With the move towards the fiduciary standard across the investment-management landscape, financial advisors increasingly are looking at how they can make sure their clients are getting this standard of advice for the cash portion of their portfolios as well as for their securities. That’s where Max comes in. 

Cash is the one asset class that’s present in every portfolio. But a near-zero-interest-rate environment over the last few years has meant that investors overwhelmingly are earning almost nothing on cash. The national average on savings accounts is 11 basis points — 0.11%. As a fiduciary, an advisor is bound to give advice that’s in a client’s best interest financially. For cash, this means advisors have to seek out ways that clients can earn more interest while remaining insured under the FDIC deposit guarantees.

– Think carefully before using money market funds

Money market funds are a traditional substitute for cash, because they’re designed always to trade at a stable $1 per share. But with new regulations, these funds may now be able to hold onto investors’ money if markets are in turmoil. That means that clients may not be able to get their money out of a money market fund when they need it most. With this lower level of safety, and essentially no yield, money market funds may not be up to the fiduciary standard as a cash equivalent.  

– Use online banks

Online banks don’t have branches, so their cost structure is considerably less than their brick-and-mortar competitors. This imbalance allows them to offer higher interest rates to depositors — above 1%, in some cases, making online banks the highest-yielding places to park cash that clients wish to keep fully liquid. FDIC-insured online banks have the same federal deposit guarantee as any other U.S. bank protected under the program.

– Seek more FDIC coverage

Many investors don’t realize that exceeding the FDIC limits in their accounts means that excess money may not be safe if something happens to the bank. If your clients hold more cash than the FDIC limit — $250,000 per depositor, per account type, per institution — you should consider helping them open accounts at additional banks to gain FDIC coverage for as much of their cash as possible. Keeping cash safe is a prerequisite for fiduciaries.

– How Max can help

It’s possible to get both higher interest on cash and greater FDIC coverage. That’s what Max provides for advisors and their clients through the Max Advisor Dashboard. The average Max client is currently earning more than 1.00% on cash and enjoying FDIC coverage across several institutions. Learn more about how you and your clients can benefit at MaxForAdvisors.com.

Certain truths are thought to be self-evident, like the idea that bonds always pay more than cash in the bank. In today’s interest-rate environment, that’s not true. The highest interest Max members can earn is now 1.05%, while the 5-year U.S. Treasury bond currently yields 1.03% and the 3-year bond yields 0.77%. It’s part of the worldwide flight to high-quality assets after the U.K.’s vote to leave the European Union. Many investors are worried that “Brexit” may severely hurt the world’s economy.

What does this mean for investors? Both yields are backed by the U.S. government; the Treasury bond is a government obligation, while Max members are holding their cash within FDIC-insured savings accounts at online banks that are also guaranteed by the government. So the risk profile is the same.

FDIC-insured bank deposits are fully liquid, meaning you can withdraw your money at any time. Bonds, on the other hand, aren’t risk-free; changes in interest rates can cause their prices to rise or fall, introducing what’s known as duration risk. If you buy a bond now and then yields rise, you’re locked in at the old, lower yield, meaning the market will be willing to pay less for your bond and the price will fall.  So unless you hold it to maturity — the entire five years — you’ll lose money.

While buying a Treasury bond means you’re exposed to changes in interest rates, Max members benefit from optimized rates. If the rates on their online savings accounts change, Max will automatically rebalance their funds into higher-earning accounts.

So why would anyone buy Treasury bonds?  Normally, if you’re willing to lock up your money for longer periods of time, you get paid more for taking that duration risk. But not today. At these yields, you can earn more with overnight bank deposits than you can even on a five-year Treasury.  This inefficiency impacts hundreds of billions of dollars of cash held by individual investors.

We built Max to make it easier for individual investors to more effectively manage the cash that they hold, whether it’s in their bank accounts or brokerage accounts.  Max simultaneously delivers higher yield and broader FDIC insurance coverage, with full liquidity, and without switching banks.  

