Outside of the mainstream world of stocks and bonds, there exists an interesting cross-section of alternative assets that only really gain appreciation from a relatively small group of elite investors.
These luxury collectibles – things like fine wine, classic cars, rare stamps, colored diamonds, Chinese ceramics, and fine art – are unquestionably fun to hold as investments and even to talk about. But do these alternative assets also perform as investments over time?
Eye of the Beholder
The obvious challenge with valuing an item like a prized Picasso painting is that beauty is in the eye of the beholder.
Investors can rely on expert opinions, their own experience, historical evidence, and longstanding markets for these asset classes. However, at the end of the day, the price an investor is willing to pay is ultimately subjective, which can get compounded by the fact that these markets also tend to be illiquid.
If you’re buying or selling one of these assets, this can either work in your favor – or you can be stuck with a classic car in your garage that never really panned out in terms of price.
Here is a graph showing the sale dates of some of the most expensive paintings:
Recently, you may remember the sale of Leonardo da Vinci’s re-discovered masterpiece, Salvator Mundi, as an event that topped headlines in late-2017. The painting was bought for $450 million by Abu Dhabi’s department of culture and tourism, and it’s to be displayed in the Abu Dhabi Louvre.
Investments that Age Well
Despite the challenges involved in valuing these assets, as well as other costs such as setting up the storage and security systems needed to protect them, time has been kind to many of these luxury assets.
Here are the returns of luxury items over the last decade, based on the 2018 Wealth Report by Knight Frank:
|Ten Year Returns||CAGR|
Keep in mind these investment categories are pretty narrow – for example, a Toyota Corolla doesn’t count towards the auto category. Instead, we’re talking about cars like the Lancia Aurelia B24 “Spider”, of which only 761 models were made in the 1950s.
In any case, as you can see from the above table, most of these assets have not only continued to hold their value, but they’ve also appreciated in price significantly. Autos topped the list, but fine wine and rare coins (two more accessible options for investors) also did quite well with 11.3% and 10.9% annual gains, respectively.
Article by Jeff Desjardins, Visual Capitalist