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Property, shares or even a classic car?

16 August 2017

Jonathan Marriott - Chief Investment Officer

As Christmas 1979 approached I had just completed my first year at work and, dreaming of future prosperity, I wondered what the most sensible investment would be: shares, property or a classic car? The car appealed purely for fun however it was certainly not ‘sensible’; I was renting at the time and so a property would have made sense; I had just started as a share dealer and the market was tempting. But which choice would be the most profitable?

Having looked into this, I was surprised with the result. The UK FTSE All-Share Index has outperformed even London property which has, unsurprisingly, appreciated much more than property in the UK as a whole. The chart below shows the FTSE All-Share Index against both the London only index and the Nationwide UK Property Index, with the FTSE All-Share outperforming consistently over the 37 year period. For illustrative purposes I have also included Gold in the below chart, as a traditional store of wealth, which has only just matched inflation as measured by the Retail Price Index.

 

The danger of these comparisons is that there are both income and costs associated with these investments. These indices consider price only and both property and shares would have performed better in total return terms. To put this into context, buying a property would have saved rent costs; however there is maintenance and insurance to consider. On the plus side, if it was my principal residence the gain would be tax free. Equities pay dividends but have custody costs and the gain would be taxable. As a primary residence, a London property would have been the best bet but outside London, it is hard to see any benefit over the stock market.

Given these long-term returns, it is curious that people are so willing to borrow to buy property but not to invest in markets. One explanation for this is the volatility we have seen in share prices. This chart clearly shows the falls post the dot-com bubble and the financial crisis. The property indices are valued monthly, which has a smoothing effect on prices but we should note that between 1989 and 1993 the London property index fell 32% and it became hard to sell anything. In the financial crisis, on a month end basis, the FTSE All-Share Index fell 37% but you could still sell. Liquidity is a major consideration and in this respect equities have the advantage in that they are easily sold and can be divided into smaller lots.

So where do classic cars sit? What really tempted me in 1979 was a classic car I remember looking at all those years ago, a 1956 Bristol 405 (the only 4 door car Bristol ever built) which was offered for £2,000. Today a similar car would cost £20,000 but what it would have cost in maintenance, insurance and running costs I would rather not think about. This is not the height of classic car desirability. A Ferrari 250 GTO sold in 1984 for $500,000 which seemed an impossibly large sum. For a similar car today, it is offered at over $50million, an investment performance that tops the lot, if it sells! For a UK resident, this would be a tax-free gain unless you are deemed to be a car dealer.

As it was my savings were small and the dreams had to wait a little longer. My first car was a modest five year old Citroen 2CV.

 

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