Material Things: the investment value of possessions

Buddhists say that material possessions get in the way of reaching greater understanding of ourselves. There are probably some psychiatrists who might agree. But despite philosophy and advice, possessive desire is deeply entrenched in our psyche; older than history and part of the very foundation of being human.

Over a hundred thousand years ago, shells and stones became coveted and worked into objects of beauty. Ultimately these artifacts and their consequent trade value laid down the basis of all economies. Today, whether you buy property, art, collectibles or jewellery, you are investing in the security of physical objects as a steady alternative to the sometimes erratic performance of the stock market. Some people become master collectors, cannily purchasing objects of the past to shore up the future. Certainly, if you know what you’re doing, physical possessions may well enhance the security of your investment portfolio in uncertain times.

Bricks and mortar

Despite ups and downs, the property market has generally shown an upward growth over the years. Your house is usually your biggest and most expensive possession – but it’s not the house itself that necessarily increases in value, but the location it occupies. Any property is better than no property – but area is hugely significant. A house in the right location is always likely to increase value faster than one in a less sought-after position.

Property always beats rental. It is the best kind of ownership for peace of mind, security and a sense of settled future. It provides you with a place to live while building a better looking portfolio year by year. As Mark Twain said: “Buy land…they ain’t making any more of it”.

The art of the deal

A thing of beauty is a joy forever – or so the saying goes. And very often it is forever because once a rare object has been attained, there is often little inclination to sell it unless the owner is forced to do so. For many, possession is still the prime motivating factor. Art is often a matter of prestige rather than simply an investment strategy. While the art market can be fruitful and show good gains over time, it may easily plummet in value during a recession.

The value of art lies in subjectivity, fashion, time and most importantly, rarity. Rarity is key because an original will always be worth more than a reproduction. But even then, originality in itself may not be valuable – what is critical is that it should be rare.

Approach your art investment as you would buying stocks and shares. Make it your business to research the work of any artist you intend to buy. Visit museums, galleries and art institutions as often as you can so that you begin to recognise quality work by an artist on the rise with popular support. And always get an appraisal. Art is a matter of emotional evocation – but if you’re thinking along the lines of investment, you need to be hard-nosed and practical.

Here are the risks:

  • Art investments will not substantially improve the risk/return profile of a portfolio diversified among traditional asset classes, such as stocks and bonds.
  • Art should be part of a total portfolio together with a second home, private business or real estate investment. On its own it does not add diversification in the traditional sense.
  • Passionate collectors are driven by individual interpretation and unique viewpoints on artwork. So it’s difficult to think of art as an asset class. There’s no balance sheet or earnings to help determine its true value.
  • The resale value for art is limited beyond those works by those considered blue- chip artists. View any financial gain as an additional benefit rather than an expected outcome.Art is an important part of your estate value, so make sure you have updated matters such as insurance and wills.

Read More: Think before that splurge purchase

Collectibles – stamps, coins and antiques

Any collection has value to someone who has the same interest in the objects collected – be it Victoriana, vintage cars or medieval maps. And once collected, sometimes over years of painstaking search, it’s almost impossible to part with a collection that may be more sentimentally valued than financially prized.

Stamps: Stamps in particular have more recently delivered bumper returns for investors.  Since 1995, rare stamps have outperformed the FTSE 100 and UK property prices, while over the past 12 months the values of some stamps have outstripped shares, property and gold – proving a sense of security beyond the satisfaction of mere possession.

Best performer in 2016 was a rare 1841 Penny Red stamp, issued during Queen Victoria’s reign, increasing in value from £22,000 to £25,000 within a year. Tangible heritage assets tend to weather economic upsets well because they are uncorrelated to mainstream markets and therefore provide opportunity for worthwhile portfolio diversification.

Coins: Like stamps, coins are about age and rarity. It is one of those hobbies that does not immediately pay dividends, but whose value is paid out fully in decades to come. In down times, your coins will hold value and even increase in value as investors rush towards commodities. There is a distinct rise in the popularity of coin investment as opposed to mere collection. And the more people that engage in this type of investment, the more the value rises.

Numismatic coins are rare and collectable gold and silver coins with value above and beyond the base value of their precious metals. Many factors – historical, unique or unusually minted in some way – may put a coin into this category. Investing in rare coins can be profitable but you need to do research and understand the rare coin market, especially since each coin will be different. Consult an expert before making decisions.

Antiques: As an investment, antiques may prove risky. Their value is often sentimental and subjective. It is often as much about appreciation of history and appearance as it is about potential value. There are no hard rules to accurately predict whether a specific antique will go up in value or not. But investing in an antique as both a thing of beauty and possibly a functional item, is a long-term matter. Something truly unique and sought-after can outperform the stock market, but as a collectible antique value is about age and rarity, subjectivity and timing. Over the years antiques, dependent on individual desirability, have generally shown an upward trend.

Our art at work

At Foster Wealth we understand that obtaining really worthwhile objects is often a matter of serious money. Finding the odd treasure at a bargain price in a flea market is rare. So when you get to the point where you want to explore the pleasure of acquisition together with the satisfaction of long-term value, we stand ready to offer our sound advice and extensive experience as you move into more adventurous investments that may well offer both aesthetic appeal and steady incremental value over time.

Find us at: www.fosterwealth.co.za

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