Investing in collectibles? Read this first.
Investments | 21/08/2017 |
10 min read
A typical investment portfolio in Australia consists of superannuation, a family home, and maybe a diversified stock portfolio filled with banks and mining companies. Those are all solid investments, and the cornerstone of long term wealth, but they can also be a little vanilla and boring.
If you’ve got a little extra money on-hand and are feeling adventurous there’s a huge market for speculative investments in everything from classic cars and vintage toys to artwork and coins. But are these realistic investment options, and what are your odds of coming out on top?
A few years ago the CEO of BlackRock, a multinational Investment fund, noted that contemporary art was one of the great investment stories. Referencing the Knight Frank Luxury Investment Index, he said that Art is up 61% over the past five years and up 252% for the decade.
That may well be true if you’re a Russian oligarch who can afford to gamble a lazy $50 million on a historically significant painting by a well-known artist. But an art lover with $5000 - $10,000 spare on a local artist is unlikely to see those returns. Or any returns.
Buying a piece of art because it brings you joy is fine, but the odds of spotting the next Banksy are extremely slim. If you’re determined to invest in art you can attend local showcases and buy originals from emerging artists for under $1000. Collect a room full of works, sit on them for 40 years, and some of the paintings may end up valuable. But as far as funding your retirement, you may as well buy a lottery ticket.
A couple of years back a 1972 Ferrari 365 sold for $450,000 at auction. The owner had purchased it for $160,000 less than a decade prior. You’ve probably heard similar stories, albeit, the car in question was a classic Holden or Ford. But the odds are definitely stacked against you.
According to a report in Bloomberg only about 3% of vintage cars sell at auction. Even if you do manage to sell a vehicle, the reality is prices for most collectible cars have flat-lined over the past decade. None of this matters much if you’re looking for something to drive on lazy Sunday afternoons, but as far as investment potential goes the odds are stacked against you.
Toys and comics are another popular collectible, and you’ll hear stories about a particularly rare item selling for the price of a house. You can read some of the success stories here, but unless you’re incredibly lucky you’re almost certainly better off with an index fund.
Other popular options include Star Wars memorabilia, film props, first edition books, stamps, coins and trading cards. Some extremely rare items have sold for many times their original value. But there’s a cautionary tale behind the headlines, and when it comes to collectibles you need to be aware of the following.
Specialist knowledge: Unless you’re a subject matter expert there’s a good chance you’ll either pay too much or buy something that isn’t particularly rare or collectible.
Maintenance: Collectibles need to be stored and maintained. There’s also the cost of insurance to consider. This all adds up and can eat into any potential profit.
Counterfeits and fraud: If there’s enough money floating around you can bet there’s some unscrupulous individuals selling fakes.
Low Returns: Most collectibles appreciate at a slower rate than other investments including stocks and bonds.
Lack of liquidity: A collectible is only worth what the market is willing to pay. During economic downturns it can be hard to sell items, and prices can plummet.
The Australian tax department
The final thing to keep in mind is the Australian Tax Department's view on collectibles. If you intend to use a self managed super fund (SMSF) to fund your acquisitions their are very specific laws in place.
- Items can't be leased to or used by a related party
- Items can't be stored or displayed in a private residence of a related party
- Decisions about storage must be documented and the written record kept
- Items must be insured in the fund’s name within seven days of acquisition
- All investments must be made on a commercial arms length basis
- The purchase and sale price of assets should reflect the free market value
- The income from assets should reflect the true market rate of returns
- The investment must comply with the sole purpose test
- The investment must be for genuine retirement purposes and not provide a present day benefit
You can read more about the Australia Tax Department's views on collectibles and investment restrictions here.
Speak to an Equip Financial Planner about building a well rounded investment portfolio. Learn more here.
This information is provided for general information only. It does not take into account your personal objectives, financial situation or needs and should therefore not be taken as personal advice. You should consider whether it is appropriate for you before acting on it and, if necessary, you should seek professional financial advice. Before making a decision to invest in the Equipsuper Superannuation Fund, you should read the relevant Equip Product Disclosure Statement (PDS). Past performance is not an indication of future performance. Issued by Equipsuper Pty Ltd ABN 64 006 964 049 AFSL 246383. MySuper Authorisation Numbers 33813823017672 and 33813823017518 (‘Equip’, ‘the Fund’ and ‘the Equip Rio Tinto Fund’).