In today’s economic environment, where global interest rates are at an all-time low and many global stock markets are at an all-time high, many investors ask us for alternatives to the usual investments.
For clarity, we would classify the “usual” investments as the well-known investment products that you can access either directly or via a linked investment platform. Some examples are unit trusts, retirement annuities, endowments, corporate retirement funds, etc. For most people, these types of products will be the core of their financial portfolio.
However, we know there are investors out there who are looking for something a bit more bespoke for whatever reason. Today we will look at a few examples that you can consider.
Before we do this, we cannot emphasise enough that you need to do proper due diligence on any investment product before investing. Check whether the provider is regulated with the Financial Sector Conduct Authority (FSCA) or equivalent local authority if offshore, and steer clear of those products promising you “guaranteed” returns that are much higher than anything your financial advisor has ever offered you.
A quick google search with the name of the product and the words “scam” or “fraud”, will usually confirm whether other investors have burnt their fingers with the particular product you are considering.
With that warning out of the way, below are some of our favourite legitimate alternative products:
Ok, let’s just get this one out of the way. While Bitcoin and other cryptocurrencies can be a legitimate investment, it is by far the one that we are still most nervous about and we are unlikely to recommend to our clients…yet. This is purely because it is still such unchartered territory. Most clients have no idea what the word “Blockchain” means, how it works or what you can do with your Bitcoin, and yet we get so many queries about it. Unfortunately, the hype created by Bitcoin has also given rise to many scams and Ponzi schemes.
Having said that, we love the technology behind cryptocurrencies (blockchain) and we are keeping a close eye on the input from global regulators and market analysts. We can’t wait for the day that we can offer our clients a secure, regulated investment option in this space.
With the end of the tax year just around the corner on 28 February, 12J products will be in the limelight for the next few weeks. “12J” refers to section 12J of the Income Tax Act. In a nutshell, investment into a qualifying 12J company offers investors the ability to deduct their full contribution to the investment from their taxable income in that particular tax year. There are some capital gains tax implications when you eventually disinvest (which will only be after a minimum investment period of five years), but the initial tax deduction by far outweighs the CGT consequences. One warning on 12Js – it is very important to make sure that your investment has a credible business case, even without the tax benefit. If it is not something you would have considered on normal tax terms, it is not worth it to invest just to save a bit of tax.
Commercial property syndications
Locally, the words “property syndication” makes most investors’ blood run cold, with some heart-breaking examples of disasters over the years. Property syndications are regulated much better lately, with international product providers having to comply with the same stringent requirements set by the local equivalent of our FSCA, in order to market them to investors. Sought-after buildings in good locations, with a strong business plan and experienced management, have been a very dependable investment for many years. Investing via professional syndication is the closest an individual can get to owning a commercial building outright, without the need for the investor to have all the skills and resources required to manage the building and its tenant(s). Most property investors also love the idea of being able to visit the building and walk through its hallways…something you cannot do with a share or a unit trust.
We have written about structured products before. Click here for more detail on how they work. We like them because they give investors exposure to the stock market (albeit usually with capped upside participation) while offering some protection against losses. Structured products can also be used to protect your portfolio against currency movements. The range of possibilities is almost endless. Investors are reminded that they need to ensure to select an issuer (usually a bank) with a strong credit rating, as the liquidity of the issuer is the highest risk factor of the product. Remember that your investment will not be ring-fenced and held in trust like with most collective investments. If the issuer goes bankrupt, you will incur losses on your investment.
The last asset class that investors often flee to in times of uncertainty, is hard assets. This could include gold, jewellery, art, motor vehicles, stamps, etc. Our favourite by far is…
Whisky casks are not a regulated investment product, but that doesn’t make them any less popular amongst investors. If you like the idea of whisky cask investment, you will have to approach it the same way as if you were to buy a painting or a watch. It is not generally something that you would put the bulk of your hard-earned savings into and you have to accept that whether the whisky is “good or bad”, is completely relative. The most popular brand today, can be less valuable tomorrow. Having said that, if you feel that hard assets are the way to go, you might want to know that according to the Knight Frank Luxury Investments Index, rare whisky has risen in value by an incredible 564% between 2010 and 2020, much more than classic cars (194%) fine art (141%) or even wine (120%). It is not an enormous capital commitment with a single cask costing around £2 500, much less than the average Rolex or Van Gogh.
We’ll be the first to admit, maybe we just like it, just because it’s Whisky!