Time Is Money: An Asset Protection Strategy

Quiet wealth collectibles are a useful asset protection strategy

I’ve never worn a watch. I flatter myself that’s because of a high school Latin teacher/lacrosse coach named Thurber who, when asked why he didn’t, responded that “a man who wears a watch worries too much about time.”

That quote has always stuck with me. Its philosophical brevity is almost Hellenic.

My real reason for going watch-less is simpler, however. I have a hard enough time keeping track of my keys, wallet, eyeglasses and anything else I need during my daily journey to worry about a watch as well.

In fact, I’m pretty sure the only watch I ever owned was one that had belonged to my grandfather, that my Dad gave me when I was about 5 — what was he thinking? — that I promptly dropped and broke.

My relationship with timepieces, in other words, is Thurberesque in another way entirely.

But there are people for whom watches are an asset protection strategy

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Watching the Big Money on Lake Geneva

Last week in Lausanne, Switzerland, auction house Phillips sold 164 watches by makers such as Rolex, Patek Phillippe, Longines and Piaget. All were from the 20th century, the oldest from the ‘20s, but many made as recently as the 1990s.

The sale prices impressed me for two reasons. First, who knew that someone would deem a simple wristwatch to be worth almost $5 million? Apparently someone does. A 1927 Patek Philippe Stainless Steel Model 130 fetched that much. There were several $1 million-plus items as well, and dozens made it into six figures.

The second thing that struck me about the auction results was that in almost every case, the sale price significantly exceeded the pre-auction estimate, sometimes significantly. The lucky seller of the 1927 Patek Philippe doubled his or her hoped-for gains, whilst the prior owner of a 1969 Piaget Montre-Manchette 9850 in 18-carat yellow gold got five times what Phillips thought he or she would.Longines Lindbergh Hour Angle

I’m no expert on watches, but clearly, there’s more to these things than telling the time. The values reflected in the Phillips auction derive from a combination of outstanding craftsmanship, rarity, and an artistic je ne sais quoi that watch aficionados must surely understand. The 1931 Longines Lindbergh Hour Angle in silver, to the right, is clearly a gorgeous example of human creativity.

Quiet Wealth: An Asset Protection Strategy

My colleagues and I often refer to items like these watches as “quiet wealth” — an asset protection strategy quite unlike conventional stocks, bonds, metals and other financial instruments.

Quiet wealth is largely synonymous with collectibles, such as stamps, coins, fine wines, historical artifacts and similar rarities. But they can also include such little-known items as comic books (a Jeff Opdyke favorite) and vintage guitars (my personal weakness). What they all have in common is that (a) significant numbers of people out there value them intrinsically, i.e. for what they are, where they came from, who owned them previously, and so on, and (b) in most cases, they aren’t making any more of them. A 2015 Rolex may be worth a lot more than its sale price to a collector someday, but that will be largely because there will be so few of them around.

Quiet wealth collectibles tend not to be correlated with traditional financial assets. That means their prices move independently of the financial markets. For example, indices of rare collectible stamps have never lost value — even when the global economy tanked in 2008. The growth in the market value of many forms of quiet wealth may speed up or slow down, but it almost never reverses.

Some Caveats

Quiet wealth like collectible watches are an ideal way to store and grow wealth. They’re also an effective asset protection strategy. But as with everything, you have to be aware of the taxman’s interest. Here are some important things to know in this regard:

  • With the exception of some bullion coins, collectibles like watches cannot form part of any tax-deferred retirement planning vehicles, such as an Individual Retirement Account (IRA) or private placement annuity.
  • If you bequeath any quiet wealth assets to your heirs, the IRS will levy inheritance tax on the items’ fair market value at the time of inheritance, even if they are not sold.
  • If you give quiet wealth assets to someone as a gift, you will pay gift tax on the difference between your original purchase price (less any costs associated with acquiring and maintaining the asset, such as auction fees and storage) and their fair market value at the time of your gift. The annual gift tax exclusion of $14,000 applies, however, so any assets under that value gifted are tax-free.
  • Appraisal of quiet wealth assets is critical, both for insurance and when calculating capital gains for tax purposes. The IRS actually has an “art advisory panel,” whose determinations are binding on the IRS but not on the asset’s owner — so if they are wrong about what an asset will fetch on the market, you will save tax on the difference.

The Icing on Top

Despite these tax-related cautions, one of the most attractive things about quiet wealth like the Lausanne watches is that they aren’t reportable to the IRS if they’re stored in a non-bank institution, which makes collectibles such an effective asset protection strategy. For example, you could take your newly-acquired 1948 Patek Philippe 518 in rare 18-carat pink gold down to Vienna, put it in a private storage facility like Das Safe, and nobody need know about it.

People used to buy fine Swiss watches because of their security and reliability. It seems they still do.

Of course, there are many more forms of quiet wealth, which is why The Sovereign Society will soon launch a new service based on growing and protecting your wealth through collectibles. Stay tuned for more details.

Kind regards,
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Ted Baumann
Offshore and Asset Protection Editor