Alternative Investing Options

To hedge against the whims of the stock market, fund managers are looking to other forms of investments such as fine artwork. This is a new type of investment fund and not many of these funds exist. The recent popularity of this type of investment comes from academic studies that showed artwork can keep up with stock fund returns while their value doesn't track with the stock market.

Art can be investment worthy due to appreciation over time and the large sale prices by major auctions companies like Sotheby's. The artwork doesn't have to be something from a European "Old Master" either. For example, The China Fund specializes in Chinese porcelain and Asian artwork.

Some investors have done quite well, such as Adam Sender, who has an 800 piece collection of advent-garde art worth about $100 million which is more than 4 times what was paid for the items. To recoup his original investment, he only had to sell 40 items. (Art Market Watch).

For a much better history and explanation of how art investment funds work, I suggest
www.caslon.com.au/artfundsnote1.htm#industry

12/28/2007 Art investment may slow down some due to the crash in financial companies. Many of those employees are the major investors in artwork and they may buy less for awhile until the sub-prime loan debacle settles down.
http://www.ft.com/cms/s/0/4c665782-8b41-11dc-95f7-0000779fd2ac.html?nclick_check=1

11/5/2007 INvestmentU was positive in their newsletter about artworks ability to retain value in down markets. In the last great bear market from 1996-1975, the value of art rose 256%.

InvestmentU states that due to 1995 Tax Act, you can donate artwork at fair market value instead of cost basis and its not subject to alternative minimum tax. You do have to keep them a year before this applies though.
Disclaimer: Check with your accountant and tax advisor. I am not one.
See full article at http://www.investmentu.com/IUEL/2007/October/investing-in-art.html

This can be music to your ears and fill your wallet too. Instruments should be considered long term investments, usually 10-15 year range. There are two trains of thought of what is a valuable instrument. Most investment funds go with the classical music flair and purchase Strativarius or Amati built instruments for example. The increasing value stems from there only being a finite amount of them, their age, provenance and legendary quality. For example, scientists are still working on why Strativari instruments produce such a distinctive sound.

The second path is more modern like maintaining a collection of guitars like the Les Paul Stratocaster models used by legends like Eric Clapton or Jimmi Hendrix. Washburn states the valuable guitars were made before the 1970's when the manufacturers were still independent companies. During the 1970's most guitar makers, such as Fender, were purchased by large companies like CBS which sacrificed quality for quantity. These earlier guitars are small in number, such as the Sunburst Les Paul, which only had around 1700 produced. Price ranges vary greatly, the Strativari's easily bring in seven figure sums at auctions, but the old guitars are typically in the five figure range and max out around $350K. However, there are exceptions like Clapton's "Blackie" that was sold for $959K. George Gruhn, a major guitar dealer, states that vintage fretted instruments go up in price or plateau for awhile, but they don't drop significantly in price. (Robert Holmes - TheStreet.com).

1) Their value doesn't track with the stock market and they are not affected by fiscal or governmental policies.
2) The value to society by ensuring these great instruments are available to the great performers of our time.
3) They are insurable against theft, fire, and damage. You can't get that with a mutual fund.
4) It's a 22 Billion dollar business with a compounded annual return of 8-15%
5) Open to smaller investors or partnerships that might own a few instruments to institutional investors that have millions of dollars invested. For example, the Austrian Central Bank owns about 30 instruments worth $38 million.
- Info from machold.com

At least you can drink your losses with this type of investment. Investment in fine wine receive returns in the 10-12% according to the fine wine index and outperform many stock and bond indexes (www.liv-ex.com). It provides a method to diversify your portfolio that doesn't correlate its value with the stock market. Wine investors also have two trading exchanges available called the London International Vintners Exchange (Liv-Ex) and World Wine Xchange. There are mutual fund style investments available for wine available in Europe.

* Most expensive bottle of wine sold was Montrachet 1978 from Domaine de la Romanée-Conti - A lot of 7 bottles went for $167,500, or $23,929 per bottle
-Source: Oxford Club Investment Newsletter

* There has not been a 5 year period where fine Bordeaux wines had a negative return.
- Source: GlobalGuru.com

* Wine investing is becoming more mainstream. In 2005, the UK government started to allow pension funds to invest in fine wines.

An article from LIV-EX states the market was flat until 2005 but has been rising since then due to the increased amount of investors from Asia and Russia. Some brands are more popular on a regional basis too, such as Lafite Rothschild that is popular with Asian investors (Brignall 2007). Bringnall states that wine values can rise quickly with just a small purchase of bottles due to the relatively small amount of distinctive wines available.