The national average yield on cash held in savings accounts is 0.11%, and many bank and brokerage accounts pay even less. If you’d like to earn more on your cash, or are seeking broader FDIC insurance coverage, or want to keep your funds fully liquid and don’t want to take the risk of investing in Treasurys when it seems like yields have nowhere to go but up (and thus the value of those bonds have nowhere to go but down), keeping cash in high-yielding online savings accounts might be the answer for you.

You can learn more about Max by visiting www.MaxMyInterest.com.

High net worth households are holding about one-quarter of their assets in cash. But financial advisors say their clients have 10% of their portfolios in cash. These are the same investors; why the discrepancy?

Financial advisors are charged with managing their clients’ investment portfolios. That includes stocks, bonds, and other asset classes — but it frequently excludes cash. That’s because investors often hold cash across multiple institutions — in their checking account, brokerage account, and perhaps other banks as well — and may only tell their advisor about the portion of their cash they intend to use for investments. They may not realize that they could be earning significantly more on this cash, or that they should be apportioning it to take full advantage of FDIC insurance.

With the new Max Advisor Dashboard, when an advisor’s clients become Max members, it’s now possible for the advisor to see all client cash holdings in one view. This is good for both the advisor and the client.

The client gets all the benefits that come with Max membership, starting with more yield on cash: currently about 1%, or 10 times as much as the national average. Max automatically optimizes accounts for FDIC coverage, and makes sure members always are earning the maximum interest possible across their accounts. The client can optimize accounts on demand, instruct money to move from checking to savings and back, and receive one file with all their 1099-INT tax reports.

For the advisor, the benefit is in being able to offer clients a higher yield on cash than the current rate offered at most institutions. Gaining a view of clients’ cash held in different accounts means that advisors know what funds are sitting on the sidelines in case investment opportunities come up. And advisors can now have a conversation with clients about what the cash is for, and how to make the best of it.

Clients can grant their advisors read-only access to their Max account simply by adding their advisor’s email to their Profile page. In addition to gaining visibility over client cash balances, advisors will find additional materials on the Max Advisor Dashboard, including setup guides, explanatory materials, and a sample email to clients to let them know about this new offering.

Learn more and get started with the Advisor Dashboard now.

 

When the stock market experiences choppiness and the global economy teeters, investors wonder about the safety of their money in the bank. In the U.S., we’re fortunate that our cash, with certain limitations, is protected by the Federal Deposit Insurance Corporation (FDIC). This means that as long as you keep your deposits within the limits, your cash in the bank is safe, no matter what happens to the bank.

Here are 5 things to know about the FDIC and your money.

 

FDIC insurance limits

During the global financial crisis that began in 2007, the FDIC limit was raised from $100,000 per depositor, per account type, per institution, to $250,000. This means that a couple can keep $1 million in a single bank: $250,000 in the first spouse’s name, $250,000 in the second spouse’s name, and $500,000 — or $250,000 each — in a joint account held in both their names. If you hold more than this amount in cash, you may want to open accounts at multiple banks.

 

Banks involved

Most U.S. banks are part of FDIC. Those that are will display the FDIC logo on their website and in their branches. If you don’t see it, ask, or check the FDIC website.

 

What’s covered

Here’s the list of accounts that the FDIC insures at banks: “checking, NOW (Negotiable Order of Withdrawal) accounts, savings accounts, money market deposit accounts, and certificates of deposit (CDs).” Note that money-market funds are not a bank product and don’t fall under FDIC protection. What’s also not covered are any investments you hold: “stocks, bonds, mutual funds, life insurance policies, annuities, or municipal securities, even if you purchased these products from an insured bank or savings association.”

You can check to what extent your own accounts are covered with the FDIC’s Electronic Deposit Insurance Estimator.  

 

Ways to get more coverage

Some banks hold multiple bank charters and may spread your deposit accounts across these charters. That will increase the amount of FDIC insurance you are entitled to claim. Ask your bank about this.

