MONEY MATTERS PAUL CLITHROE COLLECT OR FORGET, AND HOW INVESTORS CAN MAKE A POSITIVE CHANGE THE PANDEMIC HAS DISHED UP SOME UNEXPECTED SIDE EFFECTS. WITH OVERSEAS TRAVEL OFF THE CARDS, AUSTRALIANS ARE SPENDING SERIOUS MONEY ON COLLECTIBLES LIKE CLASSIC CARS AND FINE WINES. BUT NOT ALL COLLECTIBLES WILL MAKE THE CUT AS A GOOD INVESTMENT.
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arlier this year, auction house Grays reported record buyer interest in a classic car sale. It saw buyers pay top dollar for a number of cars including a 1978 Ford XC Cobra that sold for $194,000. It’s a similar story across a variety of collectibles including stamps and coins. But they won’t always be a money spinner. Picking investment-grade collectibles is a specialist skill. Get it right, and you can certainly pocket capital gains. According to the latest Knight Frank Luxury Investment Index, coins have appreciated 72% over the last decade. Classic cars have scored 10-year gains of 193%. But the big winner is rare whiskey, which has jumped in value by 478% over the past 10 years. So, how do collectibles stack up against mainstream investments like shares? Frankly, not very well in many cases. By comparison, Australian shares dished up capital gains averaging 6.23% annually over the last ten years. To put that in perspective, if you’d invested $10,000 in a diversified portfolio of Aussie shares back in 2011, it would be worth about $18,301 today. That’s a 10-year gain of 83%. However, shares don’t just deliver capital gains. They also pay tax-friendly dividends. If we include dividends, shares generated total returns averaging 10.8% annually over the past decade. By reinvesting dividends, a $10,000 share portfolio in 2011 could have grown to around $27,887 by 2021. That’s a total 10-year return of 179%. What really sets shares apart from collectibles is their low maintenance nature. When you invest in a collectible it makes sense to insure it. You also need to store it securely. If it’s something like a vintage car, you need to pay for maintenance and possibly annual rego costs.
If you’re investing through a selfmanaged super fund (SMSF) there can be serious pitfalls around collectibles. The Tax Office makes it clear that collectables must not be stored in the private residence of fund members. Artworks can’t even be displayed in a SMSF member’s business premises where they can be visible to clients and employees. This avoids the possibly that the assets will give members a benefit prior to retirement, which is a big no-no for SMSFs. Long story short, collectibles often come with ongoing expenses yet rarely deliver an ongoing return. The only financial benefit is a potential profit on sale further down the track. Sure, shares may not come with the same bragging rights – or physical beauty, as a prized artwork or rare jewellery. But they have a lot going for them as a financially rewarding long term investment, and it typically takes a lot less upfront capital to get started as an investor. Meantime The latest report on global warming paints a grim picture. But investors have an opportunity to support change through their portfolio. When the Intergovernmental Panel on Climate Change (IPCC) released its latest report, it made headlines globally. No surprises there – the report pulls no punches on the need for urgent climate action. As individuals we can feel powerless to bring about large scale change even though we may be doing our bit on a personal level by making eco-friendly choices. As investors however we can collectively carry real clout, and demand for ‘responsible’ investments is growing rapidly. An industry report shows there is now a total of $1,149 billion held in responsible investments in Australia. That’s over one-third of the value of the total managed funds market.
‘Responsible’ investments look for opportunities that embrace environmental, social and governance (ESG) criteria that benefit people and the planet. That can include opting for investments that support the environment such as renewable energies, or screening out negative industries like, say, tobacco or gambling. A survey by the Responsible Investment Association of Australasia (RIAA) found consumers are especially keen to avoid investments associated with fossil fuels, human rights abuses and armaments. The good news is that responsible investing doesn’t have to come at the cost of strong returns. The RIAA found Australian share funds with a responsible focus dished up 10-year returns averaging 9.0% annually compared to the market returns (as measured by the ASX 300) averaging 7.8% each year. It’s a similar story with international responsible investment funds, which have achieved long term returns above the market average. If you’re keen to invest in a way that supports the planet – and your own views on issues like social responsibility, there is a range of options to pick from. A growing number of super funds offer responsible investment choices. There’s also a broad selection of exchange traded funds (ETFs) dedicated to sustainable investments including some that focus on overseas markets. Just be sure to take a close look at what the ETF is really investing in so you can be confident the fund’s underlying investments are among those you would choose to invest in personally. Paul Clitheroe is Chairman of InvestSMART, Chair of the Ecstra Foundation and chief commentator for Money Magazine.
