Looking for a cash cow?

February 1, 2016

Whether it’s wine, comics, handbags, renewable energy, or even car parks, the list of alternative investments available to those looking for somewhere to put their cash is growing fast. Once the domain of banks, stockbrokers and real estate agents, investing is no longer just about stocks and bonds, you can even put your money into a cow. Yes, a real cow, not a cow-shaped money box!

Unlike traditional investments, the nature of many of these so-called alternative investments – particularly collectibles such as stamps, comic books and wine, open the market up to more people. Renowned investment manager Peter Lynch famously once said: “invest in what you know”, and while he was purportedly referring to stocks, the concept is sound advice for any investment.

If you are an expert in technology, then apply your knowledge and put your money into technology, not gold, or diamond mines. If you are a keen wine enthusiast, then focus on wine; if art is your thing, then make the pictures add up. The key is to maximise your advantage. Even well-known fund managers are starting to diversify on much larger scales, with investment giant Black Rock last month revealing it had added eight garden centres to one of its property funds in a bid to diversify its offering. In fact, alternative investments, including assets such as currencies, commodities and wind energy projects, are estimated to account for about 9 per cent of Black Rock’s total portfolio.

However, it’s not necessary to invest on the scale of these large financial houses, and alternative investments offer individuals a range of different opportunities. Whether it’s classic cars, wine, art or gold, the possibilities are endless.

Take for example, collectibles such as comic books and merchandise. The book that introduced Superman to the world in 1938, sold for $3.2 million last year, while an original Barbie doll, released in 1959 for $3, was valued at $8,000 recently, making a return on investment (ROI) of 266,666 per cent over 50 years. To match this in a traditional investment you’d need to have a 17.1 per cent compounding interest.

What makes collectibles different though, is that even a little damage can erase all of their value. This is because a collectible is based on emotional factors like nostalgia and these can be as erratic as they are powerful. Moreover, nostalgia is even more unpredictable than the stock market. While it is said to run in 20-year cycles, it doesn’t necessarily mean that you could go out and buy the top 10 items from consumer polls today, incubate them for 20 years and then sell them for a fortune. They will only become collectibles if they meet two conditions: rarity and appeal.

Still, if clearing out your garage in the hope of starting a valuable artefact collection is not for you, then not to worry, there are still plenty of options. Take for example a car parking space at a UK airport, currently offering guaranteed annual returns of between 8 and 16 per cent. According to property company Colliers, the car parking space investment market is currently worth an estimated $12.6 billion.

Then there’s wine. Like the art investment market, wine offers investors the added benefit of being able to enjoy their investment. Investors can purchase individual wines from particular regions and build up a portfolio for resale, or, for those who are solely focussed on potential returns, there are even wine investment funds. The Liv-ex Fine Wine 1000, which tracks the price of 1,000 global wines, gained just 1.2 per cent in the year to August 2015, but rose 7 per cent in the year to August 2013.

There is an added attraction to investing in wine and that is that the price it fetches is not dependent on external factors such as the strength of the property market or the mood of the banks. Moreover, there are a limited number of bottles of fine wines, so demand will remain high. The best-performing wines can produce annualised growth of up to 20 per cent, but you may have to wait several years. And if it all goes wrong and the bottles don’t make the return you had hoped for, at the end of the day your asset is consumable, so wine investment could be seen as a hobby as well as an investment opportunity.

Another, slightly more unusual option, is livestock. To help subsidise the prohibitive cost of farm animals, some dairy farmers offer programmes where individuals can lease a cow and earn the income from the milk and cheese the cow produces. This is an attractive option for environmentally and ethically-motivated investors, who are in effect able to help grow the world’s resources whilst getting money from a real tangible thing.

For those looking for something slightly different, the latest craze is crowdfunding, whereby individual investors can put money into projects or ventures in return for anything ranging from a pint of beer, an early copy of a new book, or eventually, a share in any profits made. Made typically via the internet, crowdfunding is a form of alternative investment, which has emerged outside of the traditional financial system, and offers individuals an unusual and often interesting outlet for their funds.

In conclusion, there is no doubt that opportunity exists in alternative, and sometimes unusual, investments, however as with any investment opportunity the key is diversification, and putting all your eggs in one basket, even if you consider it to be a hobby, is never a good idea.

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