A solid rule in financial planning is to maximize your accumulation of appreciating assets while minimizing your depreciating asset purchases. The most common appreciating assets to invest in are interest-bearing bank accounts, equity and debt securities, and real estate. Personal property is usually thought to be of a depreciating nature, and many advisors caution against wasting your money on “shiny things.” However, if you choose them wisely, some personal assets can appreciate over time, showing that sometimes you can have a little fun with your investments.
The Benefits of Hard Assets
Watching the ups and downs of the stock market can be nerve wracking. Most financial advisors would agree that the benefits of long-term equity investing will always outweigh the cons. Our firm believes that a well-diversified investment portfolio should be the bread-and-butter of your investing. However, for those who believe a “doomsday” scenario is possible, having valuable tangible assets as part of your net worth is important as well. Hard assets can preserve your capital, appreciate in times of uncertainty and often protect from inflation. If the U.S. were to ever go into a hyperinflation stage, hard assets could protect some of your net worth and provide extra cash when you need it. Hard assets include actual cash, precious metals and commodities, but also include property and collectibles.
Even if you don’t think the U.S. is doomed, you can still build up some valuable hard assets by purchasing collectibles in an area that interests you.
Five Luxury Assets You Can Enjoy
- Classic Cars. Classic cars are probably the best example of investment assets that can also be used for personal enjoyment. Given their limited supply, classic cars possess intrinsic value even in times when the stock market gets rough. The HAGI Top Index, which measures financial performance of 50 key classic cars, has increased 30 times in the past 30 years (including a gain of over 20% in 2011) and is up 12.12% so far this year. Of course, if you want to pursue this type of investment, classic cars should be something you enjoy, as you will have to put hours into finding the right car, as well as deal with restoration costs and other maintenance.
- Stamps. Between 1900 and 2008, stamps have generated a nominal annualized return of 7%, with a low beta. They can perform similarly to precious metals as a hedge against unexpected inflation. Of course, not just any stamp will appreciate, but a true stamp aficionado should be able to pick the winners. Due to their love of collecting, most stamp collectors also keep their stamps for a long time, providing a more predictable return.
- Watches. It may not outperform the Apple Watch in terms of function, but a good old-fashioned wristwatch can look elegant, as well as resell at a stable and high price, providing that you buy the right one. Rolex, Patek Philippe, and Audemars Piguet are three brands that are known for appreciating value. To give an example, a Rolex 1019 Milgauss retailed for around $300 in the 1960s and sells for $25,000 today. If you are in it to make the most money, you should buy vintage or very rare pieces; men’s timepieces usually sell for more. (Also keep in mind that collectible watches are currently at all-time high prices.) If you just want something nice to wear, a classic watch from a solid brand should at least keep its value if you should ever want to sell it.
- Antique Guns. Guns are another example of a hard asset currently at an all-time high. In recent years, gun purchases have been on the rise, as people fear the tightening of gun-control laws. If it ever becomes illegal to manufacture certain guns in this country, those already made will certainly rise in price at that time. But instead of gambling on a congressional law banning semi-automatic weapons, some gun enthusiasts concentrate their efforts on classic and collectible pieces. Some classic English shotguns have increased 3–5% per year after 2008, to give an example. If you are interested in collecting guns, I cannot stress enough the importance of spending the extra funds for proper, safe storage and exercising the utmost caution when dealing with these weapons.
- Gold. Our last and most obvious luxury asset has been valued since ancient civilizations. It is malleable and can conduct heat, does not oxidize and is beautiful. Most important, it is scarce. Since the U.S. took its currency off the gold standard in 1972, gold has appreciated over 2,200% (compared with the Dow Jones Index at 1,500%). It is one of the original hard assets used to hedge against rising prices, and it is relatively cheap to store a material amount due to its high value-to-weight ratio. Gold bars and coins are the obvious purchases, but you can also have fun with gold jewelry, which holds its value just as well.
“A Rolex 1019 Milgauss retailed for around $300 in the 1960s and sells for $25,000 today.” Tweet
Have Fun with Your Purchases
Collectibles shouldn’t be a substitute for your core investment portfolio or a way to get rich quick. Instead, they should be something you enjoy and like to spend time on. It requires dedication, research and a true love of the items you are buying in order to be successful financially with these assets. When done right, investing in luxury assets can bring a pleasant bonus to your financial portfolio.