Highlights in this issue:

• Where to stash your cash when shares, bonds and property performance goes through the floor….
   
• Why, even in downturns, collectibles still hold value…
  
• The top 6 alternative investments out there… and more…

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From the pen of Karin Iten

Dear Investment Academy Reader,

When shares buckle, bonds crash and the housing market grinds to a halt, it’s tempting to bail out and put your cash under the mattress. But if you’re looking for a less extreme response to difficult times – one that’s proven to be a very effective wealth builder over time – you need to take a serious look at collectibles.

Collectibles (like stamps, antiques, art, coins, etc.) have a very low correlation to traditional investments. And, right now, when we don’t know what’s around the next bend in this financial storm, there’s a strong argument for diversifying a percentage of your portfolio into them. Why? Well, mainly because they offer a number of advantages: Safety, diversification and, most importantly, excellent long-term performance. Even during economic downturns, collectibles have held their value.

You see, when traditional investments go down in value, people tend to get out of those markets. The need to put their money into something safer – gold, art, coins, stamps, etc. – leads to increased demand. And when that happens, the price of those collectibles shoots up. But, just like any market, there are dangers here too. That’s why, this week we’re investigating the pros and cons of alternative investing.

If you’re thinking of buying a collectible item for investment purposes, then remember this simple rule of thumb: You need to know what you’re doing. It’s the only way to ensure you don’t get conned – so start researching today.

The advantages of collectables…

*** Many collectibles are portable. For years, refugees (as well as fugitives) have used gold, coins, diamonds and art as a portable store of wealth.

*** They’re a global investment. You can trade them anywhere in the world.

*** Collectibles generally gain capital value above the rate of inflation.

*** It’ll become a passion – you’ll enjoy learning about your collectibles almost as much as you’ll enjoy the hunt.

The disadvantages of collectables…

*** “Investing in collectibles won’t make you vast wealth overnight. In most cases, striking it rich is a hit-and-miss affair (normally a lucky find in Aunt Mabel’s attic after her death) rather than the results of a deliberate investment decision,” says personal finance expert Bruce Cameron on www.persfin.co.za.

*** Highly valuable collectibles can be extremely expensive. And this means you’ll have to invest a far larger portion of your capital than you’d usually risk on a single investment. It also means you expose yourself to greater risk. That’s why Cameron gives the following advice: “Limit the amount you invest in collectibles to less than 5% of your total investible assets.”

*** This is an area bursting with con artists. You’d be surprised just how many fake “Rolex” watches are sold daily.

*** This is an industry utterly ruled by supply and demand. And this means liquidity is very low. Because you first need to find a buyer willing to pay for your asset at the price you’ve stipulated, it’s almost impossible to make cash in a hurry without taking a profit hit.

*** They need high security at all times. Collectibles rank high on thieves’ lists of the most desirable objects to nab. But that’s not the only protection they need. A stamp collection, for example, needs to be carefully preserved. If you don’t keep it in mint condition, it’ll lose value fast.

How to avoid getting your fingers burnt…

Apart from learning all you can about your area of interest, you should always rely on expert opinions. Remember, it’s an auction house’s job to properly authenticate an item, so start there if you want extra info on a piece that’s caught your eye. And remember: Although you can collect just about anything, reduce your liquidity risk by investing in pieces where there’s a large demand

The top 6 alternative investment areas:

1. Antiques
2. Art
3. Coins
4. Jewellery and precious stones
5. Liquor (this includes wines, single malt whiskey and even cognac)
6. Stamps

So there you have it, just one more way you can start making money during a financial storm... Till next week...

Here's to your financial freedom!

Karin Iten
For the Investment Academy

PS: Don’t forget to look for us on twitter to discover what’s got us talking here at the Investment Academy.

* This article was adapted from a MoneyWeek feature.