Why Treasures of the Heart Are Not Always Treasures of the Portfolio

“Taking into account the layers of emotional motivations that factor into holding treasure assets, these collectibles should be regarded as part of a wealthy individual’s personal holdings rather than as a separate asset class in their investment portfolio,” Egan said. “Critically, the personal value individuals attach to these assets means that purchase and sale decisions are even more susceptible to emotional biases than usual.”

The study also found that 32% of respondents will reduce the number of types of treasure they hold over the next five years for reasons including a desire to liquidate assets, realize returns or carry out estate planning, and many will not follow through on their intentions to “declutter.”

In addition, emotional attachment appears to influence the sale of treasure assets, with U.S. investors requiring an average price increase of 62% in the first year of owning an asset to trigger a sale. The exception is those who inherit collectibles, who say they are much more likely than those who acquired such items through other means to say that they have sold them or plan to do so in the future. Sixty-two percent of inheritors have already sold their stamp collection, the asset class most frequently subject to decluttering, compared with 36% of non-inheritors.

“There are multiple behavioral factors at play throughout the life cycle of an investor’s ownership of treasure assets,” stressed Egan. “Many are initially drawn to buy these collectibles for emotional reasons and then hold onto them because their emotional attachment grows, leading them to assign a higher value to an item than they would have paid to purchase it.”

Regional Differences

The Barclays research found differences in collectible trends and motivation by region, including:

• High-net-worth U.S. investors in the West hold 9.7% of their total wealth in treasure, the highest concentration across regions;
• Investors in the South prefer precious jewelry, fine art and antique furniture and only hold 7.9% of their total wealth in treasure, the lowest concentration across regions;
• Heirloom importance and cultural motivations are less important in the West; only 29% of these investors’ treasure is held to protect and pass on to their children and grandchildren, and only 28% is held for cultural or family reasons;
• In contrast, 39% of Northeast investors’ treasure is held for heirloom reasons and 38% for cultural motivation;
• Just 20% of Southern investors’ treasure is held for sharing with friends, indicating that they are fairly private with their treasure and do not feel a strong social motivation; and
• Southern investors are also more likely to report financial motivation compared with other regions; 11.4% of their treasure is held for pure investments or as financial security if conventional investments fail.

“The ‘stickiness’ of these assets underscores the necessity of viewing collectibles holistically within the context of an individual’s total wealth, as they can have a profound impact on their optimal wealth management strategy even if they were not purchased with finances in mind,” said Christopher Johnson, director and wealth advisor in the Wealth and Investment Management division of Barclays, in a statement.

“As the estate and capital gains tax landscape in the U.S. is set to shift at the end of 2012,” he said, “these financial implications are increasingly top of mind for wealth managers and their clients.”