Ex­otic in­vest­ments: are they for you?

With the cur­rent eco­nomic down­turn damp­en­ing re­turns from tra­di­tional in­vest­ments, more and more in­vestors are turn­ing to the ex­otic as­set class to build wealth

Destiny Man - - MONEY -

Nyiko Mongwe, Fi­nan­cial Ad­vi­sor at Lib­erty, un­der­stands the move to the ex­otic as­set class very well. “In­vestors want greater re­turns and pre­fer in­vest­ment ve­hi­cles that cut out the mid­dle-man. As a re­sult, ex­otic in­vest­ments such as an­tiques, art, di­a­monds, jew­ellery, lux­ury watches and even game have be­come par­tic­u­larly pop­u­lar in SA,” he says.

But how safe are these in­vest­ments, re­ally? And how should in­vestors go about ac­quir­ing them?

HOW TO SPOT A GOOD IN­VEST­MENT

It’s im­por­tant to know which items are po­ten­tial in­vest­ments and which are sim­ply ex­pen­sive lux­u­ries. One of the big draws in the ex­otic as­set class is watches. Very high prices have re­cently been seen at in­ter­na­tional auc­tion houses on top brands such as Vacheron Con­stantin, Rolex, Pan­erai, Eber­hard & Co, Aude­mars Piguet and Graff.

In the jew­ellery and watch mar­ket, there are spe­cific value cri­te­ria that an in­vestor should look for. For one thing, the phys­i­cal ma­te­ri­als used in the piece must be of a very high qual­ity. There’s no use in­vest­ing in a piece of jew­ellery with poor-qual­ity gold or di­a­monds. At the same time, the brand, age, his­tor­i­cal sig­nif­i­cance and de­sign play sig­nif­i­cant roles.

Vin­tage watches by top brands can fetch pre­mium prices. How­ever, buy­ing a 1969 Rolex from Sotheby’s for R4 mil­lion might be above your bud­get. For this rea­son, it may be bet­ter to in­vest in a pre-owned watch from a well-es­tab­lished brand be­fore it be­comes vin­tage and is still af­ford­able. How­ever, it’s im­por­tant to un­der­stand that this is a long-term in­vest­ment and may not be pre­dictable. Not all watches in­crease in value and if they do, it could take a long time be­fore you see a re­turn. Much like a mo­tor car, a watch that’s ei­ther brand-new or pre-owned and still fairly new will prob­a­bly de­pre­ci­ate in value af­ter the ini­tial pur­pose.

If you can af­ford it, con­sider a Rolex in the

R60 000-R120 000 bracket. Ex­pert watch col­lec­tor Adam Cran­iotes says they’re more likely to ap­pre­ci­ate in value.

Nav­i­gat­ing the world of jew­ellery in­vest­ment can also be tricky. Edgy de­sign trends come and go, while cel­e­brated de­sign­ers’ stars rise and fall, so if you’re not con­fi­dent in your abil­ity to find the di­a­mond in the rough, it’s best to stick to high­qual­ity clas­sic pieces. Choose sim­ple, yet ele­gant gold chains rather than chunky or flashy de­signs. Go for high-qual­ity gem­stones such as di­a­monds, blue sap­phires, ru­bies and emer­alds in clas­sic set­tings. If you choose pearls, choose care­fully: they come in a va­ri­ety of colours and sizes, but qual­ity isn’t al­ways guar­an­teed.

Fi­nally, get the best ad­vice. “Most con­sumers aren’t spe­cial­ists in this kind of trade and can eas­ily fall prey to un­scrupu­lous in­vest­ment op­tions. For ex­am­ple, watches and jew­ellery are linked to a re­tail in­dus­try and while this mit­i­gates these risks to a cer­tain ex­tent, it doesn’t com­pletely elim­i­nate them,” says Mongwe.

“With all in­vest­ments, the in­vestor is re­spon­si­ble for con­duct­ing sound due dili­gence be­fore putting their money into an op­por­tu­nity. In­vestors who don’t have the knowl­edge to con­duct in-depth re­search should stick to tra­di­tional in­vest­ment ve­hi­cles where the risk’s au­to­mat­i­cally mit­i­gated by a third party, such as an in­vest­ment bro­ker.”

IN­SUR­ANCE

You might think the best way to claim your po­si­tion among the elite of ex­otic in­vestors is to show off your ex­pen­sive new ac­qui­si­tion. Who wouldn’t want to wear a vin­tage Rolex to a business cock­tail party? How­ever, if you plan to wear the watches or jew­ellery you in­vested in, this will have an im­pact on your in­sur­ance cover and pre­mi­ums.

Most in­sur­ers will cover items that are stored in a safe un­der house­hold in­sur­ance, but wear­able

items that can eas­ily be stolen or lost usu­ally in­volve higher pre­mi­ums.

Ac­cord­ing to Mandy Bar­ret, Mar­ket­ing & Sales Man­ager at Aon SA, it’s im­por­tant to have all items val­ued and to keep proof of own­er­ship. This ap­plies to both wear­able items and those in­sured un­der house­hold con­tents. How­ever, Gari Dombo, MD of Alexan­der Forbes In­sur­ance, warns that cur­rency fluc­tu­a­tions could have an im­pact on val­u­a­tions. This means that in or­der to in­sure your valu­able as­sets ad­e­quately, you need to do reg­u­lar value as­sess­ments and have your in­sur­ance ad­justed, as needed.

Make sure you keep the orig­i­nal pur­chase re­ceipt. In the case of in­her­ited items, you may not have a proof of pur­chase. In such cases, the val­u­a­tion cer­tifi­cate from a rep­utable val­u­a­tion agent will suf­fice. It’s also a good idea to take pho­to­graphs of each piece and keep them in a sep­a­rate lo­ca­tion. This will be use­ful in case of an in­sur­ance claim fol­low­ing a theft. Ad­di­tion­ally, if you take your items with you on a trip, en­sure they’re cov­ered in your travel in­sur­ance.

GET SMART

Mongwe points out that novice in­vestors are of­ten at­tracted to ex­otics be­cause they ap­pear to of­fer greater con­trol over the re­turns. “The ease of in­vest­ing in a net­work with lim­ited reg­u­la­tory re­stric­tions cre­ates a com­pelling value propo­si­tion. How­ever, the in­di­vid­ual’s in­vest­ment re­turns are of­ten di­rectly re­lated to their level of in­vest­ment knowl­edge. While this is ex­cit­ing, it could also re­sult in damp­ened re­turns,” he cau­tions.

It’s worth­while build­ing re­la­tion­ships with good deal­ers and auc­tion­eers and in­vest­ing in your own education. The more you know and the bet­ter trained your eye be­comes, the more skill you’ll have in find­ing truly valu­able pieces.

To be­come fa­mil­iar with high-end col­lec­tor’s pieces, look through items on auc­tion at es­tab­lished auc­tion­eers such as Sotheby’s, Strauss & Co or Stephan Welz & Co. If you’re feel­ing brave, you can bid on pieces on­line, but be sure to ed­u­cate your­self first. Auc­tion houses will be able to ad­vise you, par­tic­u­larly if you’re in­ter­ested in lo­cal de­sign­ers.

“WITH ALL IN­VEST­MENTS, THE IN­VESTOR IS RE­SPON­SI­BLE FOR CON­DUCT­ING SOUND DUE DILI­GENCE BE­FORE PUTTING THEIR MONEY INTO AN OP­POR­TU­NITY.”

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