 

Managing your accounts

If you hold a significant amount of cash, spreading it out among different institutions in FDIC-insured parcels is a smart way to increase your amount of deposit insurance. Be sure to monitor the accounts so that your cash doesn’t exceed the limit at each bank. Max handles this automatically for members. Learn how Max can help you optimize your FDIC-insured cash.

With the stock market off to a violent start to the year, many investors are looking to an asset class that performed better than equities last year: cash.

In 2015, most cash in the bank earned, essentially, zero: the average bank savings account paid depositors about 10 basis points, or 0.10%. But those investors savvy enough to put their money in online-bank savings accounts earned up to 1.05% on FDIC-insured cash.

That’s a healthy return, compared to the equities market. In 2015 the Dow Jones Industrial Average fell 2.2% and the S&P 500 declined by 0.7%, according to the Wall Street Journal. Poor returns are contributing to the growing number of pension funds and other institutional investors who are warehousing cash — as much as 10% to 15% of some portfolios, the newspaper found.

For individuals who also feel they should hold cash on the sidelines — either because they’ve adopted a conservative, capital-preservation stance, or because they want to reserve dry powder for market buying opportunities — the difference between 10 basis points and 100 basis points on cash is significant, particularly when compounded over time. It’s even more material when the stock market itself is in decline.

And rates probably won’t stay this low forever. Now that the Federal Reserve finally has raised interest rates, online banks likely will raise their rates more rapidly than bricks-and-mortar banks, because their cost structures are more flexible. Investors who already have online savings accounts for their cash will benefit from this trend. Those who use Max to optimize their cash will see higher rates automatically, when the banks raise them, since Max automatically helps funds flow to whichever banks are offering the highest yields.  

For cash held on the sidelines, it makes sense to earn as much as possible, while protecting principal by ensuring full FDIC coverage. Risk, and the volatility of risky returns, are for other asset classes. Cash is stable, and should churn out a steady yield while staying safe. Learn how Max can help investors earn more on the cash within their portfolios.

With interest rates remaining low, many investors wonder how to evaluate the safety of various places to keep cash. Max invited financial advisor James Sanford of Sag Harbor Advisors, a performance-fee-based wealth manager, to talk about how best to think about choices for cash in a portfolio.

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By James Sanford

With the Federal Reserve now expected to wait at least until the December meeting to end 8 years of zero interest rates, and some strategists putting the first lift-off out to March or June of 2016, it’s time to revisit where to put your cash when cash is king. Two-year Treasury notes are now down to 63 basis points. Emerging market weakness in China and commodity-centric nations led to a 12% decline in the S&P 500 from July through September 28, and a surge in the Volatility Index (VIX) to over 40. If you’re with me in the camp to move a substantial amount of the portfolio to cash after the Central-Bank-fueled reversal rally of more than 10% since October 1, it’s important to understand where your broker or advisor places your cash, which is called the “cash sweep.” If swept into money market funds, you’re not in cash at all, but merely a basket of short-term risky securities that earn a paltry yield of zero to 15 basis points.

First, these underlying securities contain corporate credit risk of default like any other corporate bond. Second, there’s no legal guarantee of a “par put” from the manager. Money market funds routinely maintain a fixed $1.00 par value, rather than mark to market, a convenient shell-game trick which completely hides the underlying volatility of the basket of securities in the portfolio, convincing the holder he owns a “cash equivalent.” What he actually owns is a portfolio of risky corporate senior unsecured-debt obligations, which despite their 7, 10, or 90-day maturity, are equal in recovery and default risk to corporate long bonds maturing 10 and 30 years from now. Some money market funds hold tax-free municipal bonds. These are commonly considered “risk free,” which is absolutely not the case, as investors learned the hard way in Detroit, several cities in California and Rhode Island, and, soon, Puerto Rico.

Usually the portfolio in a money market fund doesn’t move at all in price, due to its very short duration. That’s until a shock event hits one of the securities, which was the case with the Lehman Brothers default. Lehman, opened up Monday morning, September 15, 2008, at a bid-offer of $10 to 12 cents on the dollar.  Suddenly this “cash” equivalent lost 90 cents on the dollar. Roughly 35 to 40% of all investment company assets are comprised of money market funds, with 80% of corporations using money market funds to manage their cash balances, and 20% of household cash balances comprised of money market funds, according to a 2009 SEC report.

