Should I invest in alternative assets?

Like everything in life, there are always options outside of the status quo.

Where cash, property, shares and managed funds are considered the mainstay investment options, there are those that believe better returns can be achieved by looking outside of the norm.

I consider alternative asset classes to be silver, gold, cryptocurrency, artwork, NFTs and the like.

Gold and silver fall into the definition of commodities. My issue with silver and gold as an investment is twofold. Firstly, they don’t produce ongoing, recurring income. For me, ongoing revenue is an essential criteria for an investment. It’s important to have a proportion of your capital ‘returned’ by way of profit distributions. Capital growth is not assured.

Secondly, as profits are not paid out, the only way an investor profits from this asset class is if the value increases. This therefore attracts speculators to the market.

So why might people invest in silver and gold?

Firstly, some use it as a hedge against a Stockmarket crash. History shows us that, if the sharemarket crashes, the value of silver and gold will typically rise.

A secondary function is that in the event of inflation, especially hyperinflation, your cash may become worth less so silver and gold is typically seen as a better store of wealth.

While it is true that hyperinflation is a serious issue, in the event that money becomes worthless, it’s hard to see people fighting over silver and gold to survive. I suspect we would be fighting over commodities with a more utilitarian value - gas, food supplies, land. Haven’t you seen Mad Max? That are fighting over oil not silver!

Because gold and silver typically rise when the stock market falls, some will use gold and silver as a diversification mechanism and to smooth their investment returns. I understand and accept this investment approach, but I don’t personally partake.

What about crypto?

If your investment criteria is as follows, cryptocurrency makes a great investment:

• Created by an anonymous individual

• Desires to be a world leading currency but doesn’t have the flexibility to sustain growth

• Is highly volatile, making it imperfect for as a currency

• Is not regulated by a governing body, and is therefore unregulated

Do I think there will one day be an international currency? Yes, but it would need to be extremely well regulated and address the issues that currently exist with crypto.

The real problem with crypto is that it has attracted too many speculators, and unfortunately, too many con-artists.

At the height of crypto-mania, it seemed every man and his dog was jumping on the bandwagon. It attracted the ‘get rich quick’ types and this drove prices through the roof.

As with these types of scenarios, the following usually plays out:

• The early investors make an unbelievable amount of money. This fuels the firestorm to come.

• Those that come in a little later and get out early enough can still make some decent money.

• Those that come in at the end usually get burnt.

I know that people got seriously burnt simply because, they stopped talking to me about crypto.

There are other alternative assets that some people invest in as well, such as artwork. I have no doubt that people can make substantial money from buying and selling artwork, however the reality is, this is a specialist area and I am no expert. I can’t recommend everyone become an expert in artwork, when there is so much wealth building potential available in property and shares.

Personally, I don't invest in alternative assets, as the returns from property and shares are more than sufficient for me. I also don't feel the need to take on the additional risk and I believe is associated with alternative assets. I would rather stick to fewer asset classes, and become an investing expert in those areas.

Recommendations for alternative assets:

If you are the Warren Buffett of an alternative asset class, good for you. Go get it! Like most things in life, there is a lot of money to be made by those that know what they are doing.

If you are like most people though, looking for a consistent, stable place to store their wealth for the long-term, my advice would be to look elsewhere, alternative assets most likely aren’t what you are looking for.