Alternative Investments

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Alternative Investments will never be introduced to investors who are looking for places to invest their capital, which leaves the investor or saver reading the financial press or watching the television frozen with confusion as to what to do with their hard earned money at the current time. For over 3 years the world’s financial systems have been lurching from crisis to crisis and it is very difficult for the average investor to be able to make sense of what they should be doing to protect their wealth.

Traditional financial advisers are still giving clients the old advice invest for the long term and the market will turn around,  and don’t worry about the current level of volatility in the market. What they fail to mention or don’t understand is that most of the major stock markets around the world have delivered very little positive gains for over 10 years.

Advisers still cling to the idea that the stock market can grow at 8% to 10% per year as it did on average between 1980 & 2000. If you take a longer perspective of 300 years than the average return per 20 year period is closer to 2% pa. With long term government bonds paying around 2% and bank savings rates around the 1% to 3% mark, investment returns look bleak.

The traditional financial press still writes about whether to pick unit trust A over unit trust b, when really they are both poor performers. The financial press is locked into writing about those poorly serving products that their advertisers pay them to write about rather than looking for investments to highlight that would deliver returns to their readership.

I find it very surprising that while there are assets delivering double digit returns on an annual basis there is very little coverage in any of the traditional financial media. Frankly the financial media is doing a disservice to its customers and is purely there to help the financial service sector maintain the calm over its investors, ensuring that investors keep their capital in poorly performing products which enable the investment management companies to continue to draw their management fees whilst delivering inadequate returns to their investors.

Alternative investments mainly are unregulated and therefore in the eyes of the regulatory authorities more risky. I find that argument doesn’t really hold water as there are many cases of regulatory failure where the retail investor has been missold a product or encouraged to invest in a regulated product which has gone on to wipe out the capital of the investor.

What most of these traditional financial products have in common is that they are paper based investments, which have liquidity i.e. they can be bought and sold as required, but at the same time the price of that asset can suffer significant market risk, i.e. the price of the asset can change dramatically which could lead to the invest losing money.

Alternative Investments in my opinion are rather different and normally lead to the investors owning some tangible asset which will have a cash flow over a time period into the future. Some of the examples of alternative investments include: forestry where the investor buys a number of trees and pays for them to be planted. When the trees are felled the wood generates an income stream. Timber has shown returns above inflation for over 100 years and many financial institutions have invested part of their portfolio in timber. Forestry has shown 10% yields over a number of years making it the second best asset class after small cap shares.

In my opinion the returns achievable from alternative investments far outweigh the liquidity risk that a number of these investments come with. If you look at the table above you will see that all of the asset classes above are currently achieving returns that are hard to come by in the traditional asset investment arena.

Some of the investments are achieving very good annual rates of return. As with all investing, you the investor should diversify across a number of different asset classes. never put more than a % of your investment capital into any one investment.

The other great advantage of these investments are that they have very little correlation between one another. If one loses value it dos not impact upon the others greatly. One common failing amongst equity investors is that by investing in different sectors they are well diversified. This is a fallacy as in normal times different sectors will rise at different amounts based upon an expectation of earnings, but when panic grips the market, you find a corresponding fall in all equities. To diversify properly requires the investor to hold within their portfolio non equity or fund assets. One good example is a professionally managed forex fund.

This asset class is uncorrelated with equities. In April when the stock markets around the world dropped due to new worries around the Euro, one particular managed forex investment delivered 13% return in the month.

A great favorite of mine as an asset class is forestry. In my opinion every investors should have a forestry investment in their portfolio, especially as the basis of their pension fund. In my opinion Investing in Teak forestry is one of the best investments you can make. The only downside I can see is that to maximize your return you have to wait the whole term of the investment which is 17 years. Another good forest investment is Eucalyptus which can generate upwards of 12% a year over a shorter period of only 8 years.

With the rise in socially responsible investing a great opportunity to help feed the Worlds population as well as generating returns of up to 18% a year can be achieved by investing in rice. As an investor there is no better feeling than making great returns on investment whilst also helping as many people as possible. This investment comes with a real feel good factor in that the profits from the rice crop are shared with the farmer on an equitable basis, this is not a developed country exploiting the resources of the developing country.

With Oil prices still above $103 a barrel for West Texas Intermediate, all investors should be looking at how to protect themselves against future oil price rises. imagine being in a situation where instead of worrying about the increased cost of motoring, you are looking forward to seeing the oil price rise. well you can do that. About to be relaunched is the opportunity to buy oil at 43% discount to market value. If this oil investment interests you make sure you   sign up for details and get notified as soon as the product is relaunched. The returns are structured in sch a way as to maximize its efficiency from a tax perspective.

The final investment which investors should consider is the Carbon Market. In this market it is possible to make 30% return in 12 months. In fact I am currently invested in project which conservatively will make 100% return in less than 6 months. This opportunity will only be available for the next few weeks so if you want to participate you need to contact me right now. Once its gone, its gone. If you are unlucky enough to not be able to participate in this opportunity, there are many great investment opportunities in the market, but make sure you dont pay too much for your credits.

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