There is an investor perception that money market funds are insured by the manager due to the “never break the buck” concept. In fact, there is no legal requirement or guarantee that money managers must “never break the buck” or shield investors from losses. Many managers in 2008 compensated investors for losses in money market funds, because it was good for business and they had the capital. Those without the capital, such as the Reserve Fund, did not. Nobody legally had to.

So what advice would I give investors, as a financial advisor? Keep your cash in short-term T-bills? But there is very little if any interest. Take duration risk on longer dated Treasuries?  No.

The answer is more obvious then we think: it’s your common bank savings account. Investors can earn up to 1.1% on internet-only savings accounts that are 100% FDIC guaranteed, a guarantee as solid as U.S. Treasury bonds, yet one that offers overnight liquidity and no duration risk. In fact, investors would have to go all the way to the three-year note to earn a yield equal to the highest available online savings rates of 1.1%.  The counterparty risk of the bank offering the rate is immaterial. As long as it’s FDIC guaranteed, even in the event of an FDIC bank seizure, accounts holders with $250,000 or less, or $500,000 in a joint account for couples, will have unrestricted access to their cash. If the FDIC can’t honor its agreement, all investments will be set to zero. That would be the equivalent of a U.S. government default.

Advisors often don’t like using a savings account as the cash sweep option, as they can’t control the assets. At Sag Harbor Advisors, our clients’ advisor accounts at our custodian are linked via the ACH system to any bank account of their choice, and clients sign over authorization to draw specified funds back to the advisor account should we see market opportunities. For cash holdings that are well north of the FDIC limits, MaxMyInterest is the only way to efficiently manage funds.

Ask your advisor where your cash sweep is, what it’s yielding, and you might find it’s not really “cash” at all.  

 

There’s nothing like a little reprise of global market volatility to remind us that stocks don’t always go up.  That’s no reason to panic, of course, but sometimes it’s good to take a moment to reflect on portfolio theory and appreciate why most advisors don’t advocate a 100% allocation to equities.

Here at Max, we are not financial advisors, nor do we offer financial advice. Our goal is simply to help individual investors earn as much as possible on whatever portion of their portfolio that they — or their advisors — have chosen to hold in cash, while keeping it safe.  Today, our members are earning approximately 1.00% yield on their liquid cash, with FDIC insurance of up to $5 million per couple.  This works out to roughly 10x more interest income than paid in most savings or brokerage accounts and 20x more than most money market funds (which, it’s worth noting, are not insured.)

According to the most recent Capgemini/RBC Wealth Management World Wealth Report, 4.7 million high net worth households in North America — defined as those with more than $1 million of investable assets beyond their primary residence — are holding a collective $3.8 trillion dollars in cash & cash equivalents.  That works out to 23.7% of their portfolios.  Yet most financial advisors think that their clients are holding closer to 10% of their portfolios in cash. What accounts for the difference?  It seems as if Americans are more conservative than their financial advisors would seem to believe or advise.  They must be holding cash in other pockets — bank accounts, CDs, and money market funds outside the view of their advisors.

Why so much cash? There are several reasons. Some have to do with timing differences. A law firm partner might, for instance, receive monthly draws from the partnership, but pay estimated taxes quarterly. This results in a build up of cash that must be set aside to pay taxes. But if that cash is sitting in a regular checking or savings or brokerage account, it is likely dramatically under-earning its potential. Other households may be saving for a major purchase, such as a first or second home, or reserving funds against commitments made to invest in private equity funds. Again, cash set aside earning next to nothing creates a drag on the portfolio and represents a lost opportunity to earn on those funds.

Other investors are more strategic about their cash allocation. For some, it’s a hedge (amidst market volatility, where the values of stocks and bonds gyrate, it’s nice to have the comfort of an asset class that acts as a store of value.) For others, cash is an even more strategic asset – a form of dry powder, ready to be deployed when market opportunities present themselves.

