Jan 15

Keep art and collectables out of superannuation

In recent times I’ve seen quite a few articles about investing in art and other collectables in your superannuation fund (I guess in response to weak sharemarket returns), and its something that has always disturbed me as this is one gutsy investment strategy for the well informed let alone your typical investor. One of my favourite econobloggers, Felix Salmon, recently had an excellent piece explaining why art is not an investment…click here. In short Salmon says…

Art doesn’t have returns, it just sits there, being expensively insured. It pays no dividends, and it can’t be marked to market, since the only way to find out the market price for an artwork is to sell it. Even the auction houses have no real idea what any given artwork is worth: look how many pieces fail to sell at auction, or sell for multiples of their estimate.

I totally agree with this assessment and his article as a whole and as  Salmon’s article suggests this also applies to wine and I’ll throw into the mix any collectable such as vintage cars, stamps, and collectible notes and coins.

In 2010, the Cooper Review recommended that art should be banned from superannuation and pretty much for the same reasons…that collectibles are not investments and are personal assets. There was a lot of opposition to this recommendation with the art community protesting by suggesting it would result in the demise of the art market. The government ultimately didn’t accept the recommendation and that was that.

Whilst it is possible these assets can increase in value, they are a poor choice for providing retirement given Salmon’s reasons…no income, impossible to value without selling,  and little to no liquidity….and they are not investments. Also, I don’t believe that diversification of collectables is going to help too much either, as I can only imagine that by reducing the cost the collectable in order to diversify will result in increasing making it more difficult to sell… that is, increasing diversification may increase risk.

Whilst I acknowledge investors frustration at sharemarkets, I do agree with the Cooper Review and Salmon that collectables are not investments and in my opinion they should not be considered as part of a superannuation investment portfolio.

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