation:Not all watches appreciate, and some can lose value over time. This can be particularly true for trendy or fashion watches that may fall out of favour with collectors.

Limited liquidity:Watches can be difficult to sell quickly, especially if they are rare or in high demand. This can make it challenging to access the value of the investment when needed.

Maintenance costs:Watches require regular maintenance and servicing to keep them in good condition, which can be expensive, especially for high-end watches.

Counterfeit risk:There is a risk of counterfeit watches in the market, which can be difficult to detect and can impact the value of the investment.

Do You Pay VAT And Capital Gains Tax On Luxury Watches?

On the purchase of a new watch you will be paying 20% VAT in the UK.

Capital Gains Tax is a tax on the profits of all assets that have gone up in value. The annual allowance on capital gains tax for individuals in 2023-24 was reduced to £6,000, but once you accumulate profits above this, you will need to start paying CGT.

How Can I Invest In Luxury Watches?

There are 4 main ways in which you can invest in luxury watches:

– Buying Watches Directly

The most obvious way to invest in watches is of course to simply buy one via an authorized dealer, via auction website or marketplaces. The advantages are full control and choice over which watch you want to buy, ability to shop around and compare prices and of course the ability to wear the watch. The disadvantages are that a higher level of knowledge is required, you’ll need to consider storage and insurance and depending on where you buy from you may have to be careful around authentication.

– Buying Stocks Of Watch Companies

Many luxury watch brands remain in private hands, with Rolex being 100% owned by the Hans Wilsdorf Foundation, a private family trust; Patek Philippe owned by The Swiss Stern family, and Audemars Piguet also being familyowned since its founding.

The main other option to get exposure via the stock market, is to buy stocks in watch businesses. The most relevant example would be luxury watch retailer Watches of Switzerland, listed on the London Stock Exchange. In the last 12 months, it has seen its share price go up by more than 160%. Chronext also announced plans to go public, but has delayed its planned stock market debut.

– Investing In Funds

You might wonder whether there are any funds you can invest in to get exposure to watches. The short answer is, no, such funds are not widely available. What we sometimes see in the market is that a group of wealthy collectors may have their own private “funds”, either formal or informal, where they pool money to buy watches. Due to regulatory restrictions in most countries, there are no exchange traded watch funds or funds akin to what exists in for example real estate with REITs whereby any retail investor can easily invest in alternative assets.

– Fractional Investing

The latest form of watch investing comes in the form of fractional investing. Instead of buying a whole – say – €100,000 watch, you can buy only a fraction of the watch. Depending on the platform, minimums for these investments are often as low as €50. The way it usually works is that the investment platform buys up high-value watches or crowdfunds for a watch, places the watch in a company and lets investors invest in the company owning the watch and in that way get exposure to the underlying asset.

A huge advantage of fractional is that the minimum investment amounts are lower, making watch investing accessible for anyone and also allowing investors to invest in a greater number of watches and spreading the risk. Moreover, there is no hassle as the platforms offering these services typically take care of storage and insurance, and lastly there is a level of curation going into the assets put on the platform. The investment option that is right for you depends on your level of expertise, time you’re willing to commit, budget and goals.

In conclusion, there are various reasons to consider investing in watches, such as price appreciation and diversification. In order to get started, you can buy watches outright, investing stocks of watch-related companies or consider investing in a watch fractionally.

FCA Supervisory Notice

On 20 December 2023 the FCA issued a First Supervisory Notice and a series of requirements to RCWatches Ltd such that it (quoting directly from the notice): has decided to

- vary with immediate effect the Part 4A permissions granted to RC Watches Ltd by removing all regulated activities from those to which the permission relates with the effect of this Variation being that RCWatches Ltd no longer has permission to conduct regulated activity.

In addition the FCA has imposed the following requirements:

-RCWatches Ltd must not, without the prior written consent of the FCA, in any way dispose of, withdraw, transfer, deal with or diminish the value of any of its own assets, and any funds it holds for, or to the order of, its customers or investors (whether in the United Kingdom or elsewhere), whether held by the Firm as at the date of the imposition of the Requirements or acquired thereafter.

- By close of business on 3 January 2024, RCWatches Ltd must publish in a prominent place on every website in its name (or that it operates) in a form to be agreed in advance with the FCA, a notice setting out the terms and effects of the Requirements and Variation.

- RCWatches Ltd must, by 5pm on 4 January 2024 notify all consumers and creditors in writing of the imposition of the terms and effects of these requirements ; and

-RCWatches Ltd must secure all books and records and preserve all information and systems in relation to all activities carried on by it, including but not limited to regulated

activities, and must retain these in a form and at a location within the UK, to be notified to the FCA

The requirements include provision for RCWatches Ltd to continue dealing with or disposing of any of its own assets in the ordinary and proper course of business provided that the sum or value of such dealings or disposals, whether as a single transaction or a combination of related transactions, does not exceed £1,000 (or £3,000 in the case of legal expenses).

The effect of these requirements can be found here:

https://register.fca.org.uk/s/firm?id=0014G000034VEWBQA4

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