Are you looking to build a multi-asset investment portfolio? In this article, we take a look at 'alternative investments' and how this solution of diversification can be beneficial to investors.
S.W.A.G. is an acronym and asset class comprising of alternative investments (silver, wine, art and gold). The term was coined by economist Joe Roseman in 2011 who argued that a combination of excessive debt, aging populations, resource scarcity, and financial repression will bring on extremely poor performance in equities and bonds.
Unlike the central banks printing more money whenever they want, S.W.A.G. assets cannot have their supply increased at the press of a button, and act almost like alternative currencies.
High-quality alternative investments are different to traditional assets, who's performance are linked to the economic cycle. This makes alternative investments a great safeguard against political and economic uncertainty.
We'd also argue, alongside these alternative investments, that some musical instruments should also be included in this asset class, reasons for which we'll go into later.
The potential return on alternative investments also makes them appealing for the long-term. If you're a gold and silver investor or collector, these alternative investments could fit well alongside a long-term precious metal investment strategy.
Why would you want alternative investments in your portfolio?
- Safeguard against market volatility
- Increased returns
Silver is an industrial metal and an investment metal, just like palladium and platinum. It's used within our electronics, energy and medicinal appliances, as well as having many other uses.
An increase in industrial demand has led silver to be massively undervalued as an investment metal in comparison to gold. Since the price of silver took a downfall in 2011, it hasn't behaved characteristically as analysts would expect, by following a similar recovery trend to gold. The asset fundamentals suggest a forthcoming upswing for silver, so this is definitely something to keep your eye on.
The most investible fine wines have done well over the past decade and studies indicate they have low correlation with traditional assets, also making them great safeguards against economic uncertainty. There is only a finite supply of great investment wines so supply and demand play a key role.
When it comes to investing in wine, you have to be patient for the right time to buy. You have to carry out research on what vintages and wine producers have done well in the past and what is expected to happen in the future. Portability and low storage costs, and wine being a tax-free asset are also investment advantages. Bordeaux Grand Cru Classés account for the largest part of the investment-grade market for fine wine at around 75%. To ensure your fine wine does not spoil you will also need to ensure it is kept properly and sold before its past its best.
People initially purchase art because they derive pleasure from it. Art is subjective, but as investors, whatever seems to go up satisfyingly in price, also seems to be a winner for the portfolio. It's hard to predict how art will perform as investments in the future, but prices have been sky-rocketing even during the tough times in recent years.
Basically, art is quite difficult to value and the lack of transactional data makes art investment performance hard to track. Some argue that the growth of this area is dependant on the very wealthy, but this should technically still be enough to drive future price growth for a little while.
Gold has always been the classic hedge of wealth preservation with a timeless heritage. Supply is limited and new sources of the precious metal take time to come online which makes gold a great staple for the investment portfolio.
Gold has performed fantastically this past decade. Its value has gone up more than 400% as it becomes more of a mainstream investment. Carrying costs can be minor (depending on where you store it), and there's no need to pay an investment manager.
Did you play violin as a child? Are you a guitarist, cellist or are your hands more comfortable on the teeth of piano keys? Have you ever considered how much your instrument is worth, or could be worth in years to come?
When thinking about instruments you do not instantly make the association with investments. Instruments make us think of music: music we enjoy and music we don’t. Regardless of whether you like classical music or not, who amongst us can think of anything other than composers such as Chopin or Bach, when standing before a grand piano. Likewise, even if rock or heavy metal are not forms of music you enjoy, when you see an electric guitar do you not just instantly think of Jimi Hendrix, or Slash?
Arguably, the pinnacle of violins are those created by the Italian violin makers of the Stradivarius family, during the 17th and 18th centuries. Both for their phonic-acoustic qualities and their historical significance, Stradivarius violins are treasured across the world. Between 1980 and 2011 the value of Stradivarius violins increased by 15.4%. In 2006 a Stradivarius violin made in 1708 was sold for £1.8 million. A typical Stradivarius violin weighs around 360 grams, without a chin rest. If we assume that the violin which sold for £1.8 million weighed 360 grams, then that is £5,000.00 per gram. As I type this, 1 gram of gold is worth £55.18, so it is fair to say that one of these violins is worth far more than its weight in gold.
Stradivarius violins are not the only violins which can fetch a pretty high price. A violin made by Matteo Goffriller in 1692 has been valued at £150,000.00: obviously significantly less than the Stradivarius referenced above, but still an impressive valuation for such a small instrument. More modern violins, such as a violin made in 1979 by Alfredo Gianotti, are sold for closer to £5,000.00, which might be a more realistic investment for those of us with less money to spend on expensive instruments.
With any instrument investment, factors like whether it was previously owned by a virtuoso have a hugely significant impact. The history of the instrument can be more important than the condition or sound. Being owned previously by a virtuoso can double the value of an instrument – a factor we do not have to consider in bullion.
With pianos, it has to be a good name to be a good investment. Steinway and the 3 Bs of Blüthner, Bechstein and Bösendorfer are some of the blue-ship names in the world of pianos, which would be securer means of investing through purchasing a piano. Grand pianos, while having the obvious downside of their size, are considered the more collectable option, due to their rarity and their superior acoustics.
The Heintzman Crystal Piano, valued at $3.22 million is the most expensive piano in the world. Most grand pianos do not weigh any more than 1200 lbs - 544310.8 in grams – but the Crystal Piano, seen during the Beijing Olympic opening ceremony and is nine foot in length, would surely be far heavier than this. As we have not been able to ascertain the weight of the Crystal Piano, we are not able to state how much it is worth per-gram (if you know, please let us know and we will update this). However, it is striking how a Stradivarius violin is comparatively obviously worth so much more! It does seem that history is everything with instruments.
For investment guitars, it is generally the case that it is all in who previously owned it. New guitars might be worth more than a second hand owned by your uncle, but if it used to be played by BB King, or Joan Jett, then a second hand or vintage guitar will fetch a much greater price than any newer model. And while the difference between an electric guitar or an acoustic guitar can factor in price, the rarity of the model and which brand it is will affect the value far more.
Investing in instruments can have potential rewards but does hold significant risks. The entire US instrument business is valued at approximately £7 billion. When you contrast that with the US gold reserves, valued currently at $11,041,059,957.90, the instrument market’s tininess becomes apparent.
Scarcity, desirability, durability and stability and the independence of their price from stock market prices, make alternative investments an appealing diversity to an asset portfolio.
Before any kind of consideration, it will be beneficial for you to develop a basic understanding of the correlation between alternatives and financial markets. We recommend readers conduct thorough research before selecting which alternative asset requirements they need for their portfolio.
We have a lot more faith in the financial security of investing in bullion. In times of economic, financial, cultural and political instability, we believe that it is better to make the safest investment possible.
Obviously, keeping your investments safe when storing anything valuable at home is always worth thinking about. With gold and silver bars and coins, you do not run the same risks of your investment being damaged or destroyed, but there is always a risk of it being compromised.
If you'd like to talk through the options available to you, please call one of the Bleyer team on 01769 618618 or email [email protected]