Think luxury yachts, private jets, classic cars, fine art and jewellery. Investing in movable assets, what it entails, and the risks involved.
Most people do not stray too far from the beaten path when building their investment portfolios, often plumping for fixed-term, fixed-interest investment options, stock shares, or immovable assets such as land and property. However, another intriguing option for would-be investors comes in the form of movable assets. These include (but are not limited to) tangible objects that are purchased not only for their lifestyle benefits, but also in the expectation that their value will appreciate over time, and thereby prove a sound investment strategy.
This article will first introduce readers to the concept of using movable assets as a means to diversify one’s investment portfolio, before providing a run-through of some examples of movable assets with particularly good investment potential. It will conclude with some insights about the risks involved in investing in movable assets and suggest some ways that these risks can be minimised.
MOVABLE ASSETS IN A NUTSHELL
The term ‘movable assets’ is best understood quite literally: these are either assets that can be moved or transported easily (think artworks, jewellery, antique furniture), or assets that are themselves modes of transportation (yachts, vintage sports cars, private jets).
Especially in times when the property market is hostile to investment (perhaps due to high taxation or over-supply), investors find movable assets attractive for a number of reasons. The right items (more on this later) can provide hard currency returns, which means returns that are not likely to depreciate suddenly or fluctuate wildly in value. Movable assets are also a viable means of externalising currency. The price and availability of movable assets is also highly dependent on broader market conditions and economic and cultural circumstances, which means buying and selling at just the right moment can yield phenomenal returns. Increasingly, investors and small businesses are using movable assets as security when raising capital through bank loans. And finally, in economic climates where uncertainty reigns about currency devaluation and/or stagnant interest rates, some investors see movable assets as a practical way of diversifying their investment portfolios.
Of course, though, none of these factors address the most immediate and tangible benefit of movable assets: the fact that they are also “lifestyle choices”, that provide use and enjoyment to owners, and contribute on a day-to-day basis to a sense of living well within the home.
WHAT TO BUY
So, notwithstanding a general economic slump, let’s say you find yourself in the fortunate position of being able to raise some capital for investment…
What should you buy? Which particular movable assets tend to attract investors?
YACHTS & LUXURY BOATS
Historically, yachts and luxury boats have been popular choices for South African investors looking for (relatively) low-risk, asset-based investments. There are a number of highly practical reasons for this trend.
Firstly, yachts and boats are priced in US Dollars — a stable performer on the global currency market. This means that, should the Rand continue to devalue against the Dollar in the future, any hard return on a yacht or boat sold in US$ will offer even greater yields to your Rand-based portfolio. Yachts and boats also offer a way to externalise your wealth. You can sail them to another part of the world and sell them there, and you have — quite literally — moved your assets out of the country in a way that circumvents stringent exchange controls. (This was more
of an issue during the old regime, hence the surge in investment in yachts by South Africans in the 1970s and 80s.)
Of course, though, the most obvious reason for owning a yacht is using it to chart your own sea adventures! This is a movable asset that can provide enormous lifestyle benefits, over and above its sheer investment potential. According to Daniel Snyman, regional sales manager of global yacht charter company The Moorings (quoted by Finance24 in May 2015), companies such as his can offer buyers yacht ownership programs that yield a 9% per annum guaranteed income for five years, plus usage.
As yachts and luxury boats do entail a significant outlay of capital, buyers should — of course — proceed with caution. Be sure to do extensive market research, and to buy a boat made by a reputable manufacturer that shines in its particular class: this will help offset some risk in terms of being able to sell the yacht on at a later point. Also advisable is to enter a purchase agreement where some of the heavy ‘invisible’ costs — insurance, mooring, upkeep — are alleviated in some way (perhaps a part-ownership deal).
A favourite choice for sophisticated investors, artworks can be extremely volatile performers, with a move for the right piece at the right time allowing for astronomical gains. A large William Kentridge sketch bought in the 1980s for R3,500 could fetch nearly a million Rand at auction today — not to mention the aesthetic pleasure derived from having it hang proudly in your home for 30 years.
Georgia Eccles Schoeman, owner of Art in the Yard, stresses the importance of “enjoying the work” that you buy. She points out that foreign interest can cause spikes in the price of local artists’ work, and that this can have an ambivalent effect on the local market, making it difficult to predict. Her advice is to collect work from artists who actively market and promote their own work, with “regular shows in reputable galleries”, and who seek to keep their work fresh and interesting (and so avoid becoming “stale”).
Those looking to add artwork to their investment portfolios should remember that the key to these investments is timing: buying and selling at just the right time. If you are able to buy an item of enduring quality for a competitive price (perhaps at a time when people are looking to offload assets), and then sell when things enter a boom period again and there is simply more capital moving through the markets — you will, in all likelihood, achieve large profits. (Remember, however, that the converse also applies, and that should you ever be forced to sell your artwork in a hurry, you may be forced to accept an underwhelming price for it.)
To varying degrees, gold, silver and platinum are interesting asset-based investment choices. By purchasing physical quantities of these solidly performing precious metals, investors are able to physically ‘hold onto’ and maintain their assets, while being assured of steady (if not always spectacular) investment growth. Investors often find that balancing a futures-heavy portfolio with hard assets such as precious metals is reassuring, and their high value-to-weight ratio means that the costs involved in storing and securing your gold, silver or platinum investments will not be exorbitant.
Each metal has its own set of market strengths and weaknesses. The gold price has risen starkly since the year 2000, and it has additional appeal as an investment because it is so easy to monitor: the price of the gold in your hand will move in step with spot gold pricing. Silver and platinum, meanwhile, are much more volatile investment options, as these metals also have extensive industrial application. Silver is also often considered a relatively secure hedge against inflation, while platinum — because its production is almost exclusively undertaken in developing nations — is more prone to price spikes, making it desirable for investors looking for long-term investment projects.
Often the domain of hobbyists and weekend enthusiasts, there is nevertheless money to be made in the trading of collectibles of all kinds. A huge variety of objects can be lumped into this category, from furniture to timepieces and other antiques, jewellery, vintage sport cars, musical instruments, stamps and even firearms of particular historical interest. Of course, these are movable assets whose procurement is usually undertaken for the sheer joy of adding to one’s collection —and deep, intimate knowledge of the specific market you are collecting in is essential when deciding what to buy, and what price to pay.
Returns on collectibles can be surprisingly good. A studious, diligent philatelist might see as much as 7% growth on their stamp collection, while purchasing a truly ‘classic’ sports car — never mind the fun of driving it around from time to time — might see resale profits in the region of 12-20 percent.
A CLOSER LOOK AT THE RISKS INVOLVED
While movable assets are certainly attractive investment options, not least of all because of the lifestyle benefits they offer to buyers, there remain some significant risks involved — and potential investors should weigh these considerations carefully before plunging into the waters of asset-based portfolio investment.
As has been mentioned, the market for movable assets is volatile, and the relative value of the objects in your possession can rise and fall dramatically. While this is exciting news if you are able to hold onto the right assets until just the right time to sell, it is also worth bearing in mind that — in the case of dire emergencies — you may not be able to ‘hold out’ for the price you really want (and may even end up incurring big losses in the event of a hurried sale).
There is also the question of maintaining, securing and insuring your assets. Christelle Colman, Chief Executive Officer of MUA Insurance Acceptances, urges buyers to find insurance partners with “niche experience and expertise” in the market your asset is located in. She points out, for example, that with classic cars, “because the value actually appreciates over time, the car must be reviewed annually, and the policy updated accordingly.” This kind of diligent ownership is essential, and will help ensure you keep yourself financially protected as you build your asset-based portfolio.