Art & Collectibles
Arts and collectibles are a distinct category in alternative investments, set apart by the majority of alternative assets (other than timberland investment) for the fact that they are very much tangible assets.
The asset class can include anything from fine wine to stamps, antiques and classic cars, and on the whole the class is seeing an increase in interest from investors keen to move away from less tangible financial products as the recession still hangs in people’s minds. At least if the value of a bottle of wine plummets, you still have a bottle of wine to enjoy!
Pros and Cons of Investing in Arts and Collectibles
Investing in a tangible asset is a positive for most people looking for an alternative investment. The fact that these items are generally well removed from the financial markets also makes them an excellent way to diversify and there is certainly an added level of fun involved if you’re investing in something you have an interest in anyway.
On the downside, they aren’t generally suitable for anyone looking for an investment that pays dividends or other form of ongoing income; the only way to realise your investment is to sell the items. Connected to this is the potentially high cost of keeping or maintaining these items, particularly in the case of classic cars which need garages and equipment to restore, or if you’re looking to store a large number of wine cases, for example, and require the right storage temperature.
You are also likely to see a cut of your returns go to any dealers involved, although given that this is the case with most forms of alternative investment it can largely be discounted as a particular downside for collectibles.
High Upside Potential
On top of the clear benefit of diversification, investing in collectibles is generally advised for individuals looking for high upside potential. This potential for uplift does still come with a high level of risk, however, as the value of items are subject to the whim of demand, rather than the slightly more predictable market trends of other investments. But the chance to make a sizeable markup on a novel item can outweigh the risk for many.
It might well be this alternative growth pattern that is attracting people to the area as collectibles have enjoyed quite an uptrend in recent years. Classic cars, for example, saw prices grow by an average 8.4 per cent in the first half of 2015 according to the Hagerty Price Guide, with growth attributed to an higher level of interest from investors. Taking a longer-term view, the Knight Frank luxury asset report published in March 2015 showed a 487 per cent increase in classic car values over the past decade, and a 252 per cent rise in art prices in that same time period.
It’s clear that this alternative asset sector as a whole is best suited for long-term investments as market changes and shifts in associated celebrities and lifestyles fall in and out of fashion with the items in question. But the novelty and interest attached – along with the chance of sizeable returns – makes it a great alternative asset to complement an existing portfolio.