As many will be well aware, diversifying your portfolio is an essential way to ensure the safety of your investments and reduce the inherent risks attached to purchasing stocks in companies across related industries.
However, the stock market isn’t the only source of lucrative investment opportunities, especially if you’re looking to diversify.
Investing beyond of the bourse on so-called “passion investments”—investing in collectible or rare physical assets which allow you to enjoy the money you have put into them—is one increasingly popular method of diversifying
As HSBC notes, passion investments provide “a physical store of worth…unlikely to entirely lose their value”, unlike traditional stocks and, indeed, have the potential to be valued far higher than their original price over time.
But what are the best investments with which to diversify your portfolio in the first place? Read on for our suggestions.
With its own stock exchange, the Liv-ex (London International Vintners Exchange), and a global network of traders, fine wine is one of the most reliable investment opportunities available. According to the Telegraph, fine wines increased in value by 20 per cent in the year ending July 2017, and beyond the stock market itself, fine wine has consistently been shown as the best investment for those looking to diversify.
Investing in wine can be a tricky area to get into cold, whether you’ve already got a cellar to sell or you’re looking out for your first valuable vintage. It’s also extremely easy to get duped by people looking to take advantage of the novice status of first-time investors.
Fine wine brokers The London Wine Cellar note that “problems have been known where brokers have persuaded clients to buy wine at an inflated price or go entirely AWOL or into liquidation”. Find the right broker for the right wine, however, and you could find yourself with a portfolio worth thousands more than you paid.
Whilst wine is traditionally the most popular passion investment, last year saw art take its place. Despite a volatile market over the last ten years—QZ notes that this came in the wake of the recession—the fine art market has seen a boost over the last twelve months. It need also be said that, compared with many of the other investments on this list, art is arguably a trickier one to invest in correctly.
Finding up-and-coming names in the art world takes insider knowledge, and the most desirable paintings by the biggest names are not only rare finds but expensive ones at that.
Indeed, the uptick in fortunes for the art market as a whole in 2017 was thanks in no small part to the purchase of a single painting—a Da Vinci, no less—which sold to a Saudi prince for a little over $450 million, the most expensive work ever bought at auction.
According to the Knight Frank Luxury Index, whilst they may only provide a 2 per cent rise on initial investment after twelve months, cars return an average of 334 per cent over ten years. Particularly where classic cars are concerned, the scarcity of certain models only increases as time passes. This doesn’t just apply to luxury makes like Porsche or Ferrari, either; GQ notes that, in the right condition, even certain Fiat models can be worth up to £20,000.
As a tangible asset, real estate has long been one of the most popular investments for those looking to diversify their portfolios, thanks to its long-term increases in ROI as well as its tax benefits.
However, for those looking to start small, there are other methods of investing in real estate which don’t necessarily involve buying property. Forbes points that investments in exchange-traded real estate funds allow you to put money into “stocks issued by real estate investment trusts”—or the trusts themselves—which, as one investor puts it, “gives [you] exposure to real estate without having to be a landlord”.
Once again, the Knight Frank Luxury Index has shown some interesting changes to how people diversify their portfolios with passion investments, and another major improvement was clear in the jewellery market. This has, as with many investment options, been broadened by the internet. The Evening Standard reports that a number of e-commerce sites offer fine jewellery which has the potential to increase in value.
Meanwhile, Moneywise observes that the value of long-established vintage stones remains consistent, but can go in and out of fashion with collectors, so buying outmoded jewellery to sell off once it returns to vogue is a savvy way to maximise your ROI.