Should I invest in wine, cars, art or antiques?

Should I invest in wine, cars, art or antiques?

Many people take great pleasure in collecting valuable items: classic cars, works of art, fine wine, antiques and more. But does collecting make sense from an investment point of view, or is the real return something rather different from money?

In this video, Elroy Dimson explains what the research reveals. Alongside Christophe Spaenjers, he analysed the returns from art, stamps and musical instruments and compared them with other asset classes. Between 1900 and 2012, collectables, often called "emotional assets", produced a nominal annualised return of 6.4% and a real return of 2.4%.

You'll learn where emotional assets sit among the different return paths available to investors. Risky financial assets such as equities have performed strongly, boosted by the financial dividend they pay. At the other end sit treasury bills, cash and assets producing little or no income at all, like gold and silver. In between are emotional assets, which pay a different kind of dividend altogether: a "psychic" income, the pleasure of owning a beautiful painting, a fine violin or an exceptional bottle of wine. Their annual performance exceeds that of gold, silver, diamonds and treasury bills, but falls well short of the excellent long-term returns from equities.

You'll also learn what question you really ought to be asking. The investment return from collectables is reasonable rather than remarkable, so the crux, Dimson argues, is how much you genuinely enjoy the thing itself. The finest artworks cost millions, making them impractical for most portfolios. But in broad terms, the right person to invest in these assets is the one who takes the most pleasure from them. Postage stamps may look like scraps of paper to some and objects of great beauty to others. The appropriate person to collect fine stamps is the one who finds them beautiful. The same applies to wine: if you know your cellar holds exceptional bottles and that knowledge brings you joy, it's an investment worth making.

The takeaway: emotional assets should be seen as a hobby first and an investment second. Only you can decide whether collecting for investment is worth your while.

Chapters / Key points

• Whether collecting makes sense as an investment
• What the research on art, stamps and instruments shows
• The returns emotional assets delivered from 1900 to 2012
• The three return paths available to investors
• Why equities pay a financial dividend
• Why gold, silver and cash produce little or no income
• What "psychic" income means for collectables
• How emotional assets compare with other asset classes
• Why enjoyment should drive the decision
• Why collectables are a hobby first, an investment second

Transcript

Should I invest in wine, cars, art or antiques?

Robin Powell: Many people enjoy collecting valuable items, classic cars, works of art, fine wine and so on. But does collecting make sense from an investment point of view?

Elroy Dimson and Christophe Spaenjers analysed the returns provided by art, stamps and musical instruments, and compared them to returns from other asset classes. Between 1900 and 2012, collectables, often referred to as emotional assets, produced a nominal annualised return of 6.4%, and a real return of 2.4%.

Elroy Dimson: There are basically three return paths that we see. For risky financial assets like equities, they've performed pretty well. They've received a financial dividend, which is what contributes to their performance. And then, if you look at the bottom end, you'll find that there are treasury bills or cash, and other assets which have produced a small income such as gold, or silver, which produced none at all.

And in between, there are these emotional assets that produce a "psychic" income, the pleasure of owning an artwork or a collectable violin, or a very, very fine wine. And their annual performance is higher than that of gold or silver, for example, higher than diamonds, higher than treasury bills, but lower than the excellent long-term returns from investing in the equity market.

Robin Powell: So, the investment return from buying collectables is reasonable. The key question to ask yourself is, "How much do you really enjoy it?"

Elroy Dimson: It's pretty tough to have the finest artworks as part of a portfolio because each one costs millions of dollars. But if you're asking in broad terms, "Who should be investing in these assets?", it's those who get the most pleasure out of it. So, I don't know about you, but you may find that postage stamps look like a scrap of paper. To some people, they're something of great beauty. Well, the appropriate person to collect high-quality stamps is the person who finds them beautiful. The same thing goes for bottles of wine. If you know you have a cellar that contains the finest wines and you gain pleasure from that, that's an investment that's worth making.

Robin Powell: In a nutshell, emotional assets should be seen as a hobby first and an investment second. Only you can decide whether collecting for investment is worth your while. Goodbye.