With not long to go now until Christmas, I’m certainly getting into the festive spirit, which you might see shining through in this week’s blog.
Christmas is the season of giving, so I thought I’d cast a financial eye over some of the gifts you might be giving (or receiving!) this year. Here’s a quick rundown of some of the more surprising investment choices you might be lucky enough to find under your tree.
Whisky and wine
Although not strictly a ‘Christmas spirit’, carefully selected bottles of whisky are sometimes bought as an investment. In 2014, a 6-litre decanter of Macallan was bought for $628,000 at an auction in Hong Kong, setting a new world record for the most expensive bottle ever sold.
But would that investment pay off? Like any investment, there are no guarantees. But there are a number of indexes tracking the asset’s performance, including Rare Whiskey 101, which reported a rise of 11.5% in the first half of 2017.
But past performance doesn’t mean anything when it comes to future return, and it’s worth noting that Rare Whisky 101 also keeps indexes of the worst performing bottles. The Negative 100 Index was down 13.34% in the year to December 2017.
While you may have to trawl through specialist auctions to find that perfect bottle of whisky, wine is much more established as investment and boasts an entire exchange dedicated to its trading. The London International Vintner’s Exchange (Liv-ex) was formed in 1999 and runs an internet and phone based information, trading and settlement platform.
As a result, fine wine can be easier to buy and sell than other alternative investments. It’s also possible to invest in wine investment funds, where your money is pooled with that of other investors in the same way as with an equity or bond fund.
The handbags and the glad rags
The JustCollecting Rare Handbags Index charts changes in the price of a variety of luxury handbags over time and indicates that handbags can indeed be a worthwhile investment. Top fashion houses produce only a limited number of bags each year, which means demand far outweighs supply, creating investment potential. This explains the 7.8% average return per year reported by the Rare Handbags Index between 2004 and 2016.
To put that in context, the average return per year of the FTSE® All Share Index was 7.7%* over the same period. Although this is almost identical to the amount you’d have got from your handbag investment, the FTSE® does pay dividends, which a handbag does not. It’s also a lot easier to invest in the FTSE®, or a fund which invests wholly or partially in the FTSE® – not to mention it’s more liquid and arguably less risky.
Toys: more than fun and games
When I conjure up an image of Christmas I often see my kids tearing open their presents beside the tree. But by the time they’re my age, what they unwrap this year could be worth a lot more.
Antique toys and collectables exist as investments in today’s market, and if you manage to save the right toy in the right condition, it can yield remarkable returns. Generally speaking, it’s the classic toys that came before mainstream use of plastic that attract the highest prices these days, such as old model cars.
For example, a Dinky delivery van went on sale at an action in 2008 with a guide price of between £7,000 and £10,000. In the end it sold for both those numbers combined – £17,000.
There’s now a thriving market for people seeking out the toys they wanted, or owned, in childhood. However it’s mainly based on memories, emotion and nostalgia, making it very hard to predict what will be the next ‘big thing’.
So when Santa comes down the chimney…
Well, he could be emptying a sack set to skyrocket in the future. Or not. The trouble with alternative investments is that most aren’t regulated by the Financial Conduct Authority (FCA) and aren’t covered by the Financial Services Compensation Scheme. They might also be harder and more expensive to buy and sell.
So if you do decide to dabble in designer handbags or a few drams or more of whisky this festive season, it’s probably wise to do so for enjoyment, rather than because it will fund your retirement.
I hope you all have a wonderful Christmas and a prosperous New Year when the time comes.
The information in this blog or any response to comments should not be regarded as financial advice. Past performance is not a guarantee of future return. Please remember that the value of your investment can go down as well as up and may be worth less than you paid in.
* Source: Financial Express, FTSE® All Share index total return, bid-bid basis in Sterling, 31 December 2004 to 31 December 2016. Annualised average return is around 7.7% a year or equivalent of 144.8% over the same 12-year period.