Stocks, bonds, index funds, and real estate are the traditional instruments that are part and parcel of any good wealth management strategy. However, investments in luxury items such as art, cars, whisky and wine have emerged in recent years as alternative options for astute investors looking to diversify their investment portfolio.
In fact, over the last 10 years, the Knight Frank Luxury Investment Index (KFLII) has outperformed the FTSE 100 every single year, bar one. After all, good art never goes out of style, wine and whisky mature in both age and value, and the right cars can also generate an impressive return on investment.
The luxury cars that appear on everyone’s wish list, such as Ferrari, Porsche and Aston Martin, to name a few, are synonymous with wealth and status and beyond the sometimes flashy, ‘boy-racer’ appeal, they can represent a unique investment opportunity whose value may appreciate substantially over time and become a valuable asset.
Where to start?
The best way for anyone interested in investing in classic or luxury cars is to go to car shows and auctions to see what’s on offer and talk to owners to gain first-hand knowledge of the pros and cons of ownership. It also gives potential investors a chance to decide which cars they actually like, because it is, as Andrew Shirley, Head of Luxury Research at Knight Frank says, “an investment of passion.” Investing in a luxury car is like buying a piece of art; the first question to ask yourself is: ‘Do I like it?’
Investing in a luxury car is like buying a piece of art
Of course, once the field has been narrowed down, it’s important, as with any investment, to do due diligence and investigate the market thoroughly. Reading industry news, talking to experts and researching the numbers, including price trends and historical auction results, will all help investors make a more informed decision. Finally, before writing any cheques, it’s essential to get expert help to assess the vehicle’s condition, maintenance history and, more importantly, its authenticity, to minimise the investment risk.
How risky is it?
No investment comes with a 100 percent guarantee of profit, and while investing in a luxury car provides significantly more enjoyment than buying a run-of-the-mill stock there are still some risks involved, such as fluctuating economic conditions, political instability and changes in technology, all of which can create uncertainties which may affect demand and desirability for certain models.
Historical Automobile Group International (HAGI), an independent investment research house, created the HAGI Top Index in 2008 which tracks the overall market for ‘exceptional historic automobiles’ using similar financial analysis techniques to those used in traditional investments. The August 2023 valuation shows a 7.74 percent decrease in year-to-date price, most probably due to inflation and interest rate rises. Of course, there are always data outliers and the HAGI Lamborghini Index has defied the market and produced a 5.85 percent year-to-date increase.
One of the biggest challenges and ongoing expenses of owning a luxury or classic car is keeping it regularly serviced and maintained to retain its value and ensure optimal performance. Costs tend to be higher because it’s necessary to use specialised parts and skilled labour at marque-specific dealerships, and additional costly expenses can occur if the car obtains any damage, especially if the repairs are not fully covered by insurance.
Another challenge can arise when you come to sell, especially if you are looking to sell quickly. Luxury cars have a high price tag and appeal to a small, niche market, so finding potential, trustworthy buyers who are willing to pay a premium for a high-end vehicle can take time, which limits options and delays the selling process. Making a sale can also involve additional marketing efforts above those needed to sell a ‘normal’ car, a longer sale window, compromising on price and offering significant discounts.
There are so many cars for an investor to choose from, but here are five of the best:
Aston Martin DB5
The connection to James Bond has made the Aston Martin DB5 legendary, and even without being his preferred ride, this car is a landmark British GT. Hand-built in England from 1963 to 1965, the DB5 embodied British refinement with a 4.0L, inline-six cylinder engine and elegant fastback styling from Italian Carrozzeria Touring Superleggera. Around 1,000 DB5s were produced in total in the ’60s, ensuring their exclusivity, with a further 25 models built from 2020 as part of Aston Martin’s Continuation programme. Pristine examples now sell for over £1m at auction. In 2022, Sean Connery’s 1964 DB5 fetched £2.1m, while a No Time to Die DB5 stunt car raised nearly £3m at Christie’s charity auction to celebrate 60 years of the James Bond films.
Ferrari 250 GTO
Not all Ferraris are created equal and if you want to invest in one, the 250 GTO is the one to get your hands on as only 36 were ever produced. Originally designed in the early 1960s for FIA Group 3 GT racing, the 250 GTO’s radical aerodynamic features improved the top speed of its 3.0L V12 engine and overall stability. Its racing pedigree, beautiful aesthetics and rarity make the 250 GTO one of the most expensive cars in the world, with a private sale in 2018 fetching £52m.
Porsche 911 GT1 Strassenversion
To be able to compete in GT racing in the 1990s, manufacturers had to build a total of 25 road cars for homologation purposes. Porsche’s 911 GT1 Strassenversion featured a mid-mounted twin turbo 3.2L flat-6 engine, and with a stripped interior, carbon fibre construction and massive rear wing, it was a barely legal road rocket. Porsche produced 20 cars in 1997, and a further single car in 1998 for new FIA regulations, which instantly made them prized collector’s items, and a recent 2021 price tag for a sale in Japan was £8.5m.
Shelby Cobra
What happens when you stuff a massive Ford V8 into a tiny British roadster? You get the legendary Shelby Cobra, one of the most iconic sports cars of the 1960s. After tuning and modifying AC Bristol roadsters, Carroll Shelby’s Cobras were purpose-built for dominating road courses, like they did in the 1964 World Championship, and defined raw American power with their lightweight roadster design. Around 1,000 original Cobras were built, and thanks to their legendary status, remaining ones easily fetch over £1m at auction.
Jaguar E-Type
Based on Jaguar’s D-Type Le Mans-winning race car, the E-Type debuted to instant acclaim in 1961 and is often called the most beautiful production car ever built. Lauded as a technical marvel, its curved fastback shape, designed by aerospace engineer Malcolm Sayer, instantly made everything else look dated, while a 3.8L six-cylinder engine sent power to the rear wheels helping it reach 150 mph. The Series I cars built from 1961 to 1964 are most coveted by collectors and can cost up to £250,000.
The long-term benefits
The biggest benefit of investing in luxury cars from brands such as Ferrari, Lamborghini and Porsche is their potential to appreciate in value over time, unlike any mid-range car which is generally worth next to nothing in a couple of years once it has 100,000 miles on the clock.
Take the Ferrari Dino 246GT as an example. A savvy investor could have picked one up in 1980 for less than £9,000 (£49,000 adjusted to 2023 value) and achieved an 818 percent return (approximately) by 2018 when the Dino’s price had increased to around £330,000 (£450,000 adjusted).
Limited production runs, special editions or legacy models, especially those with racing heritage or unique designs, are highly coveted because of the finite supply, and car enthusiasts and collectors will always pay a premium for the prestige of owning these pieces of automotive history, especially if the model has low mileage and is well-preserved.
However, if an investor feels they may have missed the boat with certain models, it’s always wise to keep an eye on the newer end of the market. Cars that utilise innovative technology and have groundbreaking concepts and performance can become instant classics and future collectibles, giving investors a chance to get in early.
Another surprising long-term benefit of owning a luxury car is the opportunity to generate an additional revenue stream by renting them out for special occasions, such as weddings, photo and film shoots, and corporate events, which can help offset ongoing maintenance costs.
Luxury cars can appreciate significantly based on scarcity, collectability and enthusiast demand, with ROI often beating stocks. Iconic classics and cutting-edge contemporary supercars tend to become blue chip collectibles and some of the most sought-after cars currently are the Ferrari LaFerrari, Bugatti Chiron and Mercedes-AMG One. Proper care, maintenance and restoration helps protect collectible car investment value because authenticity is paramount. So while you don’t have to be a certified petrol-head to invest in luxury cars, it certainly helps.