| Residential property prices have crashed. The stock | | | | end of the market. In a recession, it's going to be |
| market smashed last year. With the base rate at | | | | difficult to offload a vintage Bugatti - and auction |
| 0.5%, the best bank accounts aren't yielding much | | | | houses such as Bonhams ( which has a specialised |
| more than 3%. No wonder investors are looking for | | | | vintage car department, have high charges. |
| alternatives. Even if they only offered similar returns | | | | Investment in art |
| to cash and equity investment, alternative | | | | Investment in art is perhaps the most attractive |
| investments would still provide portfolio diversification. | | | | lifestyle investment; again, the entry point can be |
| So what are the some of the options available to | | | | quite low, particularly with modern prints. You can still |
| investors? | | | | get a Picasso print for less than £1,000. |
| Agricultural investment | | | | However, though art is often sold as 'recession |
| One interesting alternative is agricultural investment. | | | | proof', this is not true. The art world is prone to |
| Buying an arable farm might not be realistic for most | | | | bubbles - pop art, particularly Andy Warhol, fetched |
| investors, but pooled investment funds now allow | | | | high prices in 2007, but the bottom fell out of the |
| investors to put as little as £1,000 a time into | | | | market last year. And several high value works by |
| jatropha plantations (a form of biofuel) via Green Oil | | | | BritArt doyen Damien Hirst failed to sell in the |
| Investments, wheat in Western Australia via | | | | immediate aftermath of the Lehman crash. On the |
| Hurlingham Capital, and teak plantations in Costa Rica | | | | other hand if you buy works by an artist or school |
| via Costa Rica Invest. | | | | that isn't currently in fashion, and they get |
| While investors could equally - and more easily - | | | | 'discovered', you could strike it lucky. |
| purchase a commodities ETF, these investments give | | | | Anyone considering investing in the art market should |
| an exposure to land values as well as commodity | | | | consider exhaustive research before getting their |
| prices and income. Hurlingham's wheat based | | | | wallets out. The auction houses, Christie's and |
| investments offer low risk (the capital value is partly | | | | Sotheby's, are a good source of information, though |
| protected) together with yields around 8% a year, | | | | of course they do have a vested interest; is another |
| and terms from 5 to 7 years. These look highly | | | | excellent resource. But taste is subjective, of course |
| attractive for the income investor. Other prospects, | | | | - there is no objective value criterion to refer to, as |
| such as some of the biofuels investments on the | | | | there is with equities. |
| market, offer much higher returns, but have | | | | So although art investment offers both the prospect |
| potentially higher risks, being based in countries where | | | | of diversification, and positive returns, it's difficult to |
| political risk is high. Not all such schemes offer annual | | | | see how investors can achieve this in practice. |
| returns; some require a 5-15 year investment period | | | | It's also worth noting that art is another illiquid |
| (for instance, in teak, even if bought as an existing | | | | market, with high transaction costs to both buyers |
| plantation). | | | | and sellers (auction houses charge a buyer's premium |
| This is still a fairly new area of investment, and | | | | of 10%). It is not a market for 'flipping' or short term |
| investors should do due diligence on the legal small | | | | traders. There are no tax advantages to an |
| print of the scheme as well as the underlying | | | | investment in art, and those wanting to buy pictures |
| investment story. | | | | to put in a SIPP should notice that they won't be |
| Forestry | | | | able to hang them on the wall - personal use of SIPP |
| Forestry, on the other hand, has a long history as an | | | | assets is barred. |
| investment for high net worth individuals in the UK. | | | | However the big difficulty with both vintage cars and |
| There are substantial tax breaks for forestry - no | | | | art investment is that it's fatally easy to confuse |
| income tax or CGT is payable, and forestry | | | | rational investment with emotional attraction. That's |
| investments are free of inheritance tax liability once | | | | even worse with another alternative investment, |
| they have been owned for two years. | | | | wine - because at least with art, if you hang a |
