In times of economic uncertainty, investors often see the value of their portfolios fall as confidence in the market wavers. At such moments, canny investors are more likely to look away from traditional stocks, bonds and cash, and towards alternative asset classes as a way of spreading risk and diversifying their portfolios.
Why invest in classic cars?
Research suggests that classic cars have been one of the best investments over the past five years, with an average annual return of 16%. Indeed, calculations from car leasing firm Vanarama appear to concur with this assessment, with those investing £15,000 (the average price of a second-hand car) in 2010 calculated to see an average 97% return after a decade, against 49% for art, 45% for gold and just 3% for a savings account. By contrast to traditional investments, which fluctuate with the state of the economy, the classic car market is fuelled by buyer demand – which has certainly driven prices upwards over the past year (puns fully intended).
The Covid effect
The pandemic – which drew many sectors of the economy to a screeching halt – appears to have caused a sharp spike in demand for classic cars. With so many activities off the agenda, driving their cars was one hobby enthusiasts didn’t have to give up. In October 2020, three rare Alfa Romeos sold for $14.8 million following an international bidding war; across the pond in the UK, meanwhile, Gooding & Company’s Passion of a Lifetime event, held at Hampton Court Palace in September, saw a 1934 Bugatti Type 59 sell for £9.54 million – the top sale value of 2020. In Knight Frank’s Wealth Report 2020, it was suggested: “The pandemic may well have made owners value their cars even more because they represent personal freedom as well as a potential inflation hedge in the future.”
What makes a true classic?
According to HMRC, a car must be at least 15 years old and worth £15,000 to be categorised as ‘classic’. In reality, however, a combination of factors are at play:
- Rarity – models that were manufactured in low numbers often drive demand, with investors attracted to unique vehicles that few others possess. Just 39 250 GTO model Ferraris were ever made; two of them broke records as the most expensive cars ever sold.
- History – cars that have historic significance, e.g. those that pioneered new technologies, or won famous races, are often highly sought-after. One of the aforementioned Ferraris belonged to German racing driver Christian Glaesel, won the 1964 Tour de France Automobile and sold for £52 million.
- Age – older cars will generally be worth more than those produced more recently.
- Original features – such as original paintwork, knobs or emblems.
- Condition – cars that have been well maintained and cared for are typically worth more.
Looking after your investment
With condition so integral to maintaining the value of a classic car, correct storage and maintenance is key to a solid return.
Firstly, keep a close eye on your vehicle’s fluid levels and ensure it has sufficient oil, water and brake fluid – failing to do so could cause internal damage. You also have to drive it! Quite apart from getting pleasure and enjoyment from your investment, not taking your car out could leave it vulnerable to degradation and leaks.
Keeping the car clean is another obvious way to keep it in tip-top condition, using car wash formula and wax – not washing-up liquid! Over time, dish soap will strip the wax from the vehicle and cause damage. Keeping your car in a garage while not in use will also help avoid damage from extreme weather, such as intense sunlight and freezing temperatures.
Getting started
If you’re just entering the market, it’s best to consult an expert classic car dealer. Not all that glitters is gold, and a reputable dealer can help you select a savvy investment that is likely to appreciate.
For more experienced investors, the loosening of Covid-19 restrictions means a return to in-person auctions and classic car fairs. The pandemic has also greatly accelerated the spread of online sales and auctions, meaning you can now buy your dream car at the click of a button.
A word to the wise
As any savvy investor knows, returns from any investment are never guaranteed. Whilst the outlook for classic cars is currently extremely good, the market has dropped before and could do so again. It is also a costly investment when maintenance and other costs are factored in. The best thing you can do to mitigate investment risk is to diversify. Rather than seeing classic cars and other passion investments as central to your portfolio, they should be an addition to a balanced investment strategy.