- Collectibles are selling for ever-higher price tags, capturing the popular imagination. When and how should financial planners advise clients that art, wine, jewelry and other collectibles are good investments?
- Passion must lead the purchase, say experts. Appreciation comes in two flavors: aesthetic and financial.
Interest in collectibles is hitting new heights.
"Rabbit," a 1986 stainless steel sculpture by artist Jeff Koons, sold to Robert E. Mnuchin, father of Treasury Secretary Steve Mnuchin, this May for $91.1 million, making it the most expensive work ever by a still-living artist.
And a pearl pendant once owned by Marie Antoinette garnered nearly $36.2 million at auction last November. That same month, the most expensive whisky in history, a hand-painted bottle of The Macallan 1926 60-Year-Old single malt Scotch, went for $1.5 million at Christie's in London.
Clearly, collectibles remain a hot commodity, if mainly among the jet set and the uber-rich, attracting ever-higher, record-setting bids. But just how viable are collectibles — from artwork and antiques to wines and whiskies — as an asset class for the average investor? Can and should the typical financial professional advise clients to sink hard-earned cash into hard goods as investments?
Perhaps, say financial advisors, but only if investors demonstrate an existing desire for the items they're interested in and have sufficient knowledge and financial resources to make the investment practical.
Passion and practicality
Certified financial planner Kenneth Waltzer, managing director and co-founder of KCS Wealth Advisory in Los Angeles, said his stance has always been that if clients are going to invest in collectibles, they should do so out of passion.
"You shouldn't do it purely from a money-making standpoint," he said. "If you love art, you should collect art that you enjoy looking at."
For his part, Justin Anthony, co-founder of Denver-based Artwork Archive, said he likes art as an investment class "because of the other value it brings, in addition to the speculative or potential financial gain."
Artwork Archive, which provides art collectors with cloud-based tools to organize, catalog and protect their collections, has $2 billion of artwork under management. The firm can work with financial advisors to appraise and document art held as part of client portfolios.
"When you're buying a stock, it's not something you can enjoy on your wall [and] it's not a physical asset that you control and care for," said Anthony, adding that owning a painting doesn't involve "trust issues you may have with an investment firm or company."
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"There's an enjoyment value that comes with art that, at least from my perspective, buffers things on the financial aspect," he said. "It's usually passion that leads the purchase, and investment is just a perk."
Indeed, the Wealth Report Attitudes Survey 2018 from Knight Frank ranks "joy of ownership" as the No.1 motivation for collectors, outranking capital appreciation, safe financial haven, portfolio diversification and social status.
Waltzer, a wine aficionado and collector, said that of the vintages he purchases for himself, most will be drunk while others will be saved with an eye toward appreciation — in the financial sense. "I actually did have quite a bit of wine that I sold years ago to fund my business," he said. "So it is doable."
According to the Knight Frank Luxury Investment Index rankings for 2018 (see chart below), collectible wines have appreciated by 9% on average in the past year and 147% in the past decade, making them the third most valuable luxury asset of 10 tracked. Rare whisky tops the list, appreciating 40% in a year and 582% in a decade, followed by coins at 12% and 193%, respectively. The worst performers? Stamps with 0% annual appreciation and jewelry at -5%.
Knight Frank Luxury Investment Index (to Q4 2018)
|Asset Class||12-mo. change in value||10-yr. change in value||2018 top seller|
|Rare whisky||40%||582%||1926 The Macallan|
|Coins||12%||193%||1621 Polish gold ducat|
|Art||9%||158%||David Hockney, Portrait of an Artist|
|Watches||5%||73%||1970 Rolex Daytona The Unicorn|
|Cars||2%||258%||1962 Ferrari 250 GTO|
|Furniture||1%||-32%||Chippendale commode (no sale)|
|Colored diamonds||0%||122%||Pink Legacy (diamond)|
|Stamps||0%||189%||1918 Jenny Invert 24₵|
|Jewelry||-5%||112%||Marie Antoinette pearl pendant|
Source: Source: Knight Frank Luxury Investment Index
Antique furniture is nearly flat year-over-year at 1% growth, and is down -32% over the past decade. That jibes with what CFP Susan John, director of financial planning at F.L. Putnam Investment Management Co. in Wolfeboro, New Hampshire, sees with her collector clients.
