These non-traditional options differ from more standard means of investment (savings accounts, stocks, bonds, and property), and are often more complex, illiquid, and carry higher risk. They have also typically needed a large initial outlay and normally take many years to offer any returns.
However, alternative investments are becoming a more serious option for people looking to spread risk by diversifying their savings and investment portfolio. Because many alternative investments seem to have a low correlation with trends in stocks and the overall economy, they can act as a hedge against any fluctuations in the financial market.
Know Your Money has pieced together industry data for some of the more interesting alternative investments over the past 5 years and benchmarked their performance against the S&P 500.
Alternative investments can seem an attractive proposition but, if the figures show one thing, it’s that none of them are totally without risk. Some of them have indeed shown great returns, such as Bitcoin, but many also fluctuate significantly and depreciate in value, again notably Bitcoin.
Perhaps surprisingly, the more traditional alternative investments such as gold, art, and wine, don’t always offer as good a return as the less widely-known markets of whisky and timber. Whisky in particular is a growing market for investment opportunities, with it even beginning to rival fine wine both in terms of popularity and profitability.
More information on these alternative investment options, as well as Bitcoin, peer-to-peer lending, stamps, coins, and classic cars are discussed below.
Thanks to Liv-ex for wine performance data.
When thinking of wine investments, an image of a vast cellar in a great house may come to mind. However, wine has become a much more popular and accessible investment, not least because it has often performed favourably compared to the S&P 500 and other alternative investment options.
There is a specific selection of wines which increase in vintage and value as they mature. Some of the most famous are Bordeaux wines, but bottles from other regions and countries are also suitable for investment. Production of ‘investment grade’ wine is tightly controlled and, as the supply gets even scarcer over time, its value increases as there is considerable demand for a limited product. To generate a significant return from wine, investors need to do their research and have a good knowledge of the market, including what vineyards, grape types, harvests, and regions are likely to produce the most sought-after, quality wines in each year.
How much of a return you can get from investing in wine depends on the age and type of wine you buy, as well as when you cash in on your investment. As the data shows, the returns can fluctuate each year so research and timing are key. However, although returns can vary, wine generally has a low correlation to the stock market and other investments so, as part of a diverse portfolio, investors may see some good returns from it.
Thanks to Rare Whisky 101 for whisky performance data
Investing in whisky is quite different to wine, primarily because whisky doesn’t age and mature in the bottle. Whisky only matures in the cask, which means a 10-year-old bottled whisky will remain that age, whether it is stored for 1 year or 50 years.
One of the ways you can invest in whisky is by purchasing a stake of it in the cask as it matures. These investors may have to wait years before making a significant profit, possibly up to 10-20 years or longer, although the length of time that whisky takes to reach its ‘peak’ varies according to certain factors. For example, the specific blend, the distillery, the cask, and the method used to make the whisky can all impact the ageing process, which also means the oldest isn’t necessarily the ‘best’ or most valuable.
Another possible way to invest in whisky is by purchasing bottles. Their value increases as the supply of that specific, unique blend decreases, with many bottles available to choose from across different price ranges. Some of the most sought-after include rare and limited-edition bottles from “ghost” distilleries that have since closed down, but there are numerous other whiskies that will also increase in value. Investors can consult various resources and indices to assess the potential value of different varieties of whisky, taking into consideration their individual properties and the current market trends.
The figures suggest that the overall returns from the whisky market are healthy and outperform many other alternative investment options. However, because there is such variation in the whisky industry, investors should remember that just as picking the right whisky could reap significant rewards, picking the wrong one could result in a considerable loss.
Research Source: Macrotrends.net
Gold is widely regarded as a ‘safe investment’ as it generally isn’t as volatile as some other investment choices. Because gold has intrinsic value, it is considered a reliable and stable option that can offer investors some protection against economic turmoil and under-performance.
Although the data shows gold prices are not invincible to drops in value, the overall trend is fairly solid with both ups and downs. Even when prices do fall, gold still holds considerable value and is fairly safe from becoming completely worthless, which is a danger with many investments and currency. Looking further back beyond 2014, gold has generally retained its value over the years and kept fairly consistent, especially when compared to the S&P 500.
Even though it can be useful for securing wealth, as an investment, gold is less likely to increase as much in value as some other options. Because the margins can be quite small, to get some noteworthy returns from investing in gold, investors would need to follow the market and predict its movements so they can buy and sell at the optimum times.
Investing in gold is fairly accessible as people don’t need a lot of money to purchase a small amount of the metal in some form. There are also opportunities to invest in gold equities and derivatives which would offer returns based on the trends of the gold market.
