If you’re aiming for wealth, you might as well go out in sneakers — that is, invest in sneakers.
According to Bank of America’s 2024 Wealth Survey, millennials and Gen Zers with more than $3 million to invest are three times more likely than previous generations to choose alternative investments. In other words, they’re eschewing stocks and buying up art, collectibles and cryptocurrencies.
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Overall, 83% of affluent young Americans between the ages of 21 and 43 own or have an interest in art collections, well above the 40% of the wealthy overall. They’re investing in “blue chip art,” Drew Watson, head of art services (yes, there’s a title) at Bank of America, told Bloomberg in an interview.
“The fastest growing segment of the Art Market remains post-[World War II] Watson goes on to look at the history of “modern art” from 1945 to the present, and it’s enough to conjure images of young, wealthy people, like Jackson Pollock, hurling wet Benjamina sticks at canvases and hoping they stick.
The question is, will such a strategy bring financial benefits?
Belief in intergenerational wealth
A common thread among Gen Z, Millennials and Baby Boomers is that roughly 75% of 21-43 year olds consider their financial security to be good or excellent, compared to 78% of those 44 and older.
A majority of the more than 1,000 survey participants also view interest rates as less optimistic: A combined 52% expect rates to stay steady or rise, a fair assessment given the Fed’s move to cancel at least two of its three planned rate cuts this year.
Where the biggest generational differences emerge is in the methods each generation has chosen to build wealth. Millennials and Gen Z are distrustful of tried-and-true methods, with 72% believing that “it’s no longer possible to earn above-average investment returns by investing exclusively in traditional stocks and bonds.” Only 28% of respondents over the age of 44 agree.
Younger generations have a notable affection for cryptocurrencies, the report said, but that’s at odds with “high-profile fraud cases in the burgeoning cryptocurrency industry” linked to the collapse of FTX.
Meanwhile, Binance, the world’s largest cryptocurrency exchange, pleaded guilty in November in a U.S. federal court to violating anti-money laundering laws, unauthorized transmissions, and sanctions, and agreed to pay a staggering total fine of $4.3 billion.
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The (monetary) valuation of the collection
When it comes to art and vintage items, the appeal of collecting them is understandable, as they also evoke excitement among consumers.
After all, what would be more satisfying and truly enjoyable: owning 1,500 shares of General Motors stock worth roughly $68,000? Or acquiring a GM throwback car, such as the same 1960 Chevrolet Corvette two-door convertible that graces the cover of Bruce Springsteen’s memoir, which is currently trading for an average of $69,200?
As for whether collectibles-based strategies can build wealth, there’s no way to know for sure, especially when value is highly speculative (also a characteristic of cryptocurrencies).
Presumably, if I’d bought it new for the $3,872 price cited by J.D. Power, the Corvette would have been a turbocharged investment. Still, accounting for inflation, the Minneapolis Fed calculates that it would be worth $39,900 today. That’s a less than 2x return over 64 years, and, to borrow Boss’s phrase, not exactly a natural business investment.
Compare this to the inflation-adjusted returns of the S&P 500. According to Macrotrends, roughly $600 invested in 1960 would be worth $5,470 today, a return of more than nine times.
As with cryptocurrency, hitting the jackpot on popular items is a challenge that is often a matter of luck and timing. Also, keep in mind that the IRS imposes a 28% tax rate on the sale of collectibles, a fact of financial life that can easily be overlooked by many young, wealthy people.
But that hasn’t stopped young and wealthy collectors from snapping up watches, jewelry, wine and spirits, which rank high on their lists. They also have an eye for rare cars, antiques and sneakers. Gen X and older collectors are drawn to coins, jewelry and watches.
Now, back to our sneaker story: whether you are the buyer or seller, savvy or gullible, can make the difference between making a killing or getting scammed.
Nike’s Air Jordans are especially popular, with an eBay seller currently asking $1 million for a pair of Jordan 1 Retros. The multi-colored beauties sold for $135 when they released in 2010, but another pair recently sold on StockX for $1,281.
The lesson is clear: beware of those who try to sell you their soul.
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This article is for informational purposes only, should not be construed as advice, and is provided without warranty of any kind.
