It’s hard to drum up much enthusiasm for investing these days -- even if you have the money.
Corporate profits continue to slump, retirement funds are losing ground, the housing market is a misery all its own and even most hedge funds are delivering meager returns, if at all.
Yet, for the high net worth crowd with income to spare, there are some other -- dare we say, colorful -- asset classes to consider -- investments that not only hold the potential for powerful gains, but can help put the fun back in your portfolio.
Indeed, fine art, wine, thoroughbred horses and classic cars have a long and storied history of turning astute (or just plain lucky) collectors into mega-millionaires. And let’s not forget the prestige and status they bestow upon their owners.
"Most people who collect art, or any other unique items like wine or racehorses, do it for the enjoyment, plus the thrill of the chase," says Mike Moses, a retired economics professor for New York University’s Stern School of Business and co-founder of artasanasset.com. "They enjoy looking for it, finding it, learning about it and meeting people of like interests."
Because they are tied to the performance of a single item, however, such investments are more difficult for the market to value. They are also less liquid and more risky. So, the question is: Is the risk worth the reward? Let's take a look.
In the case of fine art, it seems, the answer is a definite maybe.
The Mei Moses Fine Art Index, which tracks repeat sales of all art sold at the leading auction houses, gained more than 20 percent in 2007, dramatically outpacing the 5.5 percent gain for the S&P 500.
The most recent five- and ten-year compound annual returns for the art index, 16.3 percent and 10.3 percent, respectively, also exceeded the return of the benchmark stock index, 12.7 percent and 5.9 percent during those periods.
At the same time, Moses highlights the low correlation between art and stock prices over the last 50 years, suggesting high-end art investments can help diversify an equity-heavy portfolio.
Does that mean your next big Impressionist purchase will realize a lofty return? Not necessarily.
Keep in mind that the Moses index tracks art that already has an established following.
When you include the global universe of all art objects, analysts will tell you the majority depreciate over time, making it critical that investors seek out experts who can steer them towards authentic pieces and artists that are on the rise.
There are no performance indices for racehorse ownership, unfortunately, but there are plenty of one-hit wonder stories that can compel even the most conservative.
Most recently, Lava Man, a gelding claimed for $50,000 in a 2004 race, was retired this year after earning more than $5.2 million.
Thoroughbred Seattle Slew, winner of the 1977 Triple Crown, was another famous success story -- purchased for $17,500 as a yearling and valued at roughly $12 million when he retired.
Hold your horses, though.
"The vast majority of horse purchases are not profitable, but when they are they can be enormously so," says Don Engle, president of the Thoroughbred Information Agency, and a former thoroughbred investment counselor. "But it’s far more than just financial. It’s about the great love and joy of owning a successful racehorse. It’s fun and enormously gratifying."
The average racehorse can be had for $20,000 or less, but proven thoroughbreds fetch from $100,000 to several million dollars.
Investors should consider these risks.
Beyond winning or losing, there’s the added threat of injury or illness.
While racehorse syndicates have long enabled investors of modest means to own a stake in a single animal, those with deeper pockets might consider a new breed of equine hedge funds instead.
The newly announced Thoroughbred Legends Racing Fund, for example, brainchild of three legendary thoroughbred trainers, is looking to raise $75 million to $125 million by the end of this month to create a 100-horse stable within three years.
The hedge fund will reportedly charge the standard 2-percent management fee and 20 percent performance fee, and investors must be willing to commit $3 million over three years.
International Equine Acquisitions Holdings is also reportedly looking to raise $100 million for its fund, which will buy and breed racehorses. The minimum investment will be $500,000.
Demand for fine wine continues to rise, largely because of the growing population of wealthy individuals in emerging markets. All wines, however, are not created equal.
Many investors use wine merchants or brokers, who are licensed to buy directly from wine houses, to help build a balanced portfolio.
The brokers charge a commission (roughly 10 percent) on the profit when the wine is eventually sold.
Beyond the cost of purchasing wine and paying commission, you must also consider the expense of storing your holdings in a climate-controlled cellar.
Jim Budd, founder of investdrinks.org, notes the best time to make a significant profit is when wine is first offered for sale –before it has even been bottled, but it requires good contacts to get the top wines at the best opening price.
"It is possible to make money through investing in certain top wines, especially from Bordeaux," he writes, noting price increases in fine wine tend to move in phases, rising quickly over short periods of time and remaining static or even declining for longer stretches of time. "However, it is certainly not as easy as it is often suggested."
Here again, investment funds, which collect money from private investors to purchase a professionally selected portfolio of wines, can help spread the risk.
As of June 2008, the Vintage Wine Fund, based in the Cayman Islands, boasts an 81-percent return since its inception in February 2003.
The Wine Investment Fund, meanwhile, aims to "double its investors’ money every 5 years." The London-based fund predominantly purchases Bordeauxs, which it considers lower risk.
Those who bought into the fund in 2003 reportedly received a 108.6 percent return on their initial investment –after fees and expenses. Minimum investment in the fund is 10,000 British pounds, or roughly $19,500 U.S. dollars, at current exchange rates.
"We believe that investing in fine wine can be a seriously good investment," says Andrew della Casa, director of the fund. "As with all investments, however, a prospective investor should pick his or her adviser carefully and fully understand the investment philosophy followed by his or her chosen adviser."
Not all cars lose value. Some, like the Austin-Healey 3000BJ8 and the Triumph TR6, just keep commanding a higher price tag with each bill of sale.
Rick Carey, auctions editor for Car Collector Magazine, notes the U.S. market for collector cars has been "remarkably strong" in recent years, despite the economic slump.
"There has been only the slightest hint of softening in prices and that’s really more of a flattening out of the growth curve," he says.
So-called muscle cars, including the Ford Torino Cobra and Pontiac GT, continue to win the popularity contest. Some of the rarest models have appraised at more than $500,000, though Carey says demand is beginning to wane.
Other cars drawing top dollar? The 250 GT Ferrari Pinin Farina Coupe, which sold two years ago for between $75,000 and $125,000, is going for $200,000 to $250,000 at auction today. Many of the 1940-1942 Ford convertible coupes are fetching over $100,000, double five years ago.
American full-size convertibles from the mid- to late-1960 period, primarily Fords and Chevrolets with "big engines," are also showing up "on the radar screen of many collectors," says Carey.
Though there’s money to be made, Carey is quick to note that these cars are a hobby first and an investment second. They are also expensive to maintain and insure.
"A lot of the value in collecting cars comes from the psychic income you get from owning them -- taking them out on a Saturday afternoon and having everyone stop to wave or going to car shows," he says.
Those who wind up profiting the most usually just buy what they like, before prices spike, and wait for the market to catch up.
"You buy a car you are passionate about and anticipate the passion of others," he says.
Whether buying horses, art, wine or cars, advisors say it’s wise to work with a trustworthy broker who can spot an imitation.
Another good rule of thumb? Never invest more than you’re prepared to lose .
And the biggest upside may not be your investment return.
"You need to buy what you enjoy so you can walk out in the garage and look at your car and say, ‘man I’m glad I own that,’" says Carey. "If you love it, it doesn’t matter whether it appreciates."