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The complex world of alternative investments

Jul 01, 2018
Choosing the right vehicle for your money can not only be confusing but it can cost you dearly, and the very reason you chose the asset – a better return – might turn out to be your worst nightmare. With such different asset classes from property to cash, and equities to commodities together with so many alternative investments, geographic options, currency and security issues, your money has never been more at risk.

Most people have different investment needs and goals ranging from short to long-term. With deposit interest rates at historical lows, property prices at worryingly pre-Celtic Tiger levels and a stock market with its aging bull (going into its ninth year), the cry for diversification and alternative investments has never been greater – investors want to spread their risk and have a decent return on their money with greater security.

Alternative investments range from diamonds, gold, classic cars to vintage wine, philately and rock ‘n roll memorabilia.The Knight Frank Luxury Investment Index (KFLII) will give you some indication over the last 10 years how the various alternative asset classes have performed: 

Knight Frank Luxury Investment Index

Wine not?

Those oenophiles among you might be tempted to invest in the wine business. Guess how much a case (12 bottles) of Le Pin 1982 (Pomerol), €339 the year it was released, is worth today? 

€120,716. 

That’s a gain of over 35,610% in over 36 years. There were only 3,600 bottles produced of the mainly Merlot grape and if you picked up a case in 1982, you’re sitting on a goldmine. 

Naturally, not all wine investments perform as well - but over the short, medium and long-term, a well-chosen portfolio of wine should produce excellent returns. 

Liv-ex.com, a stock exchange and industry leader for the wine industry, is a good barometer for wine investment. During the last decade, Decanter.com, another index that measures market performance, has shown average annual returns of 20% up to recently. 

The safest and most secure investment option is to buy French wine – the top performers historically have always been the leading 30 chateaux in Bordeaux. Some Spanish and even new world wines could well appreciate – but the risk is substantially higher. 1990 and 2000 were equally good vintages from the 7,000 + chateaux bearing the Bordeaux appellation. What’s more, if your investment fails to make you money, you can always drink it!

Loan notes

Investors with self-administered pension schemes, ARFs and ordinary investments are also currently availing of loan notes in the search for greater returns, where pension funds and other monies are given to alternative investments helping cash flows for some of those companies while yielding up to 10% per annum for the investor. 

Short-term investments

The variety of short-term (up to two years) investment opportunities that come across my desk is staggering, from funding a world renowned author to complete a book, to energy companies, to completing building programmes on sites with full planning permission, unencumbered and a 1st charge on the site as security. It’s better than leaving it in a cash account earning a paltry 0.1%!

John Lowe is founder and Managing Director of Providence Finance Services Limited t/a Money Doctor, regulated by the Central Bank of Ireland.

Advice in this article is the sole opinion of the author.