Research Source: coinmarketcap.com
Bitcoin, the most popular and prominent digital currency, has been one of the most talked about investment opportunities over the last few years. Cryptocurrencies offer a decentralised platform for financial transactions and cross-border payments, with Bitcoin the most famous individual currency.
As they are not reliant on governments or banks, cryptocurrencies have been seen as a form of security, particularly in case of failed fiat money (government money) and global economic and political turmoil.
However, Bitcoin itself is incredibly volatile and high-risk. In 2017 the price of Bitcoin rocketed, reaching unprecedented highs by December of that year and offering a rate of return which none of the other alternative investment options have even come close to matching.
At the same time, none of the other investment options have shown such a striking drop in value as Bitcoin at the end of 2017/start of 2018. When the Bitcoin bubble burst, investors lost a lot of the gains they had made, unless they sold at the right time. Bitcoin appears to be recovering some of its value (although not to the levels of 2017), but its unpredictability means no one can be sure how it will change in one month, let alone a year or more.
Because Bitcoin, and cryptocurrency more generally, is a new form of investment without any historical information to draw on, timing and research has been crucial for investors. Early buyers who kept track of the trends may have generated massive returns, whilst those who invested later may have seen the value of their investment fall.
Opportunities for great returns
Global and independent currency- removes third party involvement
Supply is strictly controlled and limited to 21 million Bitcoins
Extremely volatile market and a risky investment
Vulnerable to hackers
No historical data available
Not a regulated market
Plummeted in value after 2017
Thanks to Art Market Research for art performance data
There are numerous options for people wanting to invest in art. Of course, the most famous artists and paintings are worth vast sums of money, like any Van Gogh or da Vinci piece, but there are lots of opportunities for lower level investments too. Investing in new or undiscovered artists requires less money and promises the greatest return, if the artist then becomes a success. However, as success and a subsequent rise in value of their artwork is not a guarantee, investing in lesser-known artists is also much more of a risk.
Returns on art investments vary considerably between genres and artists but, as the data shows, it can be a profitable investment if you know what to look out for. As art is a very established investment market, there are a lot of resources to draw on to help individuals make decisions about what to purchase, as well as several methods to help confirm the provenance of the artwork. Art fairs, galleries, auctions, and websites can be good places to learn about the overall market and different artists, and also to see what sells at what price.
Like all investments, it is important to be knowledgeable about the field so you can better predict what will rise in value, although, as art is all about personal taste, the market can be quite unpredictable. Highly popular artists may not have the same appeal or demand a few years later or, conversely, an artwork may increase rapidly in value years after it was made.
Variety of artists/artworks for individuals to invest in at different levels
You can enjoy the artwork while you wait to sell
Able to invest in what you find interesting and appealing
Not normally as volatile and ever-changing as stocks and other markets
No guarantee that the piece will appreciate in value- a very risky investment
Requires industry knowledge
Illiquid market so may be difficult to sell
Potential for forgeries- issues of authenticity, particularly with bigger names
Thanks to Gresham House Asset Management for forestry and timber performance data
Investing in timber and woodland is a green and ethical way to get a return on your money, but also one which tends to require a large minimum investment. However, there are schemes available which pool money from a number of investors, so reducing the initial sum needed to invest.
Because forestry and timber are generally unaffected by what’s happening in the wider economy, they are usually considered a comparatively low-risk investment that investors can use to diversify their portfolio. The timber from a piece of land can also generate an income, unlike some other investments which don’t make any money until they’re sold.
Slightly lower risk means the potential returns from investing in forestry are likely to be fairly steady. The figures indicate there is less chance of your investment rapidly rising or falling in value, and, unlike art and some other alternative investments, you are unlikely to hit upon one really rare and valuable piece that can turn a considerable profit. However, it does offer the potential of a solid return that compares favourably to many other alternative investment options.
Timber is a very illiquid asset, so it is difficult to sell quickly if you need to access your money. As a result, people often invest in it more to preserve their wealth and for the income, rather than for selling it on at a profit.
A comparatively low-risk, ethical investment
A hard, physical asset that’s intrinsically valuable (there is a limited supply of land and trees which will always be in demand)
Can generate an income for the investor
Low correlation with stocks and other investments, so can be a worthwhile addition to a diverse portfolio
A long-term investment
Usually requires a fairly high minimum investment
Research source: Frank Knight Luxury investment index for stamp investment data
Stamp collecting is an established and popular activity, both with investors looking to make a profit and with people interested in philately (the study of stamps). Rare stamps have the potential to sell for tens of thousands or even hundreds of thousands, with the most valuable stamp in the world (the British Guiana 1 cent Magenta) selling for over £7 million. However, these instances are relatively uncommon and very few stamps are likely to increase so significantly in value.
