The year 2011 witnessed classic cars outperforming gold as investment assets.
The Historic Automobile Group International (HAGI) displayed figures showing the rise of prices in the classic car market, which amounted to 20pc in 2011. This is double the rise in gold prices, which was 10pc.
With falling property prices, minimal returns on cash and more than a decade of disastrous equity returns, alternative investments like classic cars are fast becoming popular.
The present economic uncertainty has sparked a rising demand for fixed assets having a good value, especially assets with a limited supply. Fine wines, classic cars, arts and antiques, rare stamps and of course, gold have been ruling the roost in the investors market. Although a majority of the buyers market consists of collectors and enthusiasts, 2011 saw a rise in the percentage of regular citizens investing in classic cars. Even investment staples such as shares are gradually losing face in front of physical assets such as classic cars.
However, it is necessary for such alternative investments to stay a rarity and not become the conventional means of investments, which would defeat the purpose of ‘limited supply’. You have 1000 people in the country with a Daimler in the garage and that is a worthy investment. Increase that number to 10,000 and the car is practically worthless. The prices of items such as classic cars may be dictated by fashion, which at times works against the investor.
Talking classic cars, depreciation plays a strong role in deciding the market value. If one’s share certificate gets soiled, it doesn’t really matter as long as the holdings are still in the person’s name. But, you put one dent on the side of an old Jaguar MK2 and watch the prices take a tumble. In terms of paintings, rare stamps and fine wines, trifles like scratches, dents, rust and dust can prove to be a bane of the entire investment.
According to Dietrich Hatlapa, however, such assets can prove to be a useful diversification. Dietrich, who had 20 years of experience working in finance before finally launching the HAGI index, was quoted by the Telegraph as saying: “We’ve discovered that classic cars move independently to any other investment area. That’s an attractive attribute for collectors and investors alike.”
In terms of long-term returns, the picture looks rosy enough. Mr. Hatlapa calculated the HAGI index by evaluating historical data. The HAGI index is a measurement of the performance of 50 popular classic car collectibles. It shows that their value of these cars had increased 30 times in the last 30 years, which is equal to an annual growth rate of over 12pc. If we compare the whopping growth rate with that of gold, there’s a huge margin: gold prices have managed a meagre 2.17 pc in comparison.
This piece of news will surely help classic car insurance companies experience a boost in sales growth, as more and more people turn to classic cars as property valuables.