Collector Cars vs. Gold as an Alternative Investment
I recently read a book put out by the Historic Automobile Group International (HAGI) titled “Better than Gold: Investing in Historic Cars”. They are European based so the book had to be shipped over from England, but it was worth the wait as it certainly raised some valid questions. It was also enjoyable as it took a deep dive into the history of collecting historic cars as well as the financial returns those vehicle owners have enjoyed. So, that begs the question; are collector cars better than gold?
The Case for Collector Cars as Alternative Investment Class
The HAGI has done extensive research into the collector car market, especially on the top end of the market focusing on historically significant vehicles and manufacturers (Ferrari, McLaren, Mercedes, and Porsche). That is not to discount American muscle cars as they have similar value trends over the past few decades as well. Here are some of the attributes that make a case for collector cars as an alternative investment class.
- Positive returns over the past 30 years
- Capital preservation
- Limited supply with strong demand
- Currency independent
- No institutional investor class (yet)
- Strong non-correlative characteristics
- Portable tangible asset
- Mass appeal
Similarities of Owning Gold vs Owning Collector Vehicles
An alternative investment holds certain qualities that makes it attractive as an alternative option to traditional portfolio investments. Interestingly enough, some of the very reasons for owning gold are the same reasons an investor would want to own collector cars.
- History of holding value
- Inflation hedge
- Non-Correlation to stock market
- Protect purchasing power
- Supply constraints
- Increasing demand
- Portfolio diversification
Collector Car vs Gold Investment Returns
Let’s get down to brass tax and talk about the actual returns each of these asset classes have produced over the past few decades, after all, an alternative investment should provide solid returns over the long term as well as short term capital preservation.
Gold: As the most widely known inflation hedge, sound money, precious metal, alternative investment, it has protected purchasing power for at least the past 100 years. When we look at a select time period, starting in 1980 and ending in 2009, accounting for the most recent recession in 2008-2009, we can see that gold returned around 4% per year on average from 1980-2009. However, if you look at more specific time frames you can see there are bull markets for alternative investments and traditional investments alike, for example, from 2001-2012 gold returned over 16%.
Top Collector Cars: When you look at the top cars out there with historic significance, collectability, and higher than average values, you can see a trend of positive returns over the past few decades. Some sectors within this asset class has grown more than other recently, like the Porsche market for example. The Financial Times, The Drive, and HAGI (as mentioned previously) have all put out information on returns for the top tier cars in this collector car sector. By utilizing their information, we were able to gather that the Top Tier Collector Cars have returned around 12% annually from 1980-2009.
As a frame of reference, the S&P500 returned around 9% annually from 1980-2009. Collector cars might seem like a no contest winner when it comes to investment returns over the past 30 years or more, but you need to look a little deeper before making any major investment decisions. For example, the top tier collector car sector includes some of the following vehicles:
- Ferrari F40
- Porsche Carrera GT
- Mercedes-Benz 300 SL
- McLaren F1
These are some of the most expensive or valuable vehicles in the world depending upon your perspective, which brings us to our next point. Barrier to entry in the top tier collector car market is fairly steep, while someone looking to diversify their investment portfolio can pick up a physical 1 ounce gold coin for around $2,000 currently depending upon the commodity price plus dealers fees. Investors also have the opportunity to buy into physical gold backed investment funds at a much lower entry point. There are not any institutional investment vehicles linked to collectors cars (yet), but that is also a reason many collectors like this market. At the end of the day it comes down to your personal interests, investment goals, and of course your budget. If either gold or collector cars interest you as an alternative investment, reach out to an advisor that understands these markets before making an investment decision.