Building Your Wealth: Alternative Investments

Most investments are grouped into the three traditional asset classes of stocks, bonds, and cash or cash equivalents. There are also alternative investments such as real estate, commodities, collectibles, art, and antiques which operate far differently and require more investigation, expertise and each has specific risks.

Building Your Wealth with Alternative Investments

Real estate

Real estate in the form of rental properties can claim quite a bit of your time as well as ongoing costs. Unless you hire a property manager (which cuts into your profits) you will have ongoing work to find suitable tenants, collect rent, respond to complaints and deal with repairs. A good resource if you’re interested in buying a rental property is Rent Smart by Margot Bai.

Another way to invest in real estate is by buying Real Estate Investment Trusts (REITs). An individual REIT usually focuses on similar properties. They own and operate any variety of real estate: industrial, retail and office parks, hotels, retirement residences, apartment complexes, and so on.

REIT ETFs may combine various properties. With this approach you can include real estate into your investment portfolio without the obligations of owning actual properties.

Art, antiques, and collectibles

Many of us fantasize about buying something at a garage sale and finding that the item is worth many times what we paid. But, for every lucrative collection, such as the recent auction of forty-years worth of Star Wars memorabilia, there are plenty of people sitting on hundreds of practically worthless Beanie Babies.

The collectible, art, and antiques market can be extremely fickle and demand can change dramatically. A great deal of expertise is required to evaluate unique objects and the experts don’t always agree. Plus, there are very good fakes around.

Art and antique sales are thriving, with buyers eager to own something solid and beautiful, and they are willing to part with some serious cash. But it’s also extremely risky and you need a lot of knowledge. It’s hard to predict future value of anything so proceed with caution.

I like the Antiques Roadshow episodes where they show a clip from an old show, then place a current value on the item. A significant number have either stayed flat or even lost value, with very few showing spectacular increases.

This category should really be regarded as a hobby to enjoy – the thrill of the hunt and enjoyment of possession and all that – not as an investment. If you actually make a profit, consider yourself lucky.

Gold, Precious Metals, and Gems

You can invest in gold, precious metals and gems in two ways: by owning the physical items, and by speculating on prices through investment instruments.

Gold and gems have traditionally been thought of as a hedge against disaster, but generally, gold tracks inflation. You can buy bars, wafers and coins such as the Canadian Maple Leaf which all are .9999 pure gold.

For those of us who don’t believe the world is ending soon, having gems and precious metals in the form of jewelry is probably more enjoyable. However, the value of these items depends more on artistry and fashion than simply on the weight of the metal or size and quality of the gems.

If you’re just speculating on the price of gold, you can purchase mutual funds and ETFs that own gold. You can also invest in mining stocks. Be aware that these funds are very volatile.

Commodities

In addition to gold and other precious metals, commodities also include goods such as oil, basic metals, forest products, and crops. The commodity itself isn’t traded. Instead, a futures contract is used, which offers to buy or sell a defined quantity at a certain price at a specified future date.

Futures contracts are highly risky. Often the companies that produce the commodities are included in many stock funds, or choose a mutual funds or ETF that invests in commodity stocks.

Final thoughts

Before committing money to alternative investments, you should have a savings plan in place, be contributing regularly to retirement savings, and be well diversified in your core portfolio.

You need to take the time to thoroughly investigate and become knowledgeable about your options. Consider ownership and maintenance costs of physical items. Any valuable collection must be insured with an add-on rider for specific coverage.

And, above all, consider the risks.

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12 Comments

  1. Sarah on January 19, 2018 at 8:33 am

    “…there are plenty of people sitting on hundreds of practically worthless Beanie Babies.”

    Haha, this cracked me up as I just found my Beanie Baby collection while cleaning the basement last weekend! I have carried those stupid bears around for 20yrs now! Time to rip the tags off and let my kids enjoy them….

    • boomer on January 19, 2018 at 1:18 pm

      Hi Sarah. That Star Wars sale reminded me of helping my boys put together all those fighter ships, and cursing out the little action figures when I stepped on them with my bare feet. I knew I should have just hidden them away (but knowing my kids, they would have found them to play with anyway 🙂 )

  2. Pellrider on January 19, 2018 at 11:15 am

    Not all antiques are increasing the value with time. Nice to know.

