5 Tangible Investments that Are Alternatives to the Stock Market
Real EstateThere are few certainties in life, but two of them are that they aren’t making any more land and people will always need a place to live. Combining these two certainties with historic low-interest rates and home values that have been appreciating in many parts of the country make investing in real estate an attractive alternative to traditional investments. Good credit and a little cash or leverage are all that is needed to become a real estate investor. Some investors look for short-term gains in real estate by flipping rundown houses. Cash is needed in order to make the renovations to rehab the house. Getting a mortgage for houses that are not a primary residence can be difficult and potential investors could be competing against cash offers from other investors. The peak period of flipping houses may have already passed as demand has gone up for distressed houses forcing prices even for houses in need of repair to increase. The need for flippers to sell houses within 30 to 60 days makes it imperative for investors to have a full understanding of the market before deciding which property to buy. Successful investors know the recent sale prices of comparable homes and how long these homes were on the market. A lower risk alternative to flipping houses is becoming a landlord. Homeownership in the United States is at its lowest level (62.9%) in 50 years. This has led to low vacancy rates for rental properties and rising rents in many cities throughout the country. You will need a down payment of about 20% for a mortgage on a rental property. After the first property, the equity can be used to buy additional properties, through cash-out financing. Usually, only 80% of the equity can be used, but with appreciation, your equity in the property will increase. Rental income can also be reinvested to increase equity.
Classic CarsAutomobiles are generally poor investments. Within the first year of ownership, a new vehicle loses about 20% of its value. All automobiles are not created equal. More investors are choosing to put their money into owning classic cars as an alternative to stocks and traditional investments. During the last decade, more investors have been jumping on the classic-car bandwagon, buying antiques and otherwise prized automobiles. The demand has helped push the value of classic cars up nearly 500 percent in the decade ending in 2015, according to the Knight Franklin Luxury Investment index. Twenty-five cars have been sold for over $10 million. Eight of those happened in 2015, including records for Jaguar ($13.2 million), Porsche ($10.1 million), and McLaren ($13.75 million). Incidentally, the record for a classic car is from 2014 when a 1962 Ferrari 250 GTO Berlinetta fetched $38 million at auction. Why have classic cars experienced such growth in popularity as an investment? The Internet makes it easy to determine a car's value and has allowed more people to become savvy investors. Investing in classic cars is similar to many other types of alternative investments like art, wine, and collectibles in that investing is a passion. An investor does not need millions of dollars to invest in classic cars. Spending under $20,000 is completely acceptable. Regardless of your level of investment, there are a few rules to remember when investing in classic cars:
- Find the best example of the vehicle possible for your investment level
- Rarity drives value in classic cars so research how many of a particular make and model exist
- Buy a car that you are passionate about so if the investment does not appreciate at least you have a vehicle you love to drive
- Connect with other owners who are passionate and will tell you all they know about a particular model
- Age and condition are important. Know how much of the vehicle is original, miles on the odometer, and maintenance
CollectiblesCollectibles like artwork, antiques, comic books, baseball cards, guitars, and vintage toys are just some of the items people purchase as an alternative to traditional investments. Collectibles like these are the purest form of a market. It is simple supply and demand that determines the price. After the stock market crash of 2008, 74% of collectors reported that investing was the reason behind their decision to purchase collectibles. Although investment can be a determining factor, collectibles are also an enjoyable way to invest. Collectible investments may be more fun than traditional investments but there are unique risks associated with buying stamps instead of stocks. The market for collectibles is much more difficult to track, where and how to store collectibles, as well the best way to ensure the collectibles are all unique risks compared to other types of investments. There is also the important question of exactly what collectible to buy. It is important to research any investment in collectibles to determine what exactly you are investing in and the potential resale value. Collectibles do not necessarily appreciate with time as other investments do. As stated earlier, it is a simple market. What someone is willing to pay for a particular item at a specific point in time is what determines the value. It is important to invest and own something you will truly enjoy having. That way it has some utility in your life if the investment loses value. Collectibles often become profitable when the dollar is weak. Collectibles, like precious metals, are seen as a form of diversification.
Precious MetalsGold is the most popular way to invest in precious metals, followed by silver, platinum, and palladium. Gold has been used as a store of value since nearly the beginning of time. It is unique in its ability to conduct heat and electricity and its durability. Gold will never rust or corrode. The value of gold bullion is based on the spot price which fluctuates daily. The world sees gold as an investment so the market is open 24 hours a day. Incidentally, India and China are the biggest buyers of gold followed by the United States. Gold bullion can take different forms like a gold bar or a gold coin. Investment Grade Coins are an alternative to traditional gold bullion. These types of coins are professionally graded by a third party that verifies the condition and purity of each coin. Investment Grade Coins are not dependent on the spot price of gold and are more of a collectible than part of the precious metals market. Silver is an industrial metal that is also a store of value, making the price of silver more volatile than gold. The rising middle class in emerging market economies in the East have driven the industrial demand for silver to be used in electrical appliances and medical products. Silver is also used in batteries and microcircuit markets. Investment Grade Coins exist in silver as well and offer an alternative to investing in silver bullion. Platinum is much rarer than gold and like silver is considered an industrial metal. The auto industry previously relied heavily on platinum for catalytic converters. To lower costs, the auto industry has turned to recycled parts or palladium catalytic converters. The concentration of platinum mines in South Africa and Russia, along with the changing landscape for the metal within the auto industry make platinum the most volatile of all precious metals. Palladium is 30 times rarer than gold, harder than platinum, and increasingly used in the auto industry for catalytic converters. It has resulted in a slight increase in the price of palladium over the past year. However, since 2001 the precious metal experienced more volatility than other periods. Get a FREE Precious Metals Investors Kit to find out more about investing in precious metals.
DiamondsInvestment Grade Diamonds or Fancy Color Diamonds are extremely rare. In fact, only .01% of diamonds or 1 out of every 10,000 is naturally colored. The rarity gives a fancy color diamond a better chance to appreciate over time compared to traditional, colorless diamonds. Fancy color diamonds are so rare that a person standing in the middle of the diamond district in Manhattan wanting a 5-carat Flawless diamond with D-color will quickly be surrounded by 50 dealers. If the person wanted a 5 carat vivid pink flawless diamond, it could take 2 weeks for a dealer to show up with the desired diamond. Compared to colorless diamonds that are found in every cut, color, and size, each fancy color diamond is unique. The uniqueness of the Investment Grade Diamond means there are an extremely small supply and very few comparable diamonds. The rarity of the fancy color diamond is why it is more likely to appreciate over time. The past 20 years fancy color diamonds have experienced an accelerated increase in valuation per carat and the total overall price paid. This increase is largely due to investors’ increased awareness of the rarity of fancy color diamonds. Fancy color diamonds should continue to appreciate as they become rarer and diamond mines like the Argyle Mine begin to close.
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