Alternative investments are no longer just for the wealthy.
Savers who are tired of the paltry interest rates on offer from banks in the United Kingdom and elsewhere are pouring money into alternative investments.
Crowdfunding and peer-to-peer lending sites, which offer returns as high as 8 per cent, have been a big beneficiary of these funds, and regulations have been tightened up in recent months.
Mondo Bank, a digital “challenger” bank that attracted investment from the Tech City chairman and venture capital investor Eileen Burbidge, raised £1 million (Dh5.3m) through crowdfunding in just 96 seconds. Property Partner, another crowd funding website, offers returns of 13 per cent a year by allowing people to invest in residential buy-to-lets, without having to buy a whole house.
Stock market volatility, of which there has been plenty this year, is also another reason why investors like alternatives. Traditionally, many people look to alternative investments and the first port of call is often the safe haven of gold.
Other investments such as fine art and classic cars could increase in value but will also give pleasure.
If you are not sure that your parking is up to the responsibility of a classic car, you can also invest in a classic car fund. One of the most recent to be launched was the PHD Classic Car Fund in 2014, which gives investors the chance to drive one of its portfolio of cars for up to 50 days a year for a £200,000 investment. Each car in the portfolio is valued at more than £300,000.
Collectible items such as original film posters, first edition books, comics and magazines and many coins are likely to increase in value over a 10 to 30 year time frame.
Coins are one of the least widely collected investments, according to Knight Frank, yet have set record prices at auction recently. For example, an Edward VIII 1937 gold proof sovereign sold for £516,000 two years ago, a world record price for any Royal Mint coin produced in the UK. The had coin previously sold for £40,000 in 1984.
Jewellery is likely to at least hold its value but some pieces – particularly by classic designers such as Cartier and Tiffany – can become much more valuable than the precious metals and stones they are made off.
Wine is another investment that many people in the UK enter into, and there can be returns of 13 per cent on vintage wine. However, those who are serious about selling cases will want to get them cellared by a professional. Fine wine – like a classic car – is considered a “wasting asset” under UK tax rules, so any gains do not attract capital gains tax.
Mini-bonds or loyalty bonds are another form of alternative investment that are popular with customers and savers.
Lancashire Country Cricket Club raised £3m to build a 150-bedroom hotel in 2014 by tapping its members and supporters for money, promising a 7 per cent equivalent return over five years.
The Jockey Club has also raised £25m from a mini-bond that tapped racing fans.
Adrian Bell at the stockbroker Canaccord Genuity attributes the rising popularity of company mini-bonds to the increasing regulation of other securities.
The incentives linked to many of the bonds – such as “cricket credits” to be spent on membership or match tickets in the case of Lancashire – are definitely part of the attraction.
But the fun of the incentive, should not cloud investors’ thinking on the risk inherent in the investment.
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