There is a lot of potential in the predicted commodities supercycle, but a commensurate amount of risk for anyone who is not an expert in these highly esoteric and volatile markets.
Classic car investments can give their owners a great deal of pleasure, yet they can also offer very attractive returns.
Several big market wobbles this past month will perhaps have made nervous equity investors think about safe-haven assets which can serve as enduring stores of value during volatile times. The fact that the European Central bank has now embarked on a €1.1 trillion quantitative easing programme has also underscored the merits of assets with rarity value which, unlike cash, are finite and cannot be produced (and therefore devalued) by metaphorically simply firing up the bank’s printing press.
But while your first thoughts on the subject of tangible assets might tend towards stalwarts like property and gold, it might also pay investors to consider the racier end of the investment spectrum: new figures from Historic Automobile Group International, a UK-based firm tracking the sector for classic cars, show that classic car marques like Ferrari and Porsche delivered rip-roaring gains of 15.84% last year – a figure setting the pace very much more convincingly than the 4.9% seen from the MSCI World Index of developed countries’ equities over 2014.
Classic car investments are certainly not the only collectible to have clocked up considerable gains in recent times, however, and while cars, jewellery, antiques and art might give their owner considerable pleasure it is clear that they can often represent an attractive investment opportunity too. In fact, investors might be surprised to learn that a 2014 Coutts index found that passion investments had actually beaten equities over a seven and a half year period.
The study examined the fortunes of 15 types of tangible asset spread across two broad categories – trophy property and alternative investments – with the latter then further split into fine art, collectibles and precious items. Over the period, the basket of tangible assets rose by 82% in dollar terms, while the MSCI All Country Equity Index rose by 53%. And, among all the contributors to tangible assets’ impressive performance, it was classic cars which delivered the biggest gains. Top-end vehicles pulled far ahead of the other types of asset, rising by 257% over the period; classic cars’ closest (and also very impressive) competitors were top-end watches, which rose by 176%.
Everyday motorists are used to their car’s value falling away to virtually nothing over the years; they generally also have to accept that a good deal of depreciation happens as soon as they drive off the forecourt. In contrast, investors in classic cars can gear up for some serious gains – but only if they select the right marque, model and year that is.
The potential of classic car investments is huge. A 1960s Aston Martin DB5 could have been bought for £60,000 a decade ago but could now fetch a huge £350,000. Similarly, a 1970s Ferrari Daytona could have been yours for a snip in the early noughties, at just £50,000, but might be worth some £250,000 today. However, what those two examples should have also highlighted is the level of knowledge investing in classic cars calls for and the vagaries of a market which is dictated by changing tastes. Fashions in cars can change as rapidly as they do for clothing, making it difficult for the non-expert to pick investment winners reliably. Making money from classic cars is not easy, particularly when storage, maintenance and possibly specialist insurance are taken into account too.
If you are contemplating making a significant investment in cars, or indeed any esoteric investment it is even more essential to take professional financial advice. Robust risk management is dependent on taking a holistic view of your wealth, properly diversifying it among asset classes, and devising a portfolio of investments which represents an appropriate risk-return profile for your objectives and time horizon. Investors who go it alone can often inadvertently come to be quite alarmingly overexposed to a particular asset class (property being a classic example). Classic cars and collectibles in particular are an area where it is easy for the non-professional to lose money.
That said, those who do manage to make money from classic car investments could have one very significant reason to smile: classic cars can come under a category of possessions known as chattels which, if they are deemed to have a lifespan of 50 or fewer years, means they may be treated as wasting assets and therefore be exempt of Capital Gains Tax (many collectibles can qualify in the same way, as can some motor homes and pleasure boats, as long as they aren’t subject to claims under business capital allowances). Talking through your entire tax position with a professional adviser could open up a whole range of tax efficiencies which could save you money and help you to reach your goals sooner.
Classic car collectors do of course have one further advantage over those investing in traditional assets: they can enjoy their investment personally by driving it, regardless of whether its value is up, or down, at a particular point in time. If they are investing on a long-term view, they can literally ride out a market lull before selling for a greater profit at a more opportune time (although adding too much to the mileage is probably best avoided!). Similarly, an art aficionado or jewellery-lover may well get as much back from their investment in enjoyment as they do in financial gains.
Certainly, no-one is suggesting that investors park a significant chunk of their wealth in classic cars, but they may be an investment you could discuss the feasibility of with your wealth manager. It may even be that buying a classic car is one of the objectives you are aiming to achieve through engaging a professional to help you make your wealth work harder.
Investing your money with a wealth manager can be just as much about fulfilling your dreams as it is taking care of more serious aims.
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