When it comes to investing, some consider that there is more to life than ISAs, cash stocks and shares. Alternative investments have risen in popularity in recent times, especially among those who have money to invest and do not wish to invest in the stock market or property. Those with an interest in collecting more tangible assets, such as antiques or works of art, could also find that their investments yield higher returns that the stock market.
Examples of alternative investments which have ‘hit the jackpot’ abound. In 1950, John Hay Whitney and his wife Betsey purchased Pablo Picasso’s Garcon a la Pipe for $30,000. In 2004, the oil on canvas painting was sold at Sotheby’s for a record-breaking $104,168,000.
The current record price is approximately $300 million paid for Willem de Kooning’s Interchange in November 2015, a similar consideration to that achieved by the sale in February 2015 for about $300 million of Paul Gauguin’s When will you marry?.
However, the reality is that as with all investments, prices can go down as well as up. Alternative investments are more often than not long-term ventures, as it can take some time for them to achieve any significant increase in value. If you want to maximise the chances of success, you should carry out some research into your field of interest, and you should also consider seeking professional guidance.
Above all, when choosing alternative forms of investment, you should have a genuine interest in the field you have chosen – not only will your judgement become more informed, but you will gain real enjoyment from the process of buying and selling.
As accountants we are able to advise on the taxation consequences of alternative investments, but we are unable to advise on the wisdom of this type of investment and therefore we would strongly advise that you should seek expert guidance before embarking on an alternative investment programme.
Some investments options
Examples of alternative investments include the following:
Art may be a matter of personal aesthetics, but the markets treat art like any other commodity, and the business of investing in it is based on a simple principle: you buy a piece and hope its value increases.
However, success in the art marketplace is not easy for the amateur. The proliferation of artists and sheer quantity of works, media, periods and styles can make collecting a daunting prospect, and values can fluctuate alarmingly.
Here are some tips for the beginner:
- Buy it because you like it – i.e. not just because you think the value will increase. After all, you will have to live with the artwork. And there is also a chance that unless your taste is extremely idiosyncratic, another buyer might admire the work as much as you and offer a good price when the time comes to sell.
- Do your research – visiting an auction house without buying will help you get a feel for how the market operates. It also pays to read up about artists and styles that interest you, find out about current trends, and get an idea of the prices that similar works have fetched. And don’t forget that when buying and selling at auction, you need to factor in commission charges.
- Dwell on the details, and buy the best example you can afford – before purchasing, check the piece’s provenance (where it has come from, and its history of ownership). A good provenance can significantly add to the value of a work of art. Also examine its condition – are the colours faded, is the paint flaking? Make sure the frame is intact – without the original or at least a period frame, the value of a painting can be significantly lowered.
Fine wine is not just the preserve of the very wealthy. It offers good opportunities for the ordinary investor too. In May 2016 ten bottles of Chateau Mouton Rothschild 1945 set a new record as one of the most expensive wine lots ever sold at auction. The lot sold for US $343,000. Apart from resisting the temptation to drink your assets, it is important to:
- Find the right broker – A good broker or merchant can help you build a portfolio. Shop around for reputable brokers who charge low commissions when you decide to sell.
- Avoid the common traps – It is usually better to invest in a small number of good wines, rather than spreading the investment too thinly, while any wine from a good vintage is less of a risk than a bad year’s produce from a good winemaker.
- Think long-term – You may need to store your wines for a good few years, as it is not easy to realise wine investments quickly, and it is vital that the wine is cellared correctly. You should therefore be prepared to factor in the cost of storage and insuring your wine for its full replacement value.
Stamp collecting is a popular hobby around the world, and is also considered by some to be a viable investment. Stamps have the added benefit of being small and portable, compared to many other tangible investment options.
In 2014 in New York a rare British Guiana 19th century postage stamp sold for a record $9.5m – approximately one billion times its original face value.
However, if you are looking to get a return on your investment, you should consider the following:
- Think about specialising in a particular type of stamp, or focusing on a specific period in history
- Check the condition of the stamp, as this will affect its value considerably
- You should also look beyond the stamp itself, for any interesting idiosyncrasies such as unusual watermarks, post marks, perforations, or stamps which were printed with errors
- Keep your stamps in good condition by storing them in the appropriate protective holders, away from heat and humidity.
Collecting coins is another popular hobby, which can also be considered as a means of investment for the future.
The value of a coin will depend on a number of factors, including the age and availability of the coin, its condition, e.g. whether it is dented, scratched or stained, and trends within the precious metal market.
Again, it can be advisable to specialise in a particular area or time period, when collecting coins.
These are coins which are composed mainly of a precious metal and have little additional value beyond that of the metal itself, trading at just over the price of the metal they contain.
Krugerrands are a good example of a gold bullion coin which has proved popular over the years. The original krugerrands contained one ounce of fine gold, although the coin is now available in other sizes. Bullion coins are also available in silver and platinum.