Holding Cost

The ongoing cost of owning an asset, such as storage, insurance, maintenance and fees, whether or not it produces income.

Example

A wine collection costing 2% of its value a year in storage and insurance.

Important

On an asset with no income, holding costs are a guaranteed negative return that the price must rise to overcome.

Related terms

• Authentication Cost — The cost of verifying that an object is genuine, such as expert opinions, certificates and scientific testing.
• Fractional Ownership — Owning a share of a single asset, such as a painting or a farm, usually through a platform that holds the asset.

Lessons that explain it

• Most alternative assets pay you nothing until the day you sell — Art, wine, watches and domains produce no income at all while you hold them - the return exists only as a price someone else agrees to pay later. A small minority of alternatives, like farmland and royalty rights, are genuinely different because they generate cash along the way. (9 min)
• For most alternatives, the entire return is one number: the exit price minus everything paid to get there — Without a dividend or a coupon, appreciation is the whole story for art, wine and watches - and it only becomes real at an actual sale. Farmland and royalty interests instead compound the way an income-producing asset does, cash paid out year after year. (11 min)
• Appraising one item: authenticate before you price, not after — Five checks on one specific opportunity, starting with proof the object is genuinely what it claims to be - because a confident price on a fake or misattributed item is not a discount, it is a total loss waiting for a buyer to notice. (13 min)
• A round trip through an auction house can cost 40 percent before the item has moved at all — Buyer's premium going in and seller's commission coming out compound into a breakeven hurdle most buyers never calculate - on top of holding costs and, in several jurisdictions, a higher tax rate reserved specifically for collectibles. This lesson is general information, not personal tax or legal advice, and rules vary by jurisdiction. (13 min)
• This belongs in the money you could genuinely lose, sized small, and held for reasons beyond the return — The apparent low correlation with financial markets is partly real and partly an artefact of how these assets are valued - and once round-trip costs and total-loss risk are honestly priced in, this asset class fits only as a small, patient allocation of money whose absence would not change anyone's plans. (10 min)

All 578 terms in the Investing glossary