One factor often overlooked in a truly diversified asset portfolio is portability – an absolutely vital characteristic of tangible investments. Portability provides two primary benefits. First, it acts as an insurance policy against political or social upheaval. Second, it allows circumspect individuals to build substantial wealth for themselves in an inconspicuous way.
Art and antiques excel as concentrated, portable wealth. This concept is best encapsulated via the idea of value density. On the basis of either weight or volume, art and antiques pack massive amounts of market value into tiny objects. For example, you could easily fit a few dozen vintage gold wristwatches into a small attaché or laptop case. Yet that same collection – if well chosen – could be worth as much as a house! This illustrates the relationship between value density and portability rather succinctly.
Portability is an important investment attribute in part because you never know when or where political or social instability will happen. People who have stored a significant portion of their portfolios as tangible assets have historically had a distinct advantage in evading unstable and violent regimes.
It certainly helped the Jews who fled Nazi Germany in the mid 1930s. It’s the same for the Vietnamese “boat people” who escaped the brutal communist Vietnamese government after the collapse of U.S. backed South Vietnam in the mid to late 1970s. Today, families with portable wealth looking to depart the rapidly failing socialist experiment of Venezuela have tremendous leverage.
It is a truism of history that just a few gold coins or high-value pieces of jewelry will allow you to successfully bribe your way through a dangerous border crossing. And, once across the border, tangible wealth will also allow you to rebuild your life much more quickly.
Art and antiques are the embodiment of discreet wealth. Imagine for a moment a dozen houses on a typical suburban street. Each house is modest in size and looks more or less identical from the outside. You could easily drive by without having any idea that one of those houses is loaded with $100,000 (or more) in coins, jewelry, old-master prints or any number of other forms of art. The only person who knows is the person who owns the assets. Portable wealth is discreet wealth and discreet wealth is the basis of financial peace of mind.
This is in direct contrast to more conspicuous traditional assets. Real estate, for example, is a tangible asset, but it cannot be moved or hidden. It is always on display for everyone to see. Consequently, real estate is completely exposed to frivolous lawsuits or adverse tax law changes.
Paper assets like stocks, bonds and cash are inordinately dependent on the stability of the financial system and the vagaries of the tax code. Under normal circumstances this isn’t an issue, but currently the financial system is under severe stress. Will your stock broker survive the next financial crisis? Will congress change the tax code so that Roth IRA withdrawals are no longer tax free? No one knows the answer to these questions and anyone who claims to know is lying.
In the end, all roads lead back to the prudent simplicity of portable hard assets. I’m not saying that you shouldn’t hold any real estate, stocks, bonds or cash. To the contrary, I believe these traditional assets are an important part of a balanced investment portfolio. But by the same token, it is also wise to allocate something to portable, physical investments like fine art and antiques.
