Your major purchases: Extravagances or part of a wealth strategy?

Don’t think of major purchases merely as extravagances — there may be investment opportunities in buying classic cars, art, vacation homes and jewelry.

Tags: Investing, Investments, Lifestyle
Published: July 11, 2018

You may worry that your major purchases are extravagances that amount to empty spending. Fear not: Not only can your major purchases give you personal satisfaction, there are often investment opportunities in buying classic cars, art, vacation homes and jewelry.

The infographic below illustrates appreciation on these purchases and shows that while it’s not wise to count on them as core investments, you’re not simply throwing money away, either. 

Investment infographic
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YOUR MAJOR PURCHASES: EXTRAVAGANCES OR PART OF A WEALTH STRATEGY?

Are your large, nonessential purchases extravagances, or can they be part of a wealth strategy? See how classic cars, art, vacation homes and jewelry have performed as investments.

CARS: NOT JUST FOR DRIVING ANYMORE

For every Ferrari that's sped ahead of the pack, many other collectable cars simply don't appreciate much in value. If you want income, consider renting your cars out for film and television, or to hobbyists who’d like a spin in a classic Mustang or Cadillac.

Change in prices of collectable cars versus the S&P 500, 2013-2017*

April 2013 serves as the starting base value of 100

*S&P index based on price appreciation only from April 2013 though November 2017.

Sources: Federal Reserve Bank of St. Louis, Hagerty.com

ART LOVER? YOU MIGHT BE IN LUCKMIGHT BE IN LUCK

Although the art market has booms and busts, long-term returns for several classes of art — some relatively affordable — have the potential to produce returns over time.

*April 2016 - April 2017

**For the calendar year ending Dec. 31, 2016. S&P 500 returns reflect total return, including dividend income. Sources: Deloitte and Artatic, Art & Finance Report 2017

VACATION IS ALL YOU EVER WANTED

By all means, a vacation property can be a part of your wealth portfolio, but you probably can't count on it for long-term capital appreciation. You may want to consider a vacation property you can rent as well as enjoy for your own use.

Median Sales Price

Prices of vacation and investment properties don't follow a straight line.

Location of vacation homes

The typical vacation home isn't a pied-à-terre in an urban setting.

*Vacation properties are defined as those more than half of survey respondents said were primarily for their own use or as a home for future retirement.

**Investment properties are defined as those that more than half of survey respondents said were primarily for rental income and capital appreciation.

Sources: 2017 National Association of Realtors Investment & Vacation Home Buyer’s Survey

ALL THAT GLITTERS

The erratic nature of precious metals and gem prices means it may be risky to count on a jewelry collection to provide long-term price appreciation.

Change in gold and gemstones values, 2005-2017

Sources: Federal Reserve Bank of St. Louis, Gemval.com

VALUE VERSUS DESIRE

While it's wise to consider long-term appreciation or income opportunities in large purchases, that shouldn't be your primary criteria in deciding whether to buy or not. Remember: Your enjoyment from a classic car, work of art, vacation home or jewelry simply can't be quantified. 

 

Wealth Management | U.S. Bank | U.S. Bancorp Investments

 

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This information represents the opinion of U.S. Bank. The views are subject to change at any time based on market or other conditions and are current as of the date indicated on the materials. This is not intended to be a forecast of future events or guarantee of future results. It is not intended to provide specific advice or to be construed as an offering of securities or recommendation to invest. Not for use as a primary basis of investment decisions. Not to be construed to meet the needs of any particular investor. Not a representation or solicitation or an offer to sell/buy any security. Investors should consult with their investment professional for advice concerning their particular situation. The factual information provided has been obtained from sources believed to be reliable, but is not guaranteed as to accuracy or completeness. U.S. Bank is not affiliated or associated with any organizations mentioned.

Past performance is no guarantee of future results. All performance data, while obtained from sources deemed to be reliable, are not guaranteed for accuracy. Indexes shown are unmanaged and are not available for direct investment. The S&P 500 Index consists of 500 widely traded stocks that are considered to represent the performance of the U.S. stock market in general.

There are special risks associated with an investment in tangible assets, such as cars, jewelry, or artworks, including market price fluctuations, liquidity risks and impact of political, environmental and financial changes. In addition, unique expenses associated with these investments (i.e., purchase and sale, appraisal costs, storage, insurance) may adversely impact investment returns. Investments in real estate can be subject to fluctuations in the value, the effect of economic conditions on real estate values, changes in interest rates and risks related to renting properties 

(such as rental defaults).

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Learn about options for funding major purchases.