Think Investor: Passionate about passion assets?

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Your urge to acquire such assets continues as you continue to spend on them; overspending should be moderate

Your urge to acquire such assets continues as you continue to spend on them; overspending should be moderate

“Passion assets” refer to investments in collectibles such as artwork, paintings and antiques. One problem some people face is overspending on passion assets. In this article, we’ll discuss what drives overspending on these assets and how to moderate them.

Asset Tolerance

Collecting objects of passion is an enriching experience. But as time passes and you amass a large collection, chances are you’ll develop a tolerance for passion assets. In other words, you stop getting the same level of pleasure even if you collect as many assets as the previous year. This means you have to spend more to get the same rewarding experience. Why?

Neuroscience can explain this behavior. Your brain releases a neurotransmitter called dopamine when you have pleasurable experiences.

When you continually spend on passion assets, your brain’s reward center is overstimulated. This means that your brain is initially overwhelmed and releasing high levels of dopamine. Eventually, the brain controls this problem by decreasing dopamine production or by reducing dopamine receptors.

This translates to another problem: buying passion assets will now trigger a weaker response from your brain’s reward center. But your urge to acquire passion assets persists. Thus, you buy more to get the same level of experience as before.

How do you “know” that you are spending too much? On the one hand, you may be paying more than you normally would to buy an asset.

For example, you may outbid at an auction, or you may have a compulsive urge to buy an otherwise substandard asset. On the other hand, your spouse, sibling or parents may start to believe that you have an addiction! So how do you moderate this overspending behavior?

Consistent spending

It is very unlikely that your immediate family has developed a tolerance for the same passion assets as you. So, an optimal strategy would be to consult your spouse, parents or sibling before spending on such assets. Okay, that might not always be easy, given that your urge to spend on a passion asset can be impulsive.

The second way to curb overspending is to indulge in other leisure activities that can be rewarding. You are likely to often spend on passion assets when you are bored or not engaging in gainful activity.

Suppose you find gardening somewhat rewarding. Second, devoting more free time to gardening than analyzing passion assets to buy next could moderate overspending. You must also maintain a separate bank account to purchase passion assets. You can fund this bank account with a predetermined amount each month, limiting the amount you can spend on these assets.

Finally, you could replace your passion assets on an ongoing basis. Just as you buy stocks with the proceeds from the sale of another investment, you can buy a passion asset with the proceeds from the sale of one or more assets in your existing collection.

It is true that parting with passion assets could be painful, as they are touch assets.

Often, such pain prompts us to demand more money to sell an asset we have — a bias that behavioral psychologists call the endowment effect. But the endowment effect usually fades the longer you hold an asset.

Conclusion

You can determine the amount you wish to spend on passion assets as a percentage of your total investments or after reaching an absolute amount in consultation with your spouse, sibling or parents.

Note that your overspending could simply be a fallout from the pandemic. It is a fact that with limited opportunities for leisure activities, many have turned to buying passion assets. Perhaps, as we adjust to this virus and the world returns to pre-pandemic activity, your brain’s reward center can return to regular spending habits. If you continue to suffer from overspending, you need to moderate the problem.

(The writer offers training programs for individuals to manage their personal investments)

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