Collectibles for typical investor and retail exposure

Collectible are items  such as art, metals, diamonds, antiques, coins, watches or gems, and it is difficult to determine the fair value of such items or get a proper appraisal.  The growth in total wealth of high net worth individuals, political turmoil, high market returns, improved supply and robust consumer confidence has been supporting such sales where more than 30 per cent of the high-net-worth investors are art buyer.

These are mostly uncorrelated assets where worldwide, the US has maximum number of buyers of collectible art.  In 2017, US buyers accounted for 42 per cent of the total global sale of such collectible, followed by Chinese and British, and art sales grew 12 per cent to $63.7 billion.

Passion items

Performance is not the key concern of the buyers in this sector where 63 per cent of the US HNWIs surveyed claimed they were driven by desire to support art and culture, and 73 per cent supported it as passion item. About 32 per cent claimed they were motivated by higher returns. The survey included high net worth individual where 86 per cent of the respondents had never sold such collectibles and 11 per cent said they borrowed money to purchase such items.   

Safety  

For the protection of such items, it should be kept in safety deposits. Collectors owning such items should not assume the home insurance / policy covers such items. It is essential to review the policies to cover it and physical protection should be provided to prevent damage by environmental factors or poor storage. The value of such items can be cosseted only by protecting against water and other climatic factors.

Tax implications

On sale, the tax rate of capital gain is applicable (that is up to 28 per cent in US), which is usually higher than regular capital gain rate, and the tax is also applicable on the gains from sale of interest in partnership, or trust. The owner can give away such item in charity and it requires a qualified appraisal to attach to overall tax returns.

One can get advice on tax implication, storage and discounts from experts. Tax is applicable, in case, the asset is not sold when the owner is alive or if its value exceeds a pre determined level. Depending on the value and regulations, estate tax may be applied to collectible assets, even in condition; it is passed over to the legal heir after death.  The legal heir if he chose to hold the asset will need to evaluate the true value to determine tax implication. In case, it is donated or given to charity, the legal implication and regulations regarding it, should be examined as donating to charity is not allowed unless it has been specifically authorized.  

Economic change has direct impact on collectibles value and some are influenced by market factors. The best way to invest is to diversify into multiple options, multiple sources, and get the correct date and valuation. Try to get clear documentation to identify its reasonable value.

To find out more about collectible investment, check 99 Alternatives at (http://www.99alternatives.com).