Wine, whisky, handbags – the fascinating world of alternative investments

looking after your isa

News & Insights

Gareth Trainor

21st May 2015 at 10:20am

Fancy driving or wearing your investments?

When the Government announced radical changes to make pensions more flexible from this April, the press had quite a debate. Would people blow part of their pot on a holiday, or the sports car they’d always dreamed of, rather than investing it in more traditional ways?

But actually, putting your money into some types of classic cars can be an investment, albeit an extremely high-risk one. It’s just one of many options in the world of alternative investments. You may know about some of them, including hedge funds, precious metals and venture capital.

People choose alternatives for a wide variety of reasons. They might want to diversify their portfolio, hope for better returns, or just have a passion for the asset they choose to invest in.

We take a look at some of the more surprising investment choices outside the traditional world of stocks, bonds and cash.

Classic cars

People have been investing in classic cars for over 30 years now. There was even a brief bubble in the late 1980s which saw prices shoot up before they fell sharply back to earth again. Since then, prices have gone steadily back up. Classic cars have increased in price every year since 1998 and 2014 saw a new record set for a car sold at auction with a 1962 Ferrari 250 GTO sold by Bonham’s for more than £20m. However, as many cars are sold in private transactions, it’s hard to be sure of the exact price they sell for and it’s possible that prices have gone even higher.

Whisky

There are a number of whisky indexes including Rare Whisky 101 (up 17% in the past year) and the World Whisky Index. But, as with many unusual investments, and unlike conventional asset classes such as shares or bonds, it’s not necessarily easy to invest in these indices as a whole and you’d have to pick your bottles with care. The most expensive whisky ever sold was a 6-litre decanter of Macallan, which went for $628,000 in 2014.

Your average investor won’t be looking to spend that kind of money but, if you are tempted to join in, you don’t want to start in the local off-licence either. Instead, look at auction markets, or watch out for exclusive bottles released through distilleries. But be wary – Rare Whisky 101 keeps indices of the worst performing bottles too. The Negative 100 Index was down 9.93% in the year to 30 April 2015

Fine wine

Some alternative investments are so established that they have an entire exchange to themselves. The London International Vintner’s Exchange (Liv-ex) was formed in 1999 and runs an internet and phone based information, trading and settlement platform. It also publishes an index. As a result, fine wine can be easier to buy and sell than other alternative investments and it’s also possible to invest in wine investment funds where your money is pooled with that of other investors in the same way that you could choose an equity or bond fund. However, these funds are often designated as not suitable for retail investors and in recent years several companies investing in fine wine have collapsed.

Handbags

Who would have thought that handbags could be a genuine investment? The Picolleta Rare Handbags Index tells us they very much can be. The index charts the changes in the price of a variety of luxury handbags over time and it’s had an average return of 7.9% a year over the past 10 years. Its highest performer, the Chanel 2.55 Medium Classic Flap Bag in case you’re interested, has increased by 11.6% a year over that time.

To put that in context, the price of the FTSE All Share Index has increased over the same period by 3.90%* a year which is about half what you’d have got from your handbag investment, although the FTSE pays dividends which the handbag index does not. However, it’s a lot easier to invest in the FTSE or a fund which invests wholly or partially in the FTSE – not to mention more liquid and arguably less risky. And, as with many of these alternative investments, you’d need quite a lot of disposable income to buy a diversified portfolio of luxury handbags.

Vintage stamps

This is one of the classics when it comes to ‘true’ alternative investments. Philatelic investment as it’s correctly known has been around since the 1970s and comes with the advantage that stamps are more portable and storable than many other alternative investments.

On the flip side, it can be very difficult for a layperson to identify whether a particular stamp is valuable. For those who can, there are returns to be made. In the period from 2004 to 2014, the Stanley Gibbons GB250 Index offered annual returns of 11.8%. The index only looks at stamps costing over £9,500 and you’ll need to look for something significantly more exotic than average to achieve those kind of returns.

These are just some examples of ultra-alternative investments; others include films, carbon credits, vintage coins, fine art and even trading cards. But before you rush to invest in any of the above, be wary.

Alternative investments are normally high risk. In addition, they’re likely to include risks that more standard investments don’t. Most aren’t regulated by the Financial Conduct Authority (FCA) and aren’t covered by the Financial Services Compensation Scheme. They might also be harder and more expensive to buy and sell, are likely to need insurance and you may have to pay storage costs or store them safely yourself. The cost can make it difficult to diversify and, as with any other investments, there’s no guarantee that their value will increase.

So if do you want to dabble in designer handbags, it’s probably best to make sure you’re happy if it remains just a handbag to hold your money – and look fabulous – rather than make you any money.

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This article is not financial advice. Standard Life is not responsible for the content on any external websites. Tax and legislation can change in the future and this represents our understanding of the rules in May 2015.

 

*Source: FE, FTSE ALL Share Index, price return from 31 December 2004 to 31 December 2014. Past performance is not a guide to the future.