Global investment hopes, trends and risks in collectibles

In China, it is estimated that the number of ultra wealthy individuals (UHNWIs) will be two-folds the current in coming five years. The outflow of funds from China to other global locations are affecting the real estate and the global asset markets, while, in Europe, the tightening monetary policy and changing politico-economic factors can restrict wealth generation opportunities. 

In US, there will be 38 per cent rise in the number of ultra wealthy people in the next five years. It is assumed US $1.62 trillion wealth was invested in the collectibles by the global rich in 2016, and this wealth will be US $2.7 trillion by 2026. 

Global rich - UHNWIs are investing in properties and businesses across countries. They are acquiring citizenship and expanding their network. They are also including newer asset class for diversification. 

Wealthy individuals are not very prepared to pass on their legacy and knowledge to their next generations and to handle such complexity; these super rich families are seeking safe alternatives. On an average, six per cent of the investment is allocated for collectibles, where the factors responsible for luxury investment includes capital appreciation, joy of ownership, diversification, reliability (in case of market turmoil) and status symbol.  

Long – term appreciation

Earlier, collectibles were restricted to some people who drive by passion felt the preservation of some old things was important, but later these collectible were categorised as financial investment tools, where one hoped to gain more value in the future.   Economists believe collectibles can provide a higher rate of return, even though, they have a high holding cost and are at a higher risks of volatility, in certain market conditions.  

People holding collectibles benefit from long- term appreciation, or, sometimes, these collectibles are inherited by a family member, who was passionate about such items.   

Fine Wine returns up to 24 per cent

As per the Knight Frank Luxury Investment Index,  worldwide auctions of wine earned dollar 338.7 million and in the year, 2015 -2016 , the rate of return on investment grade fine wine was up to 24 per cent – which is one of the largest growth rates in collectible  class of investment.  

Trends and risks 

People who are interested in collectibles should know that the market volatility and change in socio-economic and cultural factors can influence the rates. New investors in such collectibles require proper understanding of acquisition and storage, to get the desired value. A wine investor may need to wait for least 5 to 10 years to get attractive rate of return. 

There are various risks associated with collectible such as loss or damage to rare collectible, or theft, which can lead to loss. There are risks of getting an inexpensive product at a higher price, as markets in collectibles are not very transparent. Also most great opportunities are available to those who are already established into these types of assets.   

The transaction of collectible and its storage require proper acquaintance.   One can get tax benefits from collectible, in different ways. For e.g. Donating a collectible can provide tax benefits. It can be given as gift agreement to a social organization to get tax deductions in return. 

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