If you’re considering investments as an alternative to a savings account, then you may not think your options extend beyond the traditional stocks, bonds and cash. And if you haven’t thought about investing before, you might be wondering why you should.
Well, there’s no escaping the fact that rates on savings accounts have reached historical lows over the last few years.
The Bank of England base, which banks and building societies use as a guide to set their own savings rates, has now been at 0.25% since August 2016, and at 0.5% for around 5 years before that. It seems hard to believe it hovered between 4% and 6% for 10 years prior to the economic crash of 2008, and hit an incredible high of 17% in 1979.
This low-rate environment has led many people to look at investments as an alternative to a savings account, despite investing carrying a higher risk.
Exploring alternative investments
Aside from stocks, bonds and cash, more left-field investment options include private equity, hedge funds or real estate. But have you ever thought about investing in wine? Or even football stickers?
Taking wine as an example at the more lucrative end of the scale, the most expensive bottle ever sold isn’t as ‘vintage’ as you might think - a six litre bottle of Cabernet Screaming Eagle from 1992 sold at a Napa Valley auction in 2000 for $500,000.
But what drives someone to pay that kind of price for a single bottle of wine? Fine wine is an example of what economists call ‘Veblen’ goods, named after the nineteenth century Norwegian –American economist who first put forward the idea of ‘conspicuous consumption’.
The laws of economics say that, generally, as you increase the price of goods, the demand for them lessens. Equally, if you reduce the price, then demand goes up. Veblen goods are an exception to that rule - their high price makes them desirable as status symbols, and a decrease in price actually lessens the demand for them. Other Veblen goods include classic cars, jewellery and designer handbags. Essentially, think luxury.
Putting your money in plonk
Obviously, the Screaming Eagle example above is an extreme one, but fine wine, particularly Bordeaux, has generally performed well as an investment over the last 10 years or so, mainly as a result of interest from fast-growing Asian economies like China. This peaked in 2011, and has since stabilised, but many investors still consider wine to be a good bet.
As with any investment, you would be wise to do plenty of research if you’re considering putting your money into wine. For example, good wine needs to be kept at an optimal temperature and humidity. If you don’t have a suitable cellar, you may need a storage solution, which could cost a significant amount to buy and run.
You’ll also need to consider insurance – a collection of good wine could be just as valuable as a jewellery collection, so check with your home insurance provider to see whether you’ll be covered. And you’ll need to sell your wine at some point – if that’s at auction, then you may need to pay commission.
Veblen goods fall into a broader category of ‘collectibles’. At the other end of the price scale in that category are a whole range of items that may not be considered luxury goods, but can still deliver a good return if you invest wisely. Many people think ‘collectibles’ are limited to items such as coins or stamps but the term can be applied to anything that could increase in value over time because of its rarity or (often niche) desirability.
Football stickers are a good example of a collectible which appreciates in price through nostalgic appeal. In this case, it’s the emotional connection that people in their thirties and forties now feel to their younger days of swapping stickers in the school playground. For many, that powerful sense of nostalgia rekindles the urge to swap and collect stickers in order to complete full albums, and this can result in some high prices being paid – completed albums from noteworthy past international tournaments can fetch four figure sums.
As with wine, the key to success here is to research your subject thoroughly. Which manufacturers are most popular? (Hint: you won’t go too far wrong with Panini). What are people most likely to pay good money for? In England, for example, anything from the 1990 World Cup is highly desirable, or a completed album from Maradonna’s first World Cup in 1982 could fetch around the £700 mark on eBay.
Whatever you’re considering investing in, whether it’s the usual stocks and bonds or fine wine, football stickers, books, antiques, or any of the countless other items you could put your money into, there are a few golden rules you should follow:
- Always remember that the value of your investment could fall as well as rise and you may get back less than you invested.
- Although investing in collectibles provides good protection from inflation, it doesn’t provide an income.
- Ideally pick something you’re already interested in and knowledgeable about.
- Irrespective of how much you think you already know, do your research. Look at price trends over a long period of time, what’s popular at the time and what may drive desirability in the future.
- Don’t forget that some items can take significantly longer to appreciate in value than others.
- Only ever invest what you can afford – don’t invest money that you need to live off.
- Don’t rely on investments as a sole means of funding your retirement.
- Think about the cost of potential overheads, such as storage of what you’re investing in, insurance or commission to be paid on a sale.