Profit from Collectables
The growth of the internet has led to the evolution of new and exciting ways to buy and sell anything from the comfort of our homes, from clothing and toys to cars and houses. We’re all aware of how useful auction websites such as eBay have become, and many investors are now actively buying niche products with the intention of holding them for several years and then selling them as the price appreciates. These holdings come under the asset class of alternative investments.
An alternative investment is something that doesn’t fall under the standard asset class of stocks, bonds or cash. They’re generally illiquid (meaning they’re not easily bought or sold), and their value doesn’t generally move in tandem with stocks or bonds. With this being the case, alternative investments makes a great diversifier for your portfolio.
It should be noted that alternative investments aren’t intended to replace your stocks and bonds portfolio, but rather they’re much better at enhancing it. With the stock market being in a cycle of perpetual movement, it can be extremely reassuring to hold an asset class which is completely separate from these cycles.
There are frequently reported news stories about clever investors who’ve made a fortune from selling a collection of rare stamps, or an old car stored in their fathers garage which turned out to be a rare classic. But these cases are few and far between, and are usually the result of either extremely good luck, or a lifetime of obsessive collecting. So where does that leave the rest of us?
Yet again we can turn to the internet to help us. A quick search on eBay can easily highlight some of the investments which people are investing in with the hope they’ll make some money over time. Many of these collectables will be obvious, and some are less so. Let’s take a look at some of these below:
The Investment Options
Fine wine – One of the oldest investments, holding fine wine for capital appreciation has been a favourite tactic of the rich for many decades, but this asset has become even more appealing with the increase in online wine trading. One negative is that in order to achieve reasonable returns, a significant outlay is required, with many wine investors suggesting £10,000 is required to start.
It’s recommended that you stick to old world wines, typically Bordeaux, Burgundy and Champagne, but they must be stored carefully, ideally in a humidity-and temperature-controlled warehouse. If the investments don’t perform financially at least you can drink your losses.
Classic cars – The appeal of investing in classic cars is obvious, and is a lifetime goal for many people. But what are the advantages over holding money in the stock market? To begin, the profits of UK classic cars are free from capital gains tax, and they have seen steady yearly appreciation of 7-8% on average. Whilst there are some instances of ultra-rare Ferraris and Aston Martins increasing in value twenty-fold, these are generally out of reach for the average investor.
The main criteria in holding this asset is to ensure you’re selective in your criteria, and only purchase vehicles with a full history and proof of prior ownership. Secondly, it will need careful and planned maintenance, and must be stored in conditions that will preserve it as much as possible. The natural erosion of metal is the reason that the HMRC classifies cars as a ‘decaying asset’, and why they’re deemed as being worthless after 50 years. Luckily, this classification allows investors tax-free profits, although I expect the tax office to change this at some time in the future.
The second requirement of classic car ownership – storage and maintenance – has been made easier in recent years with the creation of specialised classic car storage centres. These moisture-controlled, security patrolled storage units can be rented for as little as £150 per month. But bear in mind, these costs along with auction fees will all cut into your overall profitability.
Lego – Yes, you read that right, we’re talking about the little Danish plastic bricks that have been enjoyed by children worldwide since the first Lego sets were sold in 1934.
The return on the most sought-after Lego sets have increased by up to 12% year on year since the start of the millennium, with some highly sought after sets increasing in value by over 30% in just one year on eBay. This compares to an average annual return on the FTSE 100 of 4.1% with dividends re-invested over the same time-frame.
But like any collectible, it’s of paramount importance that each Lego set is sold as complete and is in a pristine condition with an unopened box. That means you’ll have to resist the temptation to take a peek inside and have a play yourself!
Many of the highest prices are for old sets based around films such as Star Wars, or landmarks or brands such as the Taj Mahal in India, or even the Volkswagen Beetle.
The largest percentage rise in price for any Lego set has been on ‘Cafe Corner’, a model of a hotel which went on sale in 2007. The set, which has 2,056 pieces, originally sold for £89.99 but the price has risen to £2,096 since it went out of production – a return for investors of an incredible 2,230 per cent!
Stamps – Stamp collecting has for many years been seen as the preserve of the obsessive collector, and something to be considered purely as a hobby rather than for any financial rewards. However that concept is now changing with the rising tide of the middle-class both in China and emerging economies worldwide.
Prices have tripled over the past 10 years, and the most collectible specimens have seen average growth increase in excess of 11.6% per year during that time.
The values of some of these highly desired collectables defies belief, with the world record price for a stamp at auction reaching $9.48m for a British Guiana 1-cent Black. And the most famous stamp of all – the famed British Penny Black – can reach upwards of $7000 if it’s in pristine condition. Clearly, with over 60 million collectors worldwide, investing in rare stamps can have massive potential upside.
One alternative method to invest in this asset is to purchase part of a portfolio of stamps that is held by a specialist company and stored at additional cost. Several of these companies will then allow you to hold the stamp portfolio for upwards of 10 years, at which point they will offer to buy back the stamps at original cost- plus the increase in value. However they also generally charge around 20% commission fees which will wipe out a sizeable chunk of your profits.
Fine Art – The art world is awash with tales of priceless paintings that have fooled professional valuations for decades, only to be deemed as a near-worthless fake some years later, and it’s for this reason that it’s difficult to recommend this form of collectable as something that’s suitable for the average investor.
Whilst fine art can be viewed as something beautiful to behold, it is also undoubtedly something that can increase exponentially in value after an artist’s death, or if a previously undiscovered piece come onto the market.
The global art market is booming, with sales increasing by 7% annually since 2007, and reaching an amazing worldwide figure of $37 billion in 2015. However, research shows that compound returns on investment grade art pieces is only around 4%, considerably lower than stocks, bonds and gold over the long-term. With this in mind, it has to be considered that fine art is something that must be given serious research before an investor decides to part with their money.