If engine revs and exhaust notes sound like music to your ears, then maybe you should monetize your passion by investing in classic cars.
Updated Mar 17, 2022
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When it comes to investing in the transport sector, we usually look to disruptive technologies like flying cars, electric vehicles, and autonomous driving. But what if you invested in a 50-year old gas-guzzler instead? I can already hear you asking me why the hell anyone would do that.
It’s simple, really. Some sought-after collectible cars have appreciated by an average of 20% per year since 2007—blowing past S&P 500 returns. This, plus the fact that you can use it while enjoying these returns, makes it one of the best collectibles to invest in for car enthusiasts. But learning how to invest in cars takes more than just passion.
Here's why certain classic cars are valuable and what models are likely to continue appreciating into the future. Ladies and gents, start your engines.
If you were to ask five-car collectors what makes a classic, you’d get five different answers. But according to most collector's organizations and insurance companies, a “classic car” is a 20 to 30-year-old car that is of historical interest to collectors.
At the same time though, the Classic Car Club of America (CCCA) considers cars produced between 1915 and 1948 to be “classics.” So what’s with all this inconsistency? Let’s straighten it out before we proceed.
Essentially, “classic” has become an umbrella term for any older car that’s collectible. So this encapsulates other types of collectible cars like vintages and antiques. The 20 to 30-year-old collectible cars, on the other hand, are more properly called modern classics. Does that make sense? Alright, let’s keep cruising.
It almost goes without saying, but for a car to be a “classic” it also has to remain true to its original design (don’t go too crazy, modders) and be in good working order. So if the car’s body deteriorates, the interior is damaged, or the engine doesn’t run, you can fuggedaboutit being a classic.
At some point, I’m sure you’ve heard your gearhead buddies throw around terms like classic, antique, and vintage all the while you nodded along and pretended to follow. Yeah, me too.
These categories are determined by several factors like age, historic status, price, and modifications. But in everyday conversation, classic cars are mostly categorized by age. Here’s how the numbers break down:
At first glance, investing in cars sounds like a terrible idea. I mean, a car can lose over 50% of its value after five years, so that’s the last place you should park your money right? Well as with every financial rule of thumb, there are exceptions—and collectible cars are it. But what makes a classic car valuable anyway?
In the most basic sense, classic cars are valued because they're rare or one of a kind. Limited production runs, nostalgic designs, high performance, and special features all play into this.
Here are the 5 main qualities that make classic cars valuable. All things considered, a classic car will command higher prices as it meets more of these qualities.
Age
While classic cars can be anywhere from 20 to 30 years old, older cars tend to fetch higher prices on the market.
Condition
Condition probably plays the most important role in valuation. A classic car that is still aesthetic and runs is always going to be more valuable than one that’s rusty and broken down. Plus points for low mileage, too.
Rarity
The lower the production run and current supply, the more valuable the classic. Even experimental cars that were never commercially released can become coveted. Take the Bugatti Royale, for instance.
Popularity
Classic cars can become popular for a number of reasons, like:
Brand
Some models simply command higher prices than others due to the strength of their brand. Ferrari and Chevrolet are two such examples known for their build quality.
Now I know you’re excited and all, but pump the brakes on buying that Mustang for a minute. Let’s consider some of the downsides of owning a classic car, just so you know what you’re getting yourself into.
If you buy a classic car thinking that it’s going to be a passive investment, then you might as well park it in the middle of a drawbridge cause that investment is going under.
Costs
Like many tangible investments, classic cars carry high fees: from restoration and maintenance to storage, insurance. As you well know, cars are vulnerable to theft, vandalism, or accidents (hence the need for insurance).
Aside from this, restoring a classic to the highest degree — also known as Concours condition — can run you anywhere from five to seven figures. And even selling the car will probably incur transaction and transport costs.
Speculation
Trying to predict which cars will end up becoming collectible is a risky game. The car community is littered with stories of early investors who lost money on these bets. In 1976, Cadillac informed the public that it would be producing its last convertible — the 1976 Fleetwood Eldorado.
Investors bought up all the replicas thinking that they were an instant collectible. But Cadillac went ahead and reissued the Eldorado convertible 1984, leading those early buyers to lose half of their investment (they tried suing with no luck).
Systemic risks
This is the risk of an economic collapse that doesn’t have anything to do with the cars, but they are affected nonetheless. Classic cars have been shown to be somewhat correlated with financial markets, with prices falling during crises like the 2008 housing bubble and the 2020 COVID-19 pandemic.
For some expert guidance on the best classic cars to invest in, let’s turn to Hagerty, a classic car insurance company.
Hagerty has developed several indexes that average the values of sought-after classic cars. Their Blue-Chip Index includes the 25 most valuable classics in the world, which collectively are up over 300% since 2007. Today's average price for one of these blue chips is just shy of $3.2 million.
Hagerty also developed the Affordable Classics Index, which includes 12 classics priced under $40,000. This index has also been trending up since 2007, with one the average value of one car currently sitting at $47,000.
Here are a few of the prominent models in these indexes.
Aston Martin DB5
Mercedes-Benz 300SL
Chevrolet Corvette
Volkswagen Beetle
Ford Mustang GT
So you’re fully up to speed on the opportunity, risks, and rich history of classic cars. Well if you’re eager to invest in a blue-chip classic without burning through your life savings just to maintain it, consider using an investment app like Rally. Rally buys collectible assets like classic cars, turns them into companies, and splits the collectible into stock shares. That way, retail investors can afford to invest in six and seven-figure classic cars—like the 1955 Porsche 356 Speedster available on the platform right now.
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Who says investing in classic cars has to be an expensive hobby only reserved for the wealthy?