| Yields are volatile but can be nifty. Although forestry | | | | picture on the wall, it doesn't destroy its investment |
| returns fell from the 31.6% enjoyed in 2007, 2008 still | | | | value. With wine, open your long-cellared bottle, and |
| saw a 7% total annual return - way ahead of the | | | | your investment has just disappeared. |
| commercial or residential property sectors or the | | | | Wine |
| stock market. | | | | However wine has done extremely well in the past |
| However, it's an expensive business to get into - | | | | few years. The Liv-Ex wine index stood at 120 in |
| funds are available through FIM, but the minimum | | | | 2005, and had reached 264 in summer 2009. By |
| investment is £50,000. And this is a long term | | | | definition, the annual supply of wine from the top |
| investment - it can take twenty years to harvest a | | | | vineyards in France can't increase. Vintage wine also |
| plantation, during which time there's no income. | | | | improves with age, so the longer you hold it, the |
| Vintage cars and boats | | | | more the price should increase, if you've made the |
| More 'lifestyle' investments include vintage cars and | | | | right selection to start with. |
| boats. Here again there's potentially a tax advantage | | | | Wine is another investment that is free of capital |
| - since they count as wasting assets, such assets | | | | gains tax. If you buy it 'in bond', as a pure |
| have no CGT liability. (Don't forget though that this | | | | investment, you also don't have to pay excise duty - |
| also means losses can't be claimed against profits on | | | | a significant saving. There are a number of advisers in |
| other assets such as shares.) Pre-1973 cars also have | | | | this market; Albany Wines provides advice for |
| a zero rate of road tax - though you'll still need to | | | | investors wanting to invest in Bordeaux wines, and |
| get them MOT'd. | | | | suggests £10-20,000 as a good starting |
| For novice vintage car owners, a good suggestion is | | | | amount to create a diversified portfolio. |
| to choose a car with a strong owners' club, which is | | | | Of course wine is purely a capital play; there is no |
| a good source of advice. Owners will need to be able | | | | income during the term of the investment. To |
| to maintain the vehicle in pristine condition - so this is | | | | compare wine with equities, then, you'd have to |
| not an investment to undertake if you're occasionally | | | | compare not just the prices, but the total return on |
| short of funds. In fact, it will cost money every year, | | | | equities, including dividend income - and once you do |
| in insurance and maintenance, and pays no income - | | | | this, the returns from wine don't look quite that |
| so if you don't make a good capital return at the end | | | | attractive. Investors should also note that this has |
| of it, you've lost out. However, it's a market that can | | | | been a favoured area for scams and frauds - a |
| be entered at a relatively low cost. For instance an | | | | number of firms set up to help investors buy wine en |
| MGB Roadster will set you back £6-8,000 - | | | | primeur (basically a forward contract) went bust, |
| less than a new Ford Mondeo. And of course if you | | | | having not passed investors' money on to the |
| want to drive the car, no one's stopping you - | | | | vineyard. Check out before parting with any money. |
| though more than a few hundred miles a year, and | | | | Conclusion |
| you could be reducing the capital value of the car. | | | | Alternative investment can provide helpful |
| There is no index for vintage car prices, so investors | | | | diversification for a portfolio. However, it requires at |
| need to research the price history for the specific car | | | | least the same degree of rigour, discipline and |
| they're looking at. Some cars have done well - | | | | scrutiny as traditional stock market investing, if not |
| others, though, have fallen back. Morris Minors have | | | | more given that these classes of assets tend to be |
| lost 40% of their value since the 1980s. Investors | | | | far less regulated. Each market has its idiosyncrasies |
| need to do their own work here - there don't appear | | | | and there are a number of major pitfalls, not least |
| to be any investment managers or advisers in this | | | | the potential for liquidity to dry up and the exposure |
| field, as there are in forestry or wine investment. | | | | to changes in taste. |
| It can also be difficult to sell, particularly at the high | | | | |