Tuesday, April 17, 2012
Five Alternative Investments To Protect Your Wealth From Inflation
However, there is no point in believing this only to leave much of your wealth in cash or other instruments vulnerable to inflation, such as bonds. Investing away from cash is crucial.
Equities are an option but so-called ‘alternative investments’ are a better way of achieving diversification. Alternative investments have a bad reputation however, and for good reason. Time and again companies offering alternative investments are nothing but fly-by-night fraudsters trying to skin the unwary.
The first on any list of alternative investments will always be gold, the ‘granddaddy’ of alternative investments. The key is to own it in coin. It is ideal for the small investor as they can buy gold in the form of small coins like the 10th ounce Canadian Maple. The small size gives liquidity and the ability for even a modest saver to put some away.
Gold is great in inflation and countries in inflation trouble will try and get their hands on it, so gold you can put in a sock is a great fall back rather than the ‘paper gold’ of ETFs like SPDR Gold Shares (GLD) or iShares Gold (IAU), futures, equities and certificates. Right now, Turkey is looking to grab its citizens’ gold in return for ‘gold certificates.’ It’s not only Turks that would be advised to keep a horde of small gold coins to protect themselves from the return of the 1,000,000 lira/dollar bill.
2. Numismatic coins
Collectible coins are already going off the dial around the world. Rich people like rare, high-value items they aren’t making more of. Collectible coins are one of those things. They are also very beautiful–the developing nations are rediscovering their histories and buying it back. As the numismatic advisor to a prestigious coin investment fund I’m in a ring-side seat watching the lid come off coin prices. Inflation is already driving this market, and in a way it always has.
Just like coins, collectible stamps boom in times of inflation. They are effectively a form of flight capital. A notebook could easily contain millions in the rarest stamp, something that the world’s rich very much like the idea of. Stamps have been inflation hedges for generations and after a lull when times were good and inflation was controlled, the market remained in the doldrums.
Now, just like coins, the market for stamps is rebounding fast. While it would prove tricky heading for pastures new with $1,000,000 of gold in your luggage, the same is not true of stamps, something not lost on the new rich of the BRIC nations, many of whom can imagine circumstances where packing an overnight bag and heading for the airport might be a necessity.
It might be a bit late, the party here. Wine has already reached unreal prices. Yet many believe it has far to go, with China in particular, crazy for good French wine. My friends who collect say that if prices collapse they can always drink it and they have a point. Myself, I can’t invest in wine because I most certainly would drink it. However, for those that fancy the idea, without doubt wine has proven itself a very profitable alternative investment, one that goes up in value based not only on increasing demand but because of the improving quality of an aging vintage.
It used to be that only a Patek Phillippe was truly collectible. Those days are long gone, with some Patek’s fetching millions. Now Rolex, Omega, Vacheron Constantine, to name but a few, make up a pantheon of collectible watches. Personally, I collect 17th-18th century pocket watches that for now are cheap. However, the choice is as broad as it is fun. You can always wear your Paul Newman Rolex as it appreciates on your wrist. Once a niche collecting activity, watch collecting has become a mainstream collectible, one that time is set to make even more popular.
So how does one go about investing in these ‘alternative’ options? The place to start is at auction houses. The curse of collectibles is unscrupulous dealers, so the best place to start are house like Sotheby’s, Christie’s and the like who in effect do the due diligence for you. Also their previous auctions provide a guide to the market in general and development of prices over time.
A pure investor doesn’t really care what they are buying, they might simply buy items of a certain price at auction to lay down for the medium term. As such, the auction creates a market where the prices are what they are for something approaching a commodity.
Of course, for those who get a taste for collecting, there is the spin-off of actually enjoying the whole process and the opportunity to begin trading. This is fun and potentially very lucrative, adding another level of profit for those happy to become skilled in the subject.
Of course, buying 10th ounce Gold Maples takes no real skill but it’s a gateway investment to a world of fun inflation hedges. These not only reward the owner in appreciation-terms, but also give them the chance to enjoy something fascinating.
Alternative investments aren’t always collectibles, but collectibles are a practical liquid area most people can ease their way into. A penny black stamp is a practical investment for most, whereas a forest of trees just isn’t going to be practical for most people.