Traditional vs Alternative Investments - Part 2

The term ‘alternative investment’ can be used to apply to a broad spectrum of differing investments including more complex high risk, high return funds that invest in underlying assets such as private equity ventures and property/real estate. These tend to be the domain of professional investors or investment firms although they are available to private investors (you and me) with the help of a financial adviser. However, there are also a variety of other interesting alternative investments which may offer you the opportunity to combine hobbies and passions with the art of making money.

These investments focus on tangible items, property and chattels, which have an intrinsic value and are seen to present less risk than traditional investments - their value to some extent guarded or buffered by the presence of collectors, enthusiasts and fundamental demand in the market. However of course their value can still go up and down in accordance with supply and demand so it is worth familiarising yourself with each market before taking on the risk of large scale investments.

Property
Property had been seen as the quickest way to make a sizeable return on your investment, for a good few years, until the recent credit crunch hit. It can offer two income streams to the investor in the form of one-off sale proceeds and periodic rental income.

The sale returns on property can be high when the market is doing well, especially if you are adding value to your property through development, but recent market trends have limited returns and increased the risk, particularly as the financing of property often includes an incurred debt in the form of a mortgage. Rental income is a slightly more stable income stream because dips in the property market can push more people to rent rather than own, and therefore rental values are prone to fluctuate less (although there is still risk in finding tenants and tenants defaulting on repayments).

Wine
Having become particular popular in the seventies and eighties there is now a well developed market in trading fine and rare wines. The market is driven by both investors and collector-connoisseurs and dabbling in it certainly requires a healthy knowledge of vintages and vineyards.

The wines that will make you a return are those that are produced by a highly regarded vineyard, using good techniques to produce a wine of renowned quality that ages well. However, risk is still encountered with the fact that the investor must wait for a lengthy period for the prospect of the wine increasing in value and all the while they will need to invest in its storage whilst receiving no income on it until its final sale. In addition there is the risk that it may spoil or have been spoiled at some stage of its production.

Art - Paintings/Sculpture
The first type of invest-able chattels that would spring to mind for most people is art. We all know that a single painting or sculpture by a legendary artist can fetch well into the millions but for most budding the investors the returns can be achieved by scouting the 'next big thing'. Buying works by up and coming artists can land you a small fortune but you will have to rely on a good chunk of luck, patience and talent at spotting artistic trends.

Coins/Bank Notes
Perhaps slightly counter intuitively the value of a coin or bank note is not necessarily the same as the value that it has designated for it. If a coin o bank note is no longer legal tender, had a limited release or is made of a precious metal then the value of the coin can actually far exceed its face value. For example, a more collectible bank note such as variations of the now defunct white fiver will be worth far more than £5 and coins made from gold will be worth more than their face value as gold bullion.

Antiques & Other Collectibles
In fact, any item which has a demand can provide an astute investor with a return on their investment. Collectors and investors together drive markets in all sorts of objects from antique furniture and ceramics to memorabilia such as vinyl records and stamps. The collectibles or antiques market can be a tempting place to start dabbling with alternative investments as it can cater for any level of budget and risk starting with dalliances at flea markets and car boot sales and rising to major investments in international auction rooms. The key is building up and maintaining a detailed knowledge of the differing collectible markets and the demands for items within them.

The canny investor can ultimately invest in anything that has a value if that value can change, and the list is almost inexhaustible, from investment trusts to commodity trading to investing into the annuity market. Whatever market you are interested in it is always a good idea to seek professional financial advice and learn as much about the intricacies of the market as possible.