by Nick Raphaely
An alternative asset like a classic car isn’t always the first thing that springs to mind when attempting to diversify an investment portfolio. Yet when the market indicates that the value of classic cars has leapt 257% recently, investing in your passions might be the best way to ensure your money goes the distance.
Private bank and wealth management firm Coutts released their yearly “Coutts’ Index: Objects of Desire” report in January to reveal that so-called passion investing has seen a return of around 77% since 2005 – beating stocks and other traditional investment options by a landslide. Leading the charge in returns, far-sighted owners of classic cars profited from an enormous 275% appreciation over the past seven and a half years. In further market reports from Knight Frank, the success of classic cars as an alternative investment is even more pronounced. A 10 year analysis of the financial performance of classic cars shows that their value has surpassed even gold as a sound financial bet.
A case in point is the recent sale of a 1963 Ferrari 250 GTO for a record-breaking $52 million. With such a high price tag, it is officially the world’s most expensive car, and indicates the sheer potential of the classic car market in this current climate. Acquiring an asset such as this one for a collection and an investment portfolio is a coup that defines the parameters of the entire market.
Rising Demand, Shrinking Supply
The driving factor behind these gains in the classic car market can directly be attributed to a factor that is usually missing from an investment portfolio: passion. With new crops of high net-worth individuals entering the marketplace every year, the pure enthusiasm for this asset ensures that demand is kept high. Buying a classic car is rarely a spur of the moment (or spur of the market) decision, and many of these purchases have been contemplated for years in advance. As a result, the enormous appreciation of classic cars continues as eager collectors claim their particular model of choice.
Contributing to the passion behind investment in collectible cars is also the limited supply. It goes without saying that the recently-sold 1963 Ferrari 250 GTO is precisely worth its $52 million asking price because it’s impossible that there will be ever be a 1963 Ferrari 250 GTO again. When there can be no other entrants to the market, and simply a recycle of existing models, classic cars become an increasingly sought-after asset in an increasingly shrinking pool. It has created the perfect storm of supply versus demand and has seeded the enormous asset appreciation figures we’ve been seeing over the past decade.
What’s the risk?
As with any investment, there are certainly risks to be aware of and factor into your decision-making. The largest concern is that the success of the classic car market is less to do with the inherent value of the assets and more to do with the existence of a bubble in the market. Construing the current market as a bubble, however, assumes that either the liquidity of the market is in question or that the asset itself isn’t worth what collectors are paying for it. Given the scarce nature of classic cars and the purely passion-driven nature of the market, this seems unlikely.
The other concern regarding investment in classic cars is to do with portfolio best practices. Although classic cars are showing appreciation beyond many similar asset classes and investment options, it is never a wise idea to commit the majority of your financial interests to any one avenue. As long as you bear in mind your investment strategy as a whole, classic cars are no more volatile than gold, art, or even stocks.
Nick Raphaely is the co-founder of Assetline, a personal asset lender which enables investors to borrow against valuable alternative assets, in a fast and secure way. Nick has extensive experience with alternative investments and previously worked for Merrill Lynch in the UK and Australia.
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