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Could alternative investments help boost your pension pot?

Many investors like the idea of putting their cash into something they are interested in and can understand. Alternative investments such as cars and art have the added appeal that they can be seen and enjoyed, as well as the potential to rise in value, but investors should be aware they come with risks.

Fish money box filled with foreign currency notes and a glass jar filled with foreign currency coins

What are alternative investments, and how do they work?

The share price of companies on the stock market is determined by the success of that business; its profits and sales, and its corporate governance. But the value of alternative assets is often dictated by sentiment – what investors currently favour or what is in fashion. When sentiment towards a particular type of asset rises or falls, its value can very quickly rise or fall too. That means alternative investments are high-risk.

You could try investing in whisky… or wine!

The Rare Whisky Apex 1000 index tracks the value of 1,000 of the most sought-after bottles of malt whisky in the world. Over the past year to March 2019, it is up 23 per cent and has grown 500 per cent since 2010.

The Liv-ex 100 index monitors the price of the 100 most actively traded wines. Performance was fairly stagnant in 2018, but over five years to March 2019 the index has grown 22 per cent.

Investing in art, classic cars, watches or jewellery is another option

Estate agency Knight Frank says art, watches and jewellery have been among the most profitable alternative investment in the last year. According to its Luxury Investment Index the value of art is up 21 per cent in the twelve months to December 2017. Watches are up 5 per cent and jewellery 4 per cent.

Historically investment in cars has been the most fruitful, having grown 334 per cent over ten years to December 2017.

Art and fashion investments are popular alternatives too

Estate agency Knight Frank says art, watches and jewellery have been among the most profitable alternative investment in the last year. According to its Luxury Investment Index the value of art was up 25 per cent in the twelve months to June 2018. Wine was up seven per cent and watches five per cent.

Historically investment in cars has been the most fruitful, having grown 289 per cent over ten years to June 2018.

Just remember to be mindful of investing in trends

Once a brand falls out of favour, its value can plummet. A car model which is no longer in vogue or a grape variety which is out fashion is suddenly no longer the goldmine it may once have seemed to be. According to the Knight Frank Luxury Investment Index the value of jewellery stagnated in twelve months to June 2018, for example.

How to spread the risk of alternative investments

As you can probably tell, the nature of alternative investments means there are risks to them. For example, you might need to consider the cost of insuring a piece of art or a vintage car, or even the practicalities of correctly storing a vintage bottle of wine or whisky. Unlike company shares, which can be bought and sold at a moment’s notice, these alternative investments are known as ‘illiquid’ investments because it can take a long time to sell them. For these reasons, experts say investors should only put a very small proportion of their money into risky alternative assets. Investments should be diversified to reduce risk.

Alternative assets that aren’t quite so ‘out there’

There are still alternative options within the more conventional realms of investing. You could consider a fund which specialises in a niche area such as timber, artificial intelligence or robotics.

Investors can also choose an ethical investment product, for example OneFamily offer an Ethical Investment ISA. It invests in the Family Charities Ethical Trust, which invests mainly in UK shares of companies that make up the FTSE4Good UK 50 Index. As with all stocks and shares investments, returns are dependent on the market, so you may get back less than you put in. If this sort of alternative product piques your interest, find out more about OneFamily’s Ethical Investment ISA.

Always research your alternative investment options first

While alternative assets can add some excitement to your investment portfolio, they can be a very risky choice of investment. Savers who want to opt for an alternative should always do their homework first.

Note: We take care to ensure Talking Finance content is accurate at the time of publication, individual circumstances can differ so please don’t rely on it when making financial decisions. The opinions expressed within this blog are those of the author and not necessarily of OneFamily.