Making money from alternative investments... on a budget?

Making money from alternative investments... on a budget?
27 February 2013

UNDER the ‘alternative’ tag on cashy, a range of assets have been discussed, from autographs to gold, guitars to medals and stamps to wine. None of these, with the exception of gold, can be seen as mainstream investments yet they all hold total intrinsic risk; that is they could be worthless on re-sale. However, one needs to be practical and in the Middle East access to certain asset classes can be difficult. That said, it should be a possible to create some portfolio diversification into collectible assets.

Tangible assets

When the investor is looking for tangible assets, he or she must bear in mind that valuation of that asset is merely subjective. Without an income stream, the calculation is just not possible and any final value will be the amount buyer is willing to pay. There are few benchmarks but with a great deal of information in the public domain, you should be able to gauge a reasonable level.

Liquidity will also be an issue and these items will be, once again with the possible exception of gold, not immediately realisable. However I have set myself a task to work on three affordable portfolios that offer some fun and the potential for a good return over the next five years, but come with the understanding that residual value can be zero.

The following strategies will start with an initial investment of £5,000 or AED 28,000. The investor also has to factor transaction costs, insurance and perhaps storage.

Propoal 1: 1975 Honda CB 750 - A rare heavyweight Japanese classic.

This is an iconic motorcycle of the 1970s. Older Hondas are collected because of their relative price value, and the ceasing of their production. In buying cars and motorcycles for investment, there are some risks to consider. Not only is the condition of the machine important, but both storage and insurance costs needs to be considered. This motorcycle should always have a residual value and this bike is one of style that is sought after today. This example, with 37,000 miles on the clock, will set you back by £4,950. I’m sure that there will be many stares of envy from those stuck in traffic on the Sheikh Zayed Road!

If this machine is kept well it can be expected to appreciate - after all, you own it and no one else does. I am sure I could be persuaded to buy it from you at the original price in 2018!

Proposal 2: A portfolio of 6 classic British stamps.

Stamps are only of value when they are in pristine condition, have no issues regarding forgery and are kept in the best of atmospheric conditions and storage. If you buy through a reputable agent like Stanley Gibbons, then custody and storage costs will usually be included.

The risk in obtaining the right investment grade stamps is real and this will reflect on the return. Liquidity can be an issue, but this can be managed with hundreds of auctions and online sites. We need to consider that these small art works are never going to be reprinted, and with millions of collectors in the world, you’re in good company.

Most stamps have a catalogue number and can be easily valued. The historic price action is a matter of public record. A small amount of research is important and an expert should help you select the portfolio.

Stamps have often recorded good price rises as collections get dispersed, damaged and sold to disappear forever.

Proposal 3: Gold coins.

Many of the previous discussions have examined the price action for gold, the concepts behind holding gold and the lack of any financial return in terms of income from what is a financial product.

Gold has continued to maintain a value over centuries. How do we as investors buy gold? We can look at physical gold, gold shares or gold funds, but let’s be imaginative - for the final portfolio? I suggest coins.

In the last World Wars, the Korean war, and even as late as the Gulf Wars, pilots sewed gold coins into their flying suits so that they had a universal method of exchange if they were shot down and captured. Whatever we may feel, if it all goes wrong? We have gold. So with my AED 28,000 I suggest the following portfolio:

Rather than buy ingots, I suggest paying a small premium to buy coins. There are many styles available such as The Canadian Maple, American eagle, and Austrian Opera but for my money the British Sovereign is the one for this portfolio.

I would consider the 2013 Gold Sovereigns direct from the Royal Mint in London. They feature the George and Dragon motif with the image of HM Queen Elizabeth on the reverse. The gold is fine and guaranteed as to authenticity and each coin weighs 7.98 grams. For UK resident investors as they are legal tender, they are exempt from Capital Gains Tax. At current prices we will be able to purchase 18 1-ounce coins for about £5,000.

Don’t sew them into your clothes but keep very safe; in the event of the catastrophe you may want them to hand!

In conclusion

From this selection, I’m attracted to the motorcycle proposal though you may find disposal difficult. It is likely that you will make your money back at worst, but perhaps you will also discover a new hobby and interest.

Stamps, as I’m a collector, have huge appeal and I would suggest these are items that one would never want to sell. There is no residual value but you own history. It’s important to do your research and there is enough information on the internet.

Gold has its attractions and risks. This portfolio of 18 coins is almost considered as insurance, but can be very volatile in price. You will be able to judge the value each day which could be useful.

Finally I leave you with a thought - my grandfather in 1923 owned a new Indian motorcycle whilst in Chile which he bought for about $200. I wish I still had it!


Pic credit: freedigitalphotos.net

WOULD YOU invest alternatively? What would be your pick from the bunch? Leave a comment below!

Comments

  • tamirahamam
    tamirahamam
    2013-02-27T19:17:29

    Financial Times have a great article here looking at the returns on high-end collectibles against returns on the property market currently. A really interesting read!!

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Consultant
Thomas Kelly Consulting
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