1) En Primeur (Cash on the barrelhead) - Not quite, but your buying a whole barrel of wine from a winery.
- GlobalGuru.com mentions this is not a good way to go because the price acts like IPO's. The prices plateau quickly and then your waiting 6-8 years for it to begin appreciating.

2) Buy bottled wine at auction or directly from winery.
3) Wine mutual funds - Let the experts pick instead of trying to become a wine snob. Some of these funds invest entirely in wine but some combine buying wine and investing in wineries.

4) Stick with French Bordeaux wines, because funds that tried to diversify with California wines or other countries underperformed. - Source: GlobalGuru

5) Only 1% of world's wine is investment grade and 80% comes from Bordeaux, France. Its also worth more if it never leaves Bordeux too; its adds about 30% to the value. - www.equitywine.com

1) This isn't for everyone. Most research shows specialty investments should only be 1-3% of your portfolio (Zweig 2007).

2) If you invest on your own, watch the fees. Auction fees can easily drink up 10-20 of your profit.

3) Where are you storing it? You can't just sit it in the basement. They must be kept in certain temperature, humidity, etc. So you will have to buy your own equipment or lease space in a commercial storage operation.

4) Insurance...Life is filled with Uh-Oh's and insurance cost about $5 for every thousand dollars of value of your investment. (Zweig 2007). Many investment grade wines go for $500-1000 per bottle.

5) Fraud - Fake wines are out there. GlobalGuru says that 5% if investment grade wines are fakes

Viatical settlements are a way for very sick people or even retirees to obtain cash now to use for what they deem necessary like medical bills or experimental therapy that insurance won't pay for. The money is obtained by selling the life insurance policy before the policy matures to a viatical settlement company. The amount the received is less than the face amount of the policy, but typically more than the premiums you have paid already or the cash surrender value. Many sources lists that you receive someplace between 50-80% of the death benefit. The investor (Settlement Company) takes over sending payments on the policy and is then listed as the beneficiary of the policy upon the person's death.

Senior Settlements is another name sometimes used for Viaticals. The name is different because they try to avoid the "death" aspect of things when it comes to obtain clients or finding investors for these investment vehicles. Some companies believe the name change from Viatical to Senior Settlements is not good because many companies that tried to take advantage of people used this term and tried to explain it was something other than a Viatical. The Connecticut Insurance Department defines the difference in the two terms this way: Viaticals are for terminally ill patients and Life Settlements are for healthy people.

According to Morningstar, the viatical industry grew substantially during the 1980's with the rise of AIDS and HIV cases. AM Best estimates rose from $2.5 billion in 1993 to more than $10 billion in 2005. A different report by Bernstein & Amp Company states there was about $13 billion in policies sold to Life settlement companies.
Info obtained from www.viatical-web.org.

So you want to invest in Viaticals?

I am not a stock broker or work for one of these companies. With that said, watch your hiney and do your due diligence. Let's face the simple fact that you are betting on a quick death. If you can get over that emotional hurdle, then the rest is easy. Basically the idea is the settlement company pays the policy holder some percentage of the face amount of the policy. The settlement company is listed as the beneficiary and makes payments on the policy until that person dies and collects the difference between amounts paid out versus the face value of the policy. The gotcha for the investors is if the person who sold the policy lives a long time because the investors will have paid out a fortune in premium payments and won't make a lot of money. BankRate states the typical investment return is between 12-28%.

) They live a long time or get cured due to medical breakthrough. Investment groups are stuck making payments until they die.

2) Avoid investing in policies less than 2 years old according to Bank Rate. There is a 2 year contestable period where insurance companies can say they are not going to pay. Some less scrupulous companies find people to sign up for a policy with the intention of cashing it out.

3) The policies should be held in a trust, that way the trust can sign off on the policy and disperse the money quicker than waiting for each member to sign (Bankrate).

4) Make sure the brokers are licensed by the state. Check state insurance agencies to see if they have complaints on file. It comes down to making sure you check around to make sure they are not a den of thieves.

5) Did the broker investigate the medical condition of the person? Did one of their doctors actually exam them? You definitely want to be sure they have less than 2 years to live.

6) From all the info I have ran across, there are no guaranteed return on investments, so I would walk away from anybody who says they do. Remember, you can't make money until the person is deceased.

7) National Associate of Insurance commissioners (NAIC) states that you shouldn't invest in term life insurance plans because if they outlive the term of the policy, you loose. NAIC suggest whole life insurance plans.

8) It breaks down to there is risk, but then again, what investment doesn't.