"A lot of people are not doing so well with disposition of their collections right now, because nobody wants the brown furniture," she said.
CFP Douglas Boneparth, president and founder of Bone Fide Wealth in New York, says he does not normally present collectibles as an investment option to clients. When the topic does come up, it's usually because a client already has a collection.
"If they're collecting something of note or value that has a market, it can be considered part of their overall investment strategy," he said. "I don't think their Pog collection is going to make it," said Boneparth, referring to the tradeable kids' toy craze of the 1990s.
I learned a long time ago that you don't say no to people's passion. Unless, of course, it's starting to interfere with other things that are important to them and their families.Susan Johndirector of financial planning at F.L. Putnam
John estimated that anywhere from 25% to 30% of her clients are avid collectors, thanks, in part, to New Hampshire's lack of sales tax. "We're home to a lot of guys who like stuff: classic cars, classic boats, art and even pianos and classical instruments," she said. "Most of those who collect these things, of course, have a fair amount of money."
For his part, Waltzer at KCS said clients not already collecting will sometimes broach the subject based on news events or trends.
"We tend to get interest in the 'hot' thing of the day," he said. "A year or two ago, it was bitcoin and, more recently, it's been cannabis stocks."
"I'm waiting for the next one," added Waltzer, who, like Boneparth, doesn't bring up collectibles as an viable investment option unless the client already has expressed an interest.
"It has to be something you already enjoy and know a lot about," he said. "You can't just go out and start buying wines and whiskeys; you have to educate yourself."
To that point, wine connoisseur Waltzer sticks to his area of expertise and is willing to advise clients on collecting specific vintages.
"Wine I can do," he said. "I could guide you on wine. But whisky? No."
Skipping the self-education component to collecting is unwise, says Anthony at Artwork Archive, who said there's a lot of manipulation in the fine art market.
"One of the things we always advise people when they're just starting out is doing your homework on the work and the artist," he said. "But equally important is doing the same research on the dealer or source you're buying from, if you're not buying directly from the artist."
How much is enough … or too much?
Many advisors and experts seem to agree that, whatever a client's net worth, collectibles should usually comprise no more than 5% of a portfolio — and 10% at the very most.
"For people with average-sized portfolios, I'd say 5% is a good rule of thumb," Waltzer said.
Boneparth agrees. "I don't think you're going to find too many financial planners who'll go out on a limb and say 'hey, let's allocate a substantial sleeve of your portfolio to collectibles,'" he said.
Boneparth said he regards them as being in "the same vein as speculative assets or individual stocks, or what we deem to be an 'opportunity portfolio.'"
Larger portfolios, usually owned by older clients, offer more room to speculate with all alternative asset classes, including collectibles, Boneparth said. "Typically for younger accumulators who are just getting started, we don't necessarily find this being the case."
There are many people … collecting various things that, quite frankly, have no value other than the value to them. How do you put a price on nostalgia, if you're collecting keepsakes?Douglas Boneparthpresident and founder, Bone Fide Wealth
"In a $10,000 portfolio, to allocate 5% to collectibles? Okay, so you've got that one coin your grandfather gave you," he said. "That's versus someone with a $2 million portfolio allocating 5%.
"Boom — you've got $100,000 worth of collectibles, and that can span a couple of collections or be just one fantastic piece of art."
For her part, John at F.L. Putnam said she won't set normally set limits on how much an avid collector should invest. "I learned a long time ago that you don't say no to people's passion," she said. "Unless, of course, it's starting to interfere with other things that are important to them and their families."
But CFP Sophia Bera, founder of Austin, Texas-based Gen Y Planning, which focuses on clients in their 20s and 30s — less likely to already own valuable collections — would recommend an extremely low allocation: just 1% or less. "I just don't think it's a good idea," she said.