As we explored recently in our update on the current savings market, interest rates through traditional savings accounts are at rock bottom right now. But there are plenty of other options you can explore to potentially get far higher returns for your investment.
Know Your Money explores a few of our favourites out there at the moment.
Get the wine in
They say turning to alcohol is never the answer to your problems. In this case, ‘they’ might be wrong. Now we’re not suggesting that you should be looking to drown your sorrows over the lack of decent interest rates; rather, that you might be able to get a good return on your money by investing in wine.
Hang on before you go rushing off to your nearest Bargain Booze though; it’s fine wine that you want to be investment in – generally vintage Bordeaux and Burgundy – and in all likelihood you’ll never get your hands on the wine yourself. That’s just as well, because it won’t command anywhere near as much once you’ve sampled the delicacies.
If the cork does stay in, it can end up very profitable. The wine market is not directly linked to the financial markets and often bucks the trend of other current economic indicators – probably because the types of people that buy mega expensive plonk are above trivial things like recession.
Indeed, the wine market recovered well after the credit crunch in 2008 and even went into boom mode over the turn of the decade, somewhat fuelled by huge demand from fast developing economies like China. That is until last year when the Liv-ex – the industry standard wine pricing index – saw a 9.6% fall overall in its Fine Wine 100 list last year.
However, things are looking up. As we begin 2013 the indices are currently at a new record high and analysts say we could see 14 per cent growth in 2013.
There is a healthy and highly competitive market of wine brokers out there which you can choose from to manage your portfolio, buying and selling on your behalf. The signs of a good one are any links to established vineyards and leading producers, their allegiance to the Liv-Ex, and that old tried and tested benchmark – client testimonials.
It’s all about art, darling
As the wine market illustrates, more and more people are looking to buy physical assets as investments rather than to invest in savings accounts or traditional stocks and shares. The notion is that the physical items will hold their value better and potentially provide bigger returns in the longer term.
Art has always been popular as an investment - and it's not just open to the so-styled 'upper echelons' of society.
Art has always been popular as an investment – and it’s not just open to the so-styled ‘upper echelons’ of society. If you don’t quite have the means to take ownership of a Picasso or Rembrandt by yourself, there are generally two ways to go with it. At the top end of the scale, you can join groups that look to buy expensive pieces by established artists as collectives. These are generally private wealth management firms that buy into classic pieces on behalf of multiple clients, and keep them as an asset on your behalf. The Fine Art Fund, set up by former Christies auction house executive and blue chip bank investment manager Phillip Hoffman, provides a typical example, with investors also allowed to borrow pieces brought by the fund.
The second option – with much lower entry points – is to snap up pieces by budding contemporary artists that you think might make it big in the future. This is obviously a highly speculative venture – especially if you’re not close to the scene – but the modern art world is easy to become immersed in. Get up to speed with what’s looking hot in trendy Dalston and Brighton, or the more traditionalist galleries of London’s west. You’ll have the added bonus of enjoying some cultural exploration while you scope out the David Hockneys or Damien Hirsts of the future, and hopefully the pleasure of hanging something aesthetically pleasing over your mantel piece too.
The website ownart.org.uk offers interest free loans over ten months when you want to buy art from a network of 250 contemporary UK galleries, with prices from as low as £100 and up. The website also offers handy guides for art novices, including buying tips and places to visit.
Make a Dragon out of yourself
By lending your money to businesses you can help where the banks have failed – aiding the economy to grow while earning yourself a great return on your nest egg.
The Funding Circle is a service that allows you to do just that, and Know Your Money is a big fan. The website lists adverts by businesses that are looking to secure loans, either because they have been refused by the banks for no good reason, or because they are have been offered extortionate interest rates. The Funding Circle carries out research and credit checks – the same ones the banks use – and indicates whether the company represents a high, medium or low risk. This information is included alongside the details of what the company will spend the money on and how long they’ll take to pay it back – 1, 3, or 5 years.
Individuals are then invited to bid to provide some or all of the money – anything from £20 to half a million – by stating the amount they want to lend at the interest rate they want in return. At the end of the pre-designated bidding time, the bids with the lowest interest rates are taken up to meet the total loan. The repayments – complete with interest – are then paid back to the lender on a monthly basis, with an average return of 8.9%.
At the time of writing, the company claims to have so far channelled over £74m to businesses since its inception in 2010. Even Government has announced intentions to lend up to £20m through the scheme next year
There are risks of the company you lend to defaulting of course, but The Funding Circle only allows strictly qualified and creditworthy businesses to take part and will chase companies that don’t meet their repayments on your behalf. You can also choose to ‘hedge your bets’ by spreading your money over a portfolio of companies, with an investment profile that includes both the safer and riskier ventures.
Possibly the best thing about it is that you can generally get your money back whenever you please. The Funding Circle says it usually takes just two days to sell a stake to a fellow investor if you’re selling at a cost neutral rate.
Lend thy neighbour
By cutting the banks out of the equation, borrowers cut cheaper loans and investors get higher returns.
On a similar basis to the business lending example above, you can also lend peer-to-peer - providing individuals with loans. Growing hugely in popularity as an alternative to traditional savings accounts, the overarching concept is pretty much the same – by cutting the banks out of the equation, borrowers cut cheaper loans and investors get higher returns.
There are two leading peer-to-peer services in the UK – Ratesetter and Zopa – with the latter joining The Funding Circle in counting the Government as an investor from this year. Zopa says it pays an average return of 6.4% while Ratesetter offers, at the time of writing, a one year bond at 3.6% and a five year monthly income deal of 6.2%.
Essentially, you won’t notice much difference between investing your money through one of these services and taking out a normal fixed rate bond through a bank. The key points of divergence are that the rates of return are much higher and that you lend to a set individual borrower, rather than your cash going to into the banks’ giant melting pots. In order to guard against you losing your money in the event that borrower defaults, the services have provisions put away, funded through small imbursements from each deal, to compensate bad loans.
Click here for more information on peer-to-peer lending with Know Your Money’s guide.
Unleash your inner Del-Boy
You could always take the DIY approach. With the likes of eBay and Gumtree – the Peckham markets of the digital era – it has never been easier to set up your own 5-9, buying low, selling high.
Purchasing clothing in bulk at warehouse prices is a good bet, and if you’re the creative type you could even style up some t-shirts yourself and create your own brand. Job lots of vintage clothing also usually go down well, as do one off pieces of furniture, if you’ve got a good eye for that sort of thing. You can often pick up some real gems from your local car boot sale or the aforementioned Gumtree.
Speaking of cars, these can also be good for a profit – people often want to both buy and sell them in a hurry. Rent a garage for a few quid per week and keep an eye on the auto listings section of the local newspaper.
At the lower end of the scale, a decent tip is to look out for misspelt items on eBay. Some of our fellow lay traders are much less diligent than you or I when it comes to conforming to lexical convention. The price they pay is near anonymity for their wares. You can take advantage of this by snapping up a bargain when nobody else comes by to bid and then selling it on for a tidy profit. You can try rummaging around by typing things like ‘Ralf Loren’ or ‘Addidas’ into the search field or, better still, let websites like missing-auctions.com or fatfingers.com find all the erroneous variations of brand names for you.
It is your responsibility to pay the Chancellor of the Exchequer his cut of anything you earn that isn’t deducted at source. You’ll need to do a self-assessment tax return.
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Author: KYM Editor