Compared to the other alternative investments, stamps seem to show the least change and volatility, but also the smallest return for investors. Because there are so many stamps in circulation, it is difficult to draw generalisations on how much of a return they may offer as the vast majority which are not so rare will yield very little, whilst the very rarest can offer excellent returns.
Age, condition, rarity, and provenance are key to determining the value of stamps and whether they will appreciate over time. Collections of stamps around a certain theme, such as royalty or a specific event, may yield some profit, but the greatest returns are likely to be gained from finding one particularly rare and unique stamp.
Rare stamps can sell for significant sums of money
Demand from investors and collectors
Stamp market doesn’t tend to have correlation with stock market and other assets e.g. property
Only a select few stamps will yield big returns; the majority are unlikely to be so profitable
May have the problem of forgeries and proving authenticity
To yield significant rewards, investors would often need to spend a considerable sum of money
Research source: Frank Knight Luxury investment index for coin investment data
Bitcoin may be taking all the headlines but physical coins continue to be a popular alternative investment. Whilst some coins are valued because they are made of gold, others are prized for their rarity and their collectible interest. Scarce coins which only had a limited number minted are the most valued, and it’s these which would be likely to offer the greatest return on an investment.
Anniversaries of certain events may prompt a rise in value of commemorative coins for example, so investors looking to make a profit should stay abreast of any changes in the coin market. However, even with commemorative coins and ones that at first look may seem valuable, the mintage (number of coins produced) is key to determining whether they have the potential to increase in value. The condition of a coin will also impact its worth, as will any unique features such as irregularities or mistakes.
Like stamps, the overall return on coin investments appears solid and stable but still fairly low, particularly compared to the other alternative options. Whilst some coins can sell for a significant profit, these are specific cases and not representative of every coin investor’s experience as the majority of coins may only slightly increase in value (if at all). Arguably, coin collecting (or numismatics) remains a collector’s hobby rather than a significant investment opportunity.
Potential for significant returns for the rarest coins
Continuing demand for old coins
Often takes years before investors can benefit from any increases in coin value
No guarantee that a coin will appreciate, it may fall in value
Investors may have to contend with forgeries, so they should go through a trusted dealer and valuer
Research source: Frank Knight Luxury investment index for classic car investment data
In normal circumstances, cars are a depreciating asset. However, certain cars can appreciate over time, ranging from high-end sports models to vintage classics.
Make, model, pedigree, and the condition of cars are crucial in determining whether they make a good alternative investment. Classic cars are a significant market not only for investors, but also for enthusiasts, with many rallies and shows taking place all over the country. However, because of this, the classic car market is arguably enthusiast-led rather than investor-led, which can make it difficult for investors to predict which vehicles may return the most profit.
Classic cars have traditionally been a popular alternative investment choice but, over the past few years, they seem to be declining both in terms of popularity and profitability. This is likely to be because more speculative investors have gone elsewhere, leaving just the most committed enthusiasts and collectors dealing in classic cars. There may be ‘crazes’ around certain cars (if it’s a significant anniversary for example) but, on the whole, investors appear to be favouring markets other than classic cars to make a profit.
Although certain makes and models can offer a good return on an investment, investors also need to factor in any additional costs. For example, whilst some investors may store their car securely to try to maintain its value, some may want to enjoy the use of their vehicle while they have it, although this increases the risk of it depreciating. This second group would also need to factor in the running costs of having a car on the road.
Some investors may choose a slightly different route by purchasing a poorly-maintained classic car and restoring it, thereby adding value to the vehicle.
Investors can enjoy the use of their vehicle if they want
A popular market with sizeable demand
Particular vehicles have the potential to yield a considerable return on their investment
Takes work and money to maintain/increase the value of a classic car
A risky investment- hard to predict which makes and models will appreciate in value
Based on figures, classic cars becoming a less profitable investment market
may not be the first thing you think of when you’re considering where to invest your money but, like wine, it can increase in value over time. Rounds of young cheese can be purchased and left to mature for several years. Investors can then sell the cheese, which should have increased in value, for more than their initial investment.
also isn’t an obvious area to invest in, but it is an option that is growing in popularity with investors. Whilst property has long been a common investment choice, there is a high and growing demand for storage spaces from individuals and businesses alike, which is making storage a more viable alternative for investors.
Recent stock market unpredictability may cause a greater appetite for investors to look away from the S&P 500 for higher risk investments. Investments such whisky were once considered an investment of passion, now whisky is demonstrating consistent investment returns that could age as well as a single malt.
*The data is based on information that is publicly available on each industry website at the time of writing this article. Know Your Money does not recommend or offer any advice on any of the alternative investments features in this article and is not able to accept, for any reason, responsibility for the content on 3rd party sites.