Save, make, understand money

Experienced Investor

Five alternative investments to consider

Written By:

When it comes to investing the natural assumption is that the only place to put your hard earned money to work is in the stock market.

If you are not brave enough to pick out individual stocks yourself, there are funds out there that can do it for you, but stocks and shares are not the only investment on the table for you to have to choose. There are myriad of other options, many of which fall under the collective banner entitled ‘alternative investments’.

Alternative investments share many characteristics with the more traditional investments, such as shares. For instance they can both rise and fall in value meaning that investors need to be prepared to lose part of, or possibly all of their initial investment. Also you shouldn’t expect to make quick profit, and instead adopt a mantra of being invested for the longer term.

Another factor to consider, notes Axa Wealth’s head of investing Adrian Lowcock, is the diversification of these assets. He says that unlike shares, the cost per item can be quite expensive so it is harder to diversify (spread the risk) and each item requires a decent investment.

With this in mind we look at five possible ‘alternative’ investments worthy of consideration:

1) Wine

If you can avoid the temptation of always drinking wine, it can make a great investment. If you do, Lowcock says the key factor to consider is the quality. He says that buying an aged wine from the Bordeaux region means that you get a reliable product, however it will be at a premium.

Other factors to bear in mind are the storage and insurance costs of buying wine as it is a physical asset. Meanwhile liquidity risk (not the drinking) can be a major pitfall. This is the risk that a wine may not be bought or sold quickly enough and/or at an acceptable price.

Lowcock says: “Investors can also buy wine future options which effectively give you access to wines still in the cask. However the value of a wine can change hugely from cask to bottle so this is a very risky strategy.”

2) Stamps

Thought your stamp collecting days ended at childhood? Think again. Given their size, one major advantage here is that stamps can be stored very easily and they own have their own index – the GBP30 Rarities Index which has steadily risen over several decades

The risk here, notes Lowcock is knowledge. If the only thing you know about stamps is that a Penny Black is a good one you may be in trouble. Knowing what you are doing and how to sell them is key. Indeed stamps tend to be the preserve of the wealthy and investors do tend to be very knowledgeable.

However this doesn’t have to put you off. Lowcock says in Britain a group called Stanley Gibbons runs a number of investment plans from a flexible trading portfolio to a capital growth plan and premium portfolio.

3) Classic cars

Aesthetically having a collection of classic cars would be much pleasing on the eye than a portfolio of shares. However there are a lot of costs to bear in mind when buying and looking after a classic car. Lowcock says the condition of the car is critical to the value and the having right storage is essential. Meanwhile bear in mind that maintenance costs can also be very high.

“Classic cars are often not just an investment but also something to appreciate,” he says. “As such investing in this asset class can be very difficult.”

For those without the means to buy the cars themselves though, help is at hand. There are funds out there which you can invest in that give you exposure to the asset class, just sadly not the keys.

4) Film

Like the idea of getting a bit of the ‘action’ from being involved in a film?  If you do there are ways in which you can invest in film projects, but here Lowcock cautions on getting some financial advice before hand.

“Investing in film is more complicated than the other assets as there are many tax vehicles such as Enterprise Investment Schemes,which investors can use,” he says.

Lowcock adds that prospective investors also need to make sure they know where they are on the investment, because many film projects have multiple layers of funding.

5) Diamonds

Having both commercial use and being valuable to investors, diamonds no longer have to be a girl’s best friend.

Like most of the alternative assets there of course is a range in quality of diamonds, and their subsequent value will be driven be demand. With demand likely to be quite volatile, Lowcock says they are certainly not a one way bet.

Other factors to consider are that given their size they can be stored at home, however they will need insuring.

To learn more about Film Investment through Enterprise Investment Schemes click here