For all the talk of cash being a zero return asset class, excess cash in a portfolio can also facilitate outsized gains. Looking back on the financial crisis of 2008-2009, an investor with cash on the sidelines, who was able to bravely dip a toe into the market while others were fearful, could have tripled her money simply by buying the S&P 500. Had that same investor been fully invested, she would have missed one of the greatest investment opportunities of our lifetimes. This past week’s market volatility again reminds us that having cash at the ready can mean the difference between fretting over falling share prices vs. capitalizing on opportunity.

Financial advisors should pay close attention to these statistics. Astute advisors know that they can deliver better financial advice if they have a truer picture of their clients’ assets, objectives, and risk tolerance. Bringing more of a client’s cash into view can help inform this discussion and lead to better investment outcomes. MaxMyInterest.com is one such tool that can be deployed to generate better returns for clients, both directly by way of higher yield, and indirectly, by assembling a pool of cash that’s ready to be deployed when volatility emerges.

Innovation is the engine of economic growth, but some cities do better than others in cultivating it. New York City, the largest city in the U.S. and its financial capital, has a strong record in some areas of innovation and is running hard to build up others. This is due in part to a vibrant startup culture, with help from both private and city-government-backed programs and infrastructure.

Max recently completed the Fintech Innovation Lab, a selective 12-week accelerator program for financial technology startups run by the Partnership Fund for New York City and Accenture. We spoke with Maria Gotsch, the Partnership Fund’s president and CEO and a former investment banker, about innovation in New York City, what trends she’s seeing, and where the city’s tech scene will go next. (By virtue of its sponsorship of the FinTech Innovation Lab, the Partnership Fund holds warrants in Six Trees Capital LLC, the company that operates MaxMyInterest.)

Max: How is New York’s tech sector doing?

Maria Gotsch: The tech sector in New York City is in its 20th year. Before that there was not much tech as measured by venture dollars invested. You had the bubble of 1999-2000 and then a big dropoff in deals. In the last decade you’ve had a nice steady increase in venture dollars invested, a fivefold increase over last decade from $1 billion to $5 Billion in 2014. In number of deals, we went from 100 to 350 by 2014.

Silicon Valley is still three times the size of anywhere else in the country, but New York City in 2014 was even with Boston in venture dollars invested. If you take biotech out to make it more apples to apples, then New York is pretty significantly higher than Boston.

 

What’s new in innovation in New York City?

We are looking at digital manufacturing. That’s the combination of software and production processes like 3D printers, laser cutters, and CNC machines. It’s related to sensors, robots, and microchips. A couple of trends are making this a very interesting space. The cost of these physical machines has dropped significantly. These were big machines that were behind corporate walls; now they are less expensive so individual designers can use them. Cloud computing has also helped with faster iteration and collaboration.

And crowdfunding platforms like Kickstarter and Indiegogo. A company in New York called Canary raised money from Indiegogo to build its first prototype [of a home-security system]. That’s helped spur a lot of innovation because individuals or small companies can raise money. Some of the manufacturing that was done in China, it’s starting to make sense to bring that back to where the consumers are.

New York City has been a leading center of companies in this space, including Quirky, Makerbot (which was sold), Shapeway, and Kickstarter. Our fund has made some investments to support the underlying infrastructure in this area. We provided a loan to Shapeway for a production facility in Long Island City. There are also new labs in the Brooklyn Navy Yard which are still under construction and will open next year with software, hardware, and equipment for people to use. We’re hoping it will make sense for some of them to do that first batch production here. We think that’s a very exciting area in New York because it plays to the strength of software and design here. We are in the process of figuring out what our next steps should be in supporting the growth of this sector.

 

What is the Partnership Fund up to in digital health, another of your focus areas?

