A Better Alternative?

Alternative investments, in theory, are designed to rise if your traditional stock and bond portfolio falls.  These investments are supposed to zig when your stocks zag.  An alternative investment is considered anything other than a traditional investment like a stock or bond and come in many forms like real estate investment trusts, gold ETFs, or managed futures.  Publicly traded alternative investments are an affordable way to give your portfolio hedging exposure.

As an alternative to publicly traded alternatives consider owning physical property instead.  Owning physical assets will give you the opportunity for growth and a hedge.  You’ll also get to use them as well.  If you’re considering investing a chunk of your wealth into alternatives, consider the following investments.

Vacation Home.  A vacation home can become a valuable asset for you and your family.   Your vacation home will give you growth with an inflation hedge.  Of course, it all depends where your second home is located.  A second home in Laguna Beach, Estes Park or Nantucket will fare much better than a home located in, say, Dalhart.   According to CNBC, home prices have returned 5.8% per year since 1968.  They also say a vacation home will cost about 20% more when compared to buying a primary home.[1]

Watches.  Rolex, Cartier, or Patek Philippe are top brands.  A classic time piece will cost you plenty but the long-term value may be worth the investment.    A Rolex Submariner has averaged about a 7% average annual return from 1957 to 2015.[2]   A timely time piece will also look good on your wrist.

Classic Cars.  Buying a vintage Porsche, Ferrari or Lamborghini can keep you ahead of the pack when driving on the road or finding favor with the valet.  A 1955 Mercedes-Benz 300 SL sold for $1.34 million in 2015.[3]

Wine.  A wine collection can pour dividends into your portfolio.  There are many advantages to owning a quality wince collection the least of which is you can drink your profits.   A case of Caymus Cabernet will cost you about $2,160.

Art.  Who wouldn’t want to own a Warhol, Van Gogh or Picasso?  If you’re going to buy art, make sure you like it because you’ll have to look at it for a long time.    Most cities host art fairs where local artists are featured and this can be your entry into acquiring fashionable art.  Herb and Dorothy Vogel started collecting art in the early 1960s as a young couple.  They never earned more than $23,000 per year but collected thousands of pieces of art where one curator valued their collection as “priceless.”[4]

Timber.   Buying timber land will help your portfolio grow.   Timber has been a solid (wood) long term investment.  I’d recommend hiring a land manager if you’re a city dweller.  The land manager will take care of your property and give you advice on the best time to cut your timber.

Coins.  Gold and silver coins are an easy entry into the physical world of alternative investments.   Coins can be purchased online at https://www.usmint.gov/.

Beanie Babies.  Just kidding.

As you construct your alternative portfolio consider the storage costs.  It costs money to store and own these investments.  These investments aren’t liquid either.  If you need cash quickly, you won’t be able to sell them quickly.

These investments can also be a great way to pass on assets to the next generation.   Would you rather inherit a publicly traded REIT or a beach house in Maui?

Happy collecting!

for wisdom is more precious than rubies, and nothing you desire can compare with her. ~ Proverbs 8:11

Bill Parrott is the President and CEO of Parrott Wealth Management.   For more information on financial planning and investment management, please visit www.parrottwealth.com.

May 23, 2017

[1] http://www.cnbc.com/2015/04/17/the-time-to-invest-in-a-second-home-is-now.html, Shelly Schwartz, 4/17/2015.

[2] http://www.businessinsider.com/how-and-why-rolex-prices-have-increased-2014-12, David Bredan, January 1, 2015.

[3] https://www.bloomberg.com/news/articles/2015-12-24/vintage-porsches-are-rising-as-the-next-blue-chip-classic-cars, Hannah Elliott, December 24, 2015

[4] http://mentalfloss.com/article/48844/how-working-class-couple-amassed-priceless-art-collection, Jed Lipinski, website accessed May 24, 2017.

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