Affordable luxury goods investments that actually pay off
You don’t have to be in the league of the super-rich to buy gold, fine wine, art or classic cars—and such investments have the potential to make you money over the long term. They are known as alternative investments and include anything that is not a share, bond, cash or fixed interest investment.
Investing in luxury goods
Last year, investing in luxury goods would have resulted in a better return than the FTSE 100 index of leading UK shares, according to the Knight Frank Luxury Investment Index (KFLII) which includes wine, classic cars, stamps, coins, art, furniture, jewellery and watches.
Over the 12 months to the end of September 2015 the value of the luxury index rose by 10%. This compares with an 8% drop in the value of the FTSE 100 equities index and a rise of only 1% for the top end of the London residential property market.
However, the headline figure masks a mixed performance by the different assets within the index. If you are thinking of investing in one of these assets bear in mind that returns can be volatile and subject to fads and fashions. They are also influenced by global factors, since many buyers are international investors.
You also need to think about how you are going to store and protect your asset.
Things to invest in
According to Knight Frank, the value of classic cars rose 18% in 2015 and they were the top performers in the index.
The auction house Bonhams sold a 1962 Ferrari 250 GTO Berlinetta for $38 million last year – a new record.
Classic cars are classed as vehicles built before 1 January 1976. If the value of your car rises and you sell it at a profit, you won’t have to pay capital gains tax (CGT) as cars are classed as “wasting assets”.
Think about how you will insure and store the car as this can add to the cost.
The value of fine art has risen 15% over the past year, Knight Frank says.
Contemporary and modern artists have performed particularly strongly, with Picasso’s The Women of Algiers setting an all-time auction high of $179 million at Christie’s auction house.
It’s best to buy art that you like and enjoy looking at. Fine art will need to be listed separately on your home contents insurance policy.
The value of wine rose 7% in 2015. Many Bordeaux vintages have now returned to growth after prices slumped in 2011 but proper storage is crucial as the wine will deteriorate otherwise.
With a rise of 5%, jewellery outperformed both prime London property and equities last year. A Hong Kong-based billionaire set the all-time record for a gem or piece of jewellery when he bid $48.4 million for the Blue Moon, a rare fancy vivid blue diamond auctioned by Sotheby’s Geneva in November.
Make sure you do your research before you buy—the cut of the stone, quality of the metal and provenance of the ring are all important.
Gold is popular as a “safe haven” investment when the world economy looks uncertain. It is popular because it is not linked in any way to the behaviour of the FTSE indices of leading shares and is therefore used as a hedge against share price falls.
The gold price has been rising in recent months due to world stock market volatility. Its price is quoted dollars per troy ounce, and it is best to have it stored for you in a vault, rather than keeping it at home.
In recent years, whisky cask investment has proven to be extremely profitable, with investors making up to 12% per annum. In addition to this UK whisky sales are expected to increase by 6% to £2.44 billion by the end of the year.
In more than one occasion the high price rare scotch whisky commands has made headlines, with a £3,200 cask of the Macallan Single-malt scotch
whisky and £1,500 cask of Tobermory scotch whisky investment made in 1994 made a profit of 4,700% when both casks where sold for £225,000 in 2021. This level of ROI has given many investors the financial freedom to plan for an early retirement or an even more comfortable life.
Furniture was the only asset to record negative growth with a further 12-month drop of 6%, according to Knight Frank.
Hobby or investment?
You can choose alternative investments as a way of adding value and diversification to your long-term portfolio but be aware that because they are physical assets there are costs involved in storing and insuring them.
They are not necessarily a means to get rich quick, so buy because you enjoy them, rather than as a speculative investment. So if you get real pleasure from driving your classic car, enjoy wearing a special piece of jewellery, or spend happy hours on your stamp collection it’s money well spent. Then it’s a bonus if it rises in value.
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