At the federal level, there was the Bush initiative for digitizing health records, then Obamacare. Now, in New York, there is a big redesign of the Medicaid medical system. Some of the financial risks of patients’ heathcare is being shifted to providers. There are 5 million Medicaid patients in New York. These were all moved to a “health home.” The home has to help them manage their care for chronic diseases, make sure follow up happens, recommend diet, and keep track of medicine. Those diseases that can be managed are managed with early intervention. This has led the hospitals to look for new technologies that they can adopt.

We work with 20 providers. They are interested in patient engagement, workflow management, and care coordination. The hospitals select the companies [in the Partnership Fund’s startup accelerator] and do mentoring. Our first class included Curator, for secure messaging within a hospital that raised a series B [venture funding round] this year. They developed a product to track hospital readmissions across a region.

Our partner is the New York E-Heath Collaborative. They are working on a patient portal for all your records. They have all the hospital systems connected. The network is called the State Health Information Network for New York and known as SHIN-NY.

 

What is missing here in New York City?

Part of what [the new campus for] Cornell-Technion is addressing is deep and robust engineering expertise. Look at Silicon Valley: it’s anchored by deep, prominent engineering schools. Until Cornell-Technion, New York City did not have an engineering school with that depth. None of our programs were at the scale of MIT or CalTech. Bringing a world-class engineering school to NYC will be additive because it’s something we were lacking. A lot of what happened in New York was applied tech, not core tech. Columbia is also building a new engineering campus and NYU is making a big investment to expand their engineering program with a new building in Brooklyn for urban engineering.

As biology moves into other sectors like IT and sensors, there are very interesting possibilities for New York. We also have a new genome center here.

 

And what could other cities and regions learn from New York?

Endeavor did a report mapping the digital media sector in New York and how it grew. It focused on the relationships between entrepreneurs and how they supported the next generation. If you’re starting de novo, you want to get entrepreneurs involved. You can see the ripple effects. That’s really powerful.

Here at Max, we’re constantly on the lookout for ways to make the most of everything. These days, it’s easier, due to the proliferation of new companies that have sprung up to address inefficiencies in people’s lives.

We’re excited about these new hacks that allow people to save time and effort.

 

Parking

Everyone hates to park in the city, no matter what city you’re in. Parallel parking is a nightmare, finding a spot can leave you circling the block, and garages may feel unsafe. And if you’re running late, you have a bigger problem.

Now a bevy of new parking services has begun serving frustrated drivers in major urban areas around the country. It’s the inverse of Uber: instead of using your smartphone to order a chauffeured car, you’re driving yourself and smartphoning up a parking valet.

How it works: use an app like Luxe Valet, Zirx, and Valet Anywhere to call for a valet. When you arrive at your destination, the valet will appear and drive your car away. Where to? Somewhere safe, but you don’t care — you’re on to your meeting or dinner reservation. Some of the services will even fill up your tank or perform other maintenance tasks for you while you’re parked. When you’re ready to leave, the valet will meet you outside with your car. You can do on-demand or monthly parking, a boon in places like Manhattan where garages are both expensive and inconvenient.

Babysitting + Driving

Being a parent is about trying to be in more than one place at the same time. Even parents who have flexible work schedules find themselves dealing with complicated logistics when it comes to taking little Sally to diving practice when her brother Sam has a band competition across town. Many families have nannies, housekeepers, or babysitters who look after the children, but these caregivers often don’t drive, or don’t have a car. Hiring someone just to drive the children around works, but it’s complex.

Now a team of hardcore tech veterans who are also working mothers in Los Angeles has launched a service, HopSkipDrive, that solves this problem. They provide qualified, background-checked babysitters in a car. The sitter will pick up your kids at school, sign them out, strap them into a booster seat, drive them to tennis lessons, and sign them in. The service plugs the gap between activities, especially for children who are old enough to stay alone at drop-off classes or practices but too young to travel alone.

Dog Walking

Finding a trustworthy person to walk your dog while you’re at work or away is tough for dog owners. And when you need someone at the last minute, you’re really in trouble. But you can’t always leave work to rush home when your dog needs you. What to do?

