Stocks, funds and bonds are investment vehicles any savvy investor will have in his or her portfolio. But, if you are thinking about diversification, consider these unusual and alternative investments.
[Free Ebook] How should you invest your first $20,000?
We asked 14 Singapore finance bloggers to share what they would do if they could go back in time and invest their first $20,000. They can no longer rewind time, but you can learn from their experience and hopefully start with a better footing.
Diamonds are bullshit, as Rohin Dhar of Priceonomics puts it, and his assertions are right on the money. However, look past the commercial jewellers and their shiny but worthless wares, and you’ll find a world of diamond investors reaping eye-popping returns from small, shiny rocks. A few months ago, Sotheby’s Hong Kong put an internally flawless 8.41-carat fancy pink diamond under the hammer. A bidding war ensued for this rare and desirable stone and when the dust settled, the winning price was a record-breaking US$17.77 million. The previous record was set in 2009 when an undisclosed bidder paid US$2.1 million per carat for a similar fancy pink diamond.
“The advantage of diamonds is that their prices and values develop independently when compared to conventional financial markets. In a market where interest rate movements and negative data seem prevalent, you can counteract this with diamonds as your diversifier,” advises independent diamond and precious gems broker Dustin Yates.
He does add in a few words of caution though. Diamonds are for investors looking at long-term prospects, not someone looking to make a quick buck. Liquidity can also be a thorny issue as there is no diamond exchange around.
However, for those with the patience, the heart and the knowledge, they can enjoy hefty returns. According to Yates, in a period of 10 years, white diamonds around three carats have returned about 130 percent while its fancy light pink and fancy yellow counterparts of the same weight have returned an astonishing 300 percent.
If you’re thinking about dipping your toe in the world of diamond investing, the first thing you have to do is to educate yourself. A great place to start is by looking through the Rapaport Diamond Report and the IDEX Diamond Price Report. After you’ve gotten yourself acquainted with the price movements, source for a trusted independent diamond broker. These brokers have access to some of the best and most exclusive inventory not available to the public or through jewellery chains. They will also be able to advise you on your potential diamond investment and provide a clear exit strategy.
The nectar of the Gods has a long and rich history, dating back almost 8,000 years. These alcoholic beverages played important roles in ancient Greek and Egypt. The citizens of these two civilisations would break out the wine pots whenever there was a religious ritual or victory on the battlefield. Today, we consume close to 240 million hectolitres of wine a year. That’s about 32 billion wine bottles uncorked and drunk for the purpose of merriment, debauchery or drunkenness.
While most wine varieties generally depreciate in value, there is a small but growing market of investors who buy wine to put into their portfolio. “Wine is a physical commodity which can always be drunk at the end of the day,” muses Nicholas Pegna, director of Berry Bros. & Rudd in the SEA region. One of the main reasons fine wine appreciates in value, according to Pegna, is due to its finite quantities and limited production. “As the bottles are drunk, the available remaining quantity decreases.”
The key in smart wine investment is to buy wines sought after and prized by drinkers, and to only consider top vintages from top estate. “Collectors are foremost interested in provenance (the full history of the wine), and then price as a secondary consideration,” says Pegna. Traditionally, the First Growths of Bordeaux and Grand Cru Burgundy “have provided the best returns”. And before you think that the financial barriers of entry can be prohibitive, Pegna shares that a case of Bordeaux First Growth can go for as little as S$5,000. Generally, investors will have to hold on to the cases for between five to 10 years and while returns have varied wildly, the customers of Berry Bros. & Rudd have seen their collections appreciate between 15 and 20 percent a year.
Pegna reckons that this is the best time to venture into wine investing as the market has been experiencing a contraction and is beginning to see green shoots of growth. Livex, the fine wine index, is reporting the first quarterly growth in four years.
And even if your wine investment tanks badly, you can always uncork it and enjoy the nectar of the Gods with your friends and family.
Before you scoff, the arch nemesis of every parent’s foot has been experiencing a resurgence in its popularity after making inroads into different aspects of popular culture. Adults who grew up playing with these two by four bricks are being reintroduced to their past and are using their excess disposable income to massage their nostalgic feelings. Long-time LEGO collector and investor Wu Guohong says that LEGO sets are best left sealed and in good condition for the value to appreciate. “Used LEGO sets usually sell for half the value of a new set,” he says.
Unlike the other alternative investment options in this article, the timeframe for you to realise your returns from your brick investment is rather short – one to two years. This is because of LEGO’s strategy of retiring a set approximately two years after its release, thus spiking its value. The sets that have seen the greatest appreciation in prices are modular houses and exclusive sets. Wu cites the case of a Mint in Sealed Box 10182 Café Corner, which retailed for US$140 when it was released in 2007. Today, the same set is worth an incredible US$1,700, a return of an unbelievable 1,200 percent!
It’s also not uncommon for investors to enjoy returns of between 50 and 100 percent in a year. Wu regularly purchases sets costing US$200 before selling it for between US$300 and US$400 a year later. He does admit that, as a collector first and foremost, he does have difficulties parting with his valued collection.
LEGO is an investment opportunity that has extremely low costs but requires a wealth of knowledge, and Wu admits that there are better opportunities out there to earn more efficient returns. However, for those who have always had an interest in these bricks, Wu recommends starting at Brickpicker, an extremely comprehensive Lego price and investing guide that features stock-esque tickers, articles, and more.
“Check regularly for upcoming releases and keep track of sets that are extremely popular based on reviews and how regularly they are restocked. If it’s popular now, it will be popular after LEGO retires the set in a couple of years. Your best bet is to invest in LEGO Exclusives and sets with popular themes such as Star Wars, Harry Potter and Pirates of the Caribbean,” Wu advises.
A month ago in November, the Portrait of Bada Shanren by Singapore artist Tan Swie Hian fetched a record S$4.4 million at an auction in Beijing. It cemented Tan as the most expensive living artist in Southeast Asia. Amazingly, Tan whipped up the large-scale portrait in just a minute. Not bad for 60 seconds of work.
According to art adviser Todd Levin, “art has historically provided the greatest intergenerational return of any asset class”. The tens of millions of dollars being bandied about during art fairs and auctions is proof that art, long seen as an alternative investment, is fast becoming mainstream. While we might not have the immense net worth of the one percent of the world to throw down on a Picasso or Rembrandt, there are still a few inexpensive avenues for us to explore. The Affordable Art Fair is one such option, offering a range of talks on a wide variety of subjects to help first-timers who want to start a collection for pleasurable and investment purposes.
Despite what you many think, the name of the artist isn’t the key determinant of the artwork’s value. Quality and authenticity are also important, and if one out of the three is missing, you can be certain that the artwork won’t fetch a high price on the market. “Art has the potential to reap significant financial returns and can even safeguard diversification since the performance is not linked to the stock market,” says Camilla Hewitson, the director of the Affordable Art Fair.
However, just like financial markets, there are ups and downs, and investors need to know when to hold and when to go in.
In the same breath, Hewitson recommends buying a piece that you can see yourself living with for a long time, in the event that work takes a long time to appreciate, as you’ll have to look at it for the next decade or more. “If you buy a piece you love and are able to sell it for profit, then you can congratulate yourself for having a great eye,” she notes.