  3. Guy in Calgary on January 19, 2018 at 5:23 pm

    Crypto!

  4. Loonie Doctor on January 19, 2018 at 9:14 pm

    This was a better discussion of alternative investments than I have found elsewhere. I tried looking in the past when it was suggested to have a small amount of my portfolio in “alternative investments”. Most articles focused on real estate and gold.

    I ended up with REITs for the simplicity, liquidity, and dividend income. Most other alternative investments are unique and can be less liquid. Another one that we have are solar panels on our barn as part of the MicroFIT programme in Ontario. Was a good deal back when we signed on a few years ago with a 20 year contract. 29K investment and produces about 5K/yr. Wonder what my LEGO collection is worth – they too feel like sharp little Light Sabres on the bare feet.

  5. WAS on January 20, 2018 at 7:03 am

    I agree with Guy in Calgary. You seem to have missed one of the hotest fads right now, Cryptocurrencies (like Bitcoin (BTC)). Some people believe that these coins are the future, others seem to think they are a Ponzi scheme (e.g. Warren Buffet). Nevertheless, a lot of people are looking at things like Bitcoin as a store of value and a somewhat limited medium of exchange (KFC started accepting BTC in exchange for buckets). In case of a financial meltdown, or other disaster (which our neighbours to the south seem to be quite willing to court), what would be the best medium in which to hold some wealth: gold or BTC?

    • boomer on January 20, 2018 at 5:18 pm

      @WAS. No, I won’t endorse unregulated pseudo currencies as an investment. You’ll have to go to another blog for that.
      I just looked up the price of Bitcoin. At $12,711, that would be some bucket of chicken.

      • WAS on January 20, 2018 at 10:39 pm

        You do realize that BTC can be used in fractional units? At the time of writing (Jan. 12, 2018) the price of a bucket was 0.0010305 BTC. “For $20 worth of your digital currency, you’ll get 10 original recipe tenders, waffle fries, a medium side, gravy, and 2 dipping sauces. The company will even deliver it to buyers.” Cryptocurrency ETF’s will likely be shortly available (One proposal has been submitted to securities regulators in Canada.). Having said all that I wouldn’t mortgage the house to buy in, but a little bit in the portfolio would be fun, if not profitable.

  6. Cheryl on January 20, 2018 at 10:52 am

    I have a lifetime collection of stuffed animals. Mostly worthless but I like them! One in particular is Curious George that was recalled in 1978 due to discovering lead in the letters across his chest. They got 90% of them back, but I still own Lethal George!

    As for artwork, for me it’s more personal taste. I have one piece I bought in Japan in 1980 that might be worth a few hundred bucks, but I buy art for my enjoyment. Often I pick up art when I travel. In Costa Rica artists paint on feathers. I bought 2 for $20 each that used 2 feathers to paint scenes on. One is a jaguar with the most amazing detail. The other is a monkey. As you can tell from the George reference above, I like monkeys. I couldn’t buy the frames and glass for that price back in Canada. I also bought a farm scene framed and glassed for $20 that uses Costa Rican vegetation like seeds and grass. Probably totally against Agriculture Canada’s import laws, but it’s sealed. And nothing more precious to me than charcoal drawings of deceased pets that cost around $25 each and about $50 or $60 to have Costco frame.

    There’s a big difference between what’s an antique and what is old. I have an 1895 grand piano built in England which is an interesting piece of furniture. My parents bought it at auction in 1984 for $1200. The piano stool I don’t know where they bought it, it’s been in the house since I was a kid and it was made in Massachusetts by a well known company circa 1850 and has crystal feet with silver claws holding them in place. It’s value was $10,000 20 years ago. Would I sell it? Maybe. But then I’d have to buy a new piano stool

    • boomer on January 20, 2018 at 11:11 am

      Well, Cheryl, it seems like you really enjoy your collections and you don’t consider them part of your retirement plan 🙂

  7. Ben on January 25, 2018 at 11:38 am
    • WAS on January 25, 2018 at 12:12 pm

      Or wine?

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