Now there’s Wag, an on-demand dog-walking app. Take it as a given that dog owners want to line up walkers from their phones. Now assume that your phone gets you access to vetted, insured, bonded, and trained dog walkers. The company will provide a lockbox so the walker can get into your house (or you can have your doorman let him or her in), and the walker will send you updates so you can track your dog’s progress. Want to know what the dog did along the way? That’s on the app, too — as much information as you like. For now, the service is available in San Francisco and Los Angeles, with plans to expand to other cities.

You don’t need an app to walk your dog — if you have the time to do it yourself. Wag’s genius is in making it easier to pair up dog owners and dog walkers. (We at Max got to know Wag because some of our owners are also investors in a fund that has invested in Wag.)

Investing in art and collectibles is both deeply personal and generational. That’s why the hot collecting categories shift by decades, according to experts who spoke at a Private Asset Management Magazine panel held at the Lambs Club in New York City in May.

Advice for collectors: start by getting the planning right, said Chris Schumacher, director and client relationship manager at Geller & Company, a wealth advisory firm based in New York City. Talk to estate attorneys, and decide what insurance is needed for assets. Plan out cash needs for the next year, two years, and five years, to avoid being forced to sell off assets for liquidity. For art, think about which museums might wish to acquire or be the recipient of your artworks.

It might be worth looking at hiring a family CFO, or an outsourced service such as Geller provides, to manage the household’s human resources as well as your collections, Schumacher said.

Acquiring art takes considerable due diligence, especially to avoid fraud, said Ronni Davidowitz, head of New York’s trusts and estates practice at the law firm Katten, Muchin, Rosenman LLP. She recommends independent appraisals of all artwork.

Keeping track of your art and other collections is key if you want your heirs to understand what they are inheriting. They’ll have to pay taxes 9 months after your death, making it important to plan for those payments in advance. On an ongoing basis, they will also need to pay for the collection’s upkeep and insurance, which requires them to have the same level of passion for the art that you have, Davidowitz said. She suggests thinking carefully about how to divide your collections among your children and heirs, to minimize a “legacy of disharmony.”

Where some investors run into difficulty is in lending their collections to museums and galleries to increase its provenance. The works’ value likely will rise after a show at a major institution, but transporting artwork carries risk, as does storing or repairing it, said Diane Giles, Northeast business development executive at insurer Marsh Private Client Services. The biggest losses to art collections are not theft or fire — both of which represent 13% of losses — but rather damage due to transit, at 53%. Improper installation — hanging a valuable work over a smoky fireplace, failing to bolt an outdoor sculpture to the ground — is also a major cause of loss, she said. Giles recommends using reputable fine-art shipping companies to move art, and making sure to store art correctly: away from flood zones, in temperature-controlled settings.

The new generation of collectors, Giles says, are moving away from Old Master paintings, brown-wood furniture, and silver, and into vintage 60’s muscle cars, watches, and wine — especially in China, where wine has become a major asset class. The highest-flying sectors of collectibles have outperformed the S&P 500 over the last five years, she says, driven higher by a limited supply as collectors gravitate toward flashy items.

Because of the booming market for art of all kinds — today there are 268 art fairs around the world, compared to 69 several years ago, said Michelle Impey, assistant vice president and fine art director at ACE Private Risk Services — it’s possible to acquire a focused, well-thought-out collection in nearly anything. But be sure you know what it’s worth, she cautioned: one out of four investors with $5 million or more of investable assets has never updated the insured value of their collections.

That’s a problem when assets appreciate rapidly. Fancy colored diamonds, for instance, rose 155% in value between 2006 and 2014, compared to 62% for white diamonds.

Heirs don’t always know what they are inheriting, and they may not realize how valuable it is. Impey noted the example of a Calder necklace bought by chance at a flea market for $15 that was later sold at auction for $260,000.

They also may not know how to take care of the collections they now own. Installation hardware has a lifespan, and copper wire can become brittle and break, causing framed works to fall right off the wall.

And wherever the work is hung, Impey said, make sure to know who has access to the collection. About half of art thefts are in private residences — and the FBI says 80% of those are inside jobs, Impey said.