Now that you’re settled into your practice, you may think you’re in the position to buy the vintage Jaguar you’ve dreamt of owning since medical school. Owning a vintage car means more than just cruising around town on the weekends—it also can help you diversify your financial portfolio.

Collectibles, such as the Jaguar, are valuable assets that can appreciate significantly. For example, a Corvette bought 30 years ago for $4000 could be worth 25 times that price today.

Classic wheels and other collectibles are part of an asset class known as “alternative investments.” Essentially, any investment not associated with the traditional asset classes of stocks, bonds, and cash can be considered an alternative investment and can include anything that has value in the marketplace.

These alternatives are gaining popularity as market fluctuations have driven home the importance of having a diversified portfolio. This may include having some portion of assets not linked to stocks and bonds. In 2004, the average high-net-worth individual had about 14 percent of his assets in alternative investments, according to the 2004 World Wealth Report published by Merrill Lynch and Cap Gemini.

Passionate Purchasing
Obviously, investing means much more when it is your passion. But what role does a Packard play in a physician’s portfolio?

To be considered investments, alternative items must have intrinsic value. Savvy investors never buy collectibles purely or even primarily as an investment. The motive for collecting should be passion first and profit second.

At the same time, because of the difficulty of accurately measuring the returns and liquidity on collectibles as an asset class, they sometimes are considered speculative investments.

If you’re planning to invest in classic cars or boats, first attend several auctions and shows. One upcoming show is the Kruse-Leake classic car auction at Dallas’ Market Hall in November. By learning more about alternative investment choices, you will have more of an opportunity to diversify net worth and derive satisfaction from your investment.

Balancing Act
As an investor, it is crucial to remember that a classic vehicle, as an asset, is only one piece of a bigger financial picture. It must be considered with your long-term investment plan in mind.

That is why it is important to allocate only a specific portion of your portfolio to collectibles and other luxury items. And make sure you have taken care of your current long-term income needs and overall investment plan before considering alternative investments.

When purchasing a collectible, look for ways to reduce speculation risk. Although there is nothing wrong with bargain hunting, it may make sense for you to stick with items of recognized worth. In addition, you can incur significant investment expense beyond the initial purchase price. Plan for the extra expense of storage, maintenance, refurbishing, and preservation, as well as insurance or security.

Creating a Legacy
For many collectors, one of the most rewarding aspects of collecting is the chance to pass beloved objects to the next generation. You’re not simply handing down a Stingray; you’re also handing down a passion for fine automobiles.

Consult with a professional to establish or review your estate plan. The consequences of not doing so could be costly. Collectibles are not exempt from estate and other taxes. While the greatest benefit of estate planning is the ability to leave a legacy to your family and beneficiaries, the tax consequences of poor planning can be enormous. The maximum estate tax is 47 percent. Hard assets, such as a classic boat, may have been purchased 10 years ago and appreciated in value. For estate tax purposes, the boat will be valued at the higher rate. What’s more, when collectibles are sold, they’re subject to capital gains tax on the appreciated value.

Insurance can be a way to protect your assets and can provide liquidity, help maintain the value of an estate, and ensure an orderly transition for beneficiaries. Select a professional who specializes in estate planning strategies. This will help you find the structure that is tailored to your situation.

Collecting What You Love
Above all, collectibles can provide important emotional value—it is not just a boat or a car, but your passion for fine craftsmanship and performance.

If you intend to allocate part of your portfolio to classic cars or boats, speak with your financial advisor before making any purchase to determine where these items fit into your overall financial picture.

Perhaps the most important lesson to remember is simply to collect what you love. Passion is invaluable, and you’ll be able to enjoy that passion for a lifetime—from the moment you drive that vintage Jaguar to work for the first time, to taking your grandchildren out for a ride during your retirement.

Bill Corbellini, CFM, is a private wealth adviser with the Private Banking and Investment Group at Merrill Lynch in Dallas. He can be reached at 214-303-5810 or william_corbellini@ml.com.