There’s always a little room for more diversification in your portfolio, especially when it comes to alternative investments. Unlike traditional investments such as stocks, bonds, and cash, alternative investments cover a wide range of products that are usually tangible, not tied to economic growth, and are hardy against inflation. In general, it’s safe to place about 10% of your investment portfolio into alternative investments.
While the list of alternative investments available to you ranges from memorabilia to hedge funds, the three that will be covered are:
- Luxury Timepieces
We’ve all heard stories of watches selling at Sotheby’s for insane amounts of money. So what makes people spend the equivalent of several years’ salary (mine anyway) for something a $2 watch at Daiso can do?
Anyone who’s seen Pulp Fiction knows the unique story surrounding Butch’s heirloom watch in the film. This humorous and unique scene highlights several factors that make Butch’s watch a good investment-grade watch – its rarity and history (although it loses points for condition and…storage). Selecting an investment-grade watch with one or more of the following factors will increase its value:
- Rarity: Any watch that is hard to find will command a premium, especially if the watch is a “limited edition” (500 or less is considered “limited edition”).
- Brand: There are many luxury brands out there (Cartier, Piaget, etc.), but Rolex and Patek Philippe are the blue-chip brands that consistently appreciate in value – this value comes from the materials, time and craftsmanship required to build each individual watch.
- Controlled Distribution: Consistent pricing is also determined by the distribution network of the brand. If the watch you want is half the price online compared to the retail price in-store, this inconsistency will affect the watch’s resale value.
- History: Is the watch tied to any famous person, event, or did it have an interesting “history” like Butch’s watch? Documented evidence of your watch’s history will increase the value of your investment.
- Condition: Like many mechanical devices, the physical/functional condition of a watch has a direct effect on its value. The better the condition, the higher the value.
Luxury watches are an attractive alternative investment because they are a good hedge against inflation – a decent investment-grade watch will maintain a steady resale value of at least 80% of its original value, which is still ok considering the yearly inflation rate hovers from 3% – 5%.
An excellent investment-grade will appreciate in value, potentially turning a $10,000 investment into $50,000+ in a span of 15-20 years (or sooner). Before you add a luxury watch to your investment portfolio, consult a watch expert to gain insight into models that are worth investing in, which can be purchased for $2,000 – $5,000+.
Before you discount the idea of investing in water (while you sip a bottle of Fiji water, no less), just keep in mind that Singapore still imports water from Malaysia to supplement the other three national “taps” of water catchments, reclaimed water (NEWater), and desalinated water. In Singapore alone, the number of companies in the water sector doubled in 2012, taking on over $9 billion in international projects.
On an international level, companies that deal in the construction, maintenance and development of water delivery systems also stand to profit tremendously (if the S&P Global Water Index is any indication) due to global factors such as:
- Maintenance and repair of an ageing water supply infrastructure in many industrialised nations (the US alone needs about $1 trillion for its own water infrastructure).
- Growing global agricultural demand in nations like China, India, Egypt, and Israel is leading to increasing scarcity in water supply.
- Environmental factors such as climate change and pollution strain current water supplies.
- Some locations are in water scarce regions that need supplemental water desalination or reclamation.
Investing in water sector mutual funds or ETFs can provide your portfolio with a solid alternative investment with returns that won’t be evaporating anytime soon.
Buying a few bottles of $30 wine at 7-Eleven and storing them in your fridge for a few months makes about as much sense as investing in US treasury bonds (actually, it would be interesting to see which decision had better returns over a 10-year period). Done wisely, investing in wine can post some solid investment returns that consistently outperformed commodity and equity markets.
Investment-grade wines make up less than 1% of all wines produced yearly, with wines from the Bordeaux and Burgundy regions of France being the most sought after. This means your chances of finding them at any casual wine shop are about as good as finding an honest vendor on the first floor of Sim Lim Square. So speak to a wine merchant or broker instead. Brokers typically sell wine in odd sets of 3, 6, 12 (a full case).
Selecting a quality investment-grade wine will set you back about $1,000 – $10,000 per case. With wine, there are several factors you must monitor to maintain the value of your investment:
- Authenticity: Ensure that you receive a certificate of authenticity when you purchase your wine and ask about the wine’s travel history – too much travel can affect a wine’s price.
- Storage: Wine needs to be kept in a temperature-controlled cellar. It’s a good idea to select a wine storage facility to house your wine.
- Pricing: You should keep up to date on the price of your wine to monitor the growth of your investment. Price is usually determined through wine rating and historical retail/auction prices.
- Insurance: To protect your investment, it’s a smart idea to take out an insurance policy covering the full market value of your wine in the event of fire damage, etc.
If you want to forego physically purchasing your wine, dealing with the storage, and taking out the insurance policy, you can consider joining a wine investment fund. These funds are run by investment professionals knowledgeable about the wine market and handle the buying/selling of wines. Just make sure to check if they have any subscription fees, etc.
Before you look into these alternative investments, it is also important to have a strong foundation in investment fundamentals. We are going to delve more into the basics of investing and how you can get started easily in the weeks to come, so follow us on Facebook for more updates!
What are your experiences with alternative investments? Share other interesting alternatives with us here!
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