Buying into so-called alternative investments – often collectables – can be a chancy business, warns Capital Partners principal and financial adviser Rakesh Shah. “While it’s true that some investors have made fortunes in this space, these success stories are the exception rather than the norm,” he adds. One client’s collectable coins had been properly valued, yet it was extremely difficult to liquidate the nest egg when he needed the money, recalls Shah. “When it came to freeing up the capital so he could fund a better retirement, there was no market,” he says.
Yet the joy of buying and owning premier wines, art, vintage cars, rare coins and watches, even designer handbags, can make a potentially risky investment worthwhile. If a passionate collector owns and enjoys an asset for a long time, and only sells as a last resort, the emotional rewards can outweigh the financial risks, Shah says.
Michael Anderson, head of auctions and wine consignment at Langton’s Fine Wines, says while there is money to be made in wine, there are substantial fixed costs – transaction fees, insurance fees, storage fees.
“There are a lot of costs that come with keeping a living, breathing bottle of wine that’s quite rigid, quite big, and needs to be kept at a very specific temperature,” he says, adding that a bad cork can ruin a bottle of wine which would otherwise be worth thousands of dollars.
Despite the costs, well-chosen wines can return a substantial profit over the long-term. Anderson recently bought some wine from an investor who had four pallets of wine in storage (a standard pallet can hold dozens of cases of wine, or hundreds of bottles). The investor had bought the whole Bin range from Penfolds over the years as well as a lot of the premier Penfold’s Grange, and he was spending more than $8,000 annually on storage so he decided to sell. “He’ll make significant return because he’s chosen the blue chips,” Anderson says.
Langton’s publishes a Classification of Australian Wine – a data-led guide to the secondary market in a range of fine Australian wines – which Anderson says provides an idea of “who’s doing what in the market at the time” and to what is considered “trendy” and what is less in favour with consumers. The Classification provides information on how the value of these wines has grown over the years.
“Australian wine has gone from strength to strength in the market,” he adds. “There’s blue chip wineries out there that do really well, but there are other wineries doing great work as well.”
He admires Giaconda Estate chardonnay – “arguably the best wine in the country”; Sami-Odi shiraz by winemaker Fraser McKinley and a shiraz by Dan Standish of the Standish Wine company. “These wines have gone from strength to strength, particularly in investment value,” he says. “They’re doing really, really well in the market.”
Anderson says new wine collectors should seek advice, understand the market and make an effort to buy a range of different wines. “I would say the real thing to avoid is over-indexing on one style of wine, in the same way that you would never just go buy one stock,” he says. “Do your research and spread your risk.”
Investing in art requires a different mind-set, and it should be a matter of love rather than solely a desire for substantial returns, says Wentworth Galleries director Peter Aitken. “There are ups and downs in traditional markets at the moment, so people look at art,” he says. “It’s one of the investments that you can hang on the wall and enjoy.”
Art that appreciates in monetary value is usually the work of an established artist, Aitken says, one who has built a solid reputation, who has had exhibitions and who has been collected by galleries and serious collectors.
“There is a price point where there’s a very good chance of it becoming more valuable,” he says, adding that depending on a range of variables, collectors who want capital appreciation should expect to spend at least $20,000 on a piece of art. “Then you’re likely to be buying into a market of a very established artist who has been around long enough to reach those sorts of prices,” he says.
Art, Aitken says, should be viewed as a long-term investment. Buying and selling art costs money in transaction fees and a rapid turnaround is likely to lose money, he adds, suggesting an artwork’s value needs to double before an investor can make a reasonable profit.
Wentworth Galleries is happy to advise investors, but the advice always “comes with a little asterisk, with no guarantees and no crystal balls” Aitken says. “It’s really a case of being careful with what you buy. But not only what you buy, it’s who you buy from, and if they have a good history working with artists and building careers.”