Your traditional savvy UK investor should first of all make sure they are free of short term non-mortgage debt, then they should be maxing out their Cash and/ or Stocks and Shares ISA allowances every year – taking full advantage of tax free growth potential. They should also be investing heavily into their personal or company pension plan; knowing full well that employer contributions are essentially a pay rise, whilst tax relief will make a huge positive financial difference to anyone with a personal pension.
Smart as all these investments are, they are kind of dull aren’t they? I mean having money in your ISA or pension account is one thing, however apart from the wellbeing of knowing you may be financially secure, you can’t really enjoy it or show it off or can you? I guess you could print off your pension statement and show it to your friends, but I doubt that would win you any points in a popularity contest!
So what next as a savvy investor? What are the alternatives?
1: Real estate
Apart from owning your own home, having a let property has to be one of the smartest ways to invest. Owning and letting property is certainly not a tea party. The challenge of finding suitable tenants for your property should not be taken lightly; nor the upkeep and running costs. However, the rewards can be immense if you get it right. Where set up on a capital repayment basis, you should end up with an unencumbered property at the end of the mortgage term, all paid for with the help of your tenants. Thereafter, your property pays you an income with no mortgage to worry about. Brilliant!
Commodities include fossil fuels such as oil and coal, and precious metals like copper and gold. Owning commodities for investment purposes can be high-risk, since unpredictable world events have a direct impact on prices. Gold has to be one of the easiest commodities to own physically. Seen as a safe haven in times of economic uncertainty, the price of gold shot up dramatically after the financial crisis of 2008 but has recently returned to a level representing good value. Conventional wisdom suggests that legal tender solid gold bullion coins such as Sovereigns and Britannia coins are the best way to hold gold as they are easy to sell and exempt from capital gains tax and VAT.
3: Fine Art and antiques
The art market can be an interesting place to invest, particularly if you already have savings in the more traditional forms of investments. The first rule of thumb is that as opposed to buying something purely for its investment potential, buy something you really love and you’ll have an asset that can give you genuine pleasure. However, investing in art and antiques requires careful consideration and will not necessarily provide big returns. Both remain unpredictable investments, subject to changes in trends and fashion. Buying and selling art and antiques can be expensive, with purchase and resale fees of up to 25 percent. Investors also have to consider insurance premiums and the cost of storage, as well as advisory and appraisal costs.
Could you buy wine for profit, as well as pleasure? In the past, gentleman wine collectors followed a basic rule: buy five cases of claret and put them in the cellar. Wait 10 years then drink two of the cases and sell three – and by doing so realise enough profit to buy five cases of younger wine and start again. Done year on year, in theory at least, the process not only ensured a household’s supply of excellent wine but became self-financing thanks to the drink’s propensity to increase in value. The wine market is very different nowadays, but can still be a very enjoyable way to invest. Bordeaux and Italian wines are the choice wines for investment, however arm yourself with as much information as possible before investing – and resist the temptation to drink it all at once!
Do your math
Whilst investing in any of the above strategies could be both financially fun and financially and emotionally rewarding, the risks are somewhat higher than more traditional investments, primarily because of the lack of diversity. There is a myriad of information out there to help you on your way, but I would recommend that you seek the advice of an expert before putting your hand in your wallet.
Akwasi Duodu, Sterling & Law Group plc.