■ Cars, wine and art may be attractive investment ideas, but do they reap the best rewards? We investigate
WHETHER it is classic cars, art or fine wine, many of us hanker after investments that are a little more fun than the average portfolio of stocks and shares. But can spending money on the finer things in life prove a better investment than an ordinary Isa? Those who believe that it can need to be ready for a bumpy ride.
These types of luxury goods are sometimes described as ‘alternative’ or ‘hobby’ investments, and their fans believe they can be very lucrative.
Knight Frank, the high-end estate agency, runs a luxury investment index that has show-stopping figures. In 2017, the average value of art sold at auction increased by 21 per cent, fine wines by 11 per cent and watches and jewellery by four per cent.
Knight Frank’s survey shows that most of the people who buy these assets do so for the pleasure of ownership, with the potential for returns a secondary concern. Other reasons include providing a safe haven for their money and diversifying an existing portfolio.
Attractive as these assets may seem, financial advisers are clear that customers should not rely on these alternative assets as a form of financial security.
‘A financial planner will normally only consider alternative investments after putting in place a sustainable long-term plan using traditional, flexible investments,’ says Julie Lord, chief executive of Magenta Financial Planning in Bridgend, Wales. ‘It is important that clients have immediate access to their money at all times and this may not be possible if they have to sell other assets.’
Tony Byrne, managing director of Wealth & Tax Management in Milton Keynes, adds that the potential to fall victim to scams may be higher with these types of asset too, as there is less regulation than with traditional investments. ‘We had a client recently who was persuaded by a company to invest £10,000 into a property scheme offering an income of £700 a month,’ he says. ‘Of course the client has received no income after several months and has been told it will be reduced to £600 per month.
‘He was told there would be a £900 penalty to encash it. He has now appointed a solicitor. Luckily it was money he could afford to lose. If it sounds too good to be true it probably is.’
However, as well as the fun in investing in things that are an interesting hobby, there are other advantages to alternative investments. Donald Maxwell-Scott, technical investment manager at accountants Rowan Dartington, says that there are tax exemptions for anything that is deemed to have a ‘limited lifespan’, meaning that if you make money on these types of investments you may not have to pay capital gains tax.
‘This can include cars, clocks, and watches, essentially anything mechanical. Other investments, such as jewellery, art, stamps and antiques worth over £6,000 would be liable,’ he says.
There are gains and pitfalls to all alternative assets, but some people really do make money out of them. If you are considering adding them to your portfolio, some of the information below on different types of investments could help you to decide.
As any savvy money-saver knows, most cars lose value as soon as you drive them off the garage forecourt. But some classic cars can be an exception, and any money you make on them is exempt from capital gains tax.
‘Investing in certain classic cars such as an Aston Martin DB5 or the classic Jaguar E-Type would have proved a worthwhile investment over the last few years,’ says Donald, of Rowan Dartington. However, Tony, of Wealth & Tax Management, cautions those who think classic cars are an easy investment. ‘Some clients claim they make money out of investing in and restoring classic cars but really it’s more of a hobby,’ he says. ‘Such clients do make money but when you take into account the time they spend on their hobby I’m not sure it’s that profitable.’
What might you make?
The Knight Frank index shows classic cars as the best-performing asset class over a ten year period, up 334 per cent. However, the asset class rose just two per cent in 2017. Your mileage, as they say, may vary.
Investing in fine wine is tricky for those of us with a weakness for a glass, or two. But if you can avoid the temptation to drink the lot, getting the vintage right can make for a valuable investment.
Donald explains that tax rules around wine are complicated. ‘If at the time of the acquisition it was deemed to have a lifespan of less than 50 years, then no capital gains tax would be payable if sold at a profit,’ he says. ‘However, if at the time of the acquisition (not when the grapes were picked) it was deemed to have a lifespan of over 50 years, then capital gains tax might be applicable.’ Getting wine investment right is about more than just nipping to the local off-licence and hoping for the best.
Andrew della Casa, director of The Wine Investment Fund, says that everyone needs to carry out checks, and also to ensure that they are investing in wine that is easy to value and sell. ‘In the past, investing in fine wine has sometimes hit the headlines for the wrong reasons, with some so-called wine investment managers proving to be at best incompetent and, at worst, corrupt,’ he warns.
‘Make sure there is physical possession of all wine purchased and that the wines are stored in a UK government-bonded warehouse. If in doubt, ask to visit the warehouse to view the wines. The wine should be fully insured at replacement value.’
He advises investing only in the top Bordeaux chateaux and carrying out checks. This should include visiting the physical office and avoiding anyone who sends unsolicited mail or cold-calls.
‘Fine wine has the attractive historical properties of high average returns, relatively low volatility and very low correlation to equities under most conditions, so that many portfolios would benefit from the inclusion of a wine holding,’ he says. ‘However, without care in approaching the market, any holdings may be doomed to underperform.’
What might you make?
The index of fine wines rose 11.3 per cent in 2017, but has declined slightly since then.
Art and antiques
Record-breaking art sales, like the Christie’s auction of Da Vinci’s Salvator Mundi (pictured) for $450million, ensure that art collection is something associated with the super-wealthy.
For those of us who just want something attractive to hang on the walls, graduate art shows may be more fertile hunting grounds for the next big thing. These shows allow you to snap up pieces by up-and-coming artists that may be worth something one day. Many are in mid May to July, and prices tend to be in the hundreds. Historic film posters can also make money at auction, as well as providing pleasing decoration for your walls.
The best advice is buy what you like, ensure it is hung carefully out of direct sunlight and take advice on mounting and framing.
What might you make?
The Knight Frank index shows art up 21 per cent last year, but that’s skewed by mega-deals like the Salvator Mundi sale. Expect your own returns to be rather more modest, unless you are an art expert.
‘I sold my £1,400 wine for £10,000
TOM HARROW, 40, from Wimbledon in south west London, is laying down wine as an investment for his children, who are seven and four.
‘The idea is that I buy it, and it’s got an appreciable value, and then later if they want to drink it they can, but otherwise they can cash it in,’ he says.
Tom (pictured), who runs wine business Honest Grapes, says that he believes wine is an ‘excellent defensive hedge’ when markets are falling. ‘You have to do pretty badly to lose money on wine.’
Although Tom has 20 years experience in the trade, he says he started investing when he knew very little and relied on the ratings from top wine critics to decide which bottles to buy.
‘If both Jancis Robinson and Robert Parker liked a wine I would go for it. They have very different tastes,’ he says. Some of Tom’s most successful trades have been with traditional investment wines, including a 2002 Lafite. He bought 12 bottles for £1,400 and sold them for £10,000 nine years later.
He is particularly interested in investing in high-end champagne at present. ‘This isn’t the obvious first choice for people investing, but unlike traditional investment wines such as Bordeaux, champagne gets drunk quite often which creates a scarcity that pushes up value,’ he says.
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