Forestry

Although forestry investment is somewhat unusual at the moment, there is evidence that the number of investors acquiring timberland solely for investment purposes has risen quite dramatically in recent years. This form of investment usually provides competitive returns, low risks, and is an effective diversification from financial assets. Several studies have shown that timberland returns are not correlated, or are negatively correlated with returns of financial assets such as stocks and bonds, and that the inclusion of timberland in a portfolio of financial assets can therefore reduce the volatility of portfolio returns.

However, there is a down side. Investment in forestry is relatively illiquid, and the holding period required to optimise returns will usually be quite long (10 years is considered a reasonable period). Timberland investment therefore makes sense only for investors looking to the long term; although the rewards can be worth waiting for, wait you must…

There are two main risks inherent in this type of investment, and these are:

However, compared to the roller-coaster volatility of hedge fund investing, and trading in equities and derivatives, this type of investment may sound like a walk in the park, and if you are using forestry investment to diversify your portfolio, you may welcome the change of pace.

Although the details differ from company to company, and scheme to scheme, there are basically two different ways to invest in forestry - directly or indirectly. Indirect investment involves buying shares in an established forestry investment company, whereas direct investment involves purchase and direct ownership of the land, and timber grown on that land, by an individual or partnership.

There is, as always, due diligence to be done before you make any decisions, and below are some of the areas you might like to look into before you invest:

• Location of the forest: Although many countries throughout the world offer some opportunities for investing in reforestation, the bulk of the offerings appear to come, at the moment, from Australia, New Zealand, and South and Central America. When looking, for example, for an IOFC in which to base assets, you would examine the financial and business infrastructure in each jurisdiction, and you should apply the same principle to forestry investment; look for an area well serviced by the infrastructure necessary for the planting, tending, and harvesting of trees.
  
  Future Forests Canterbury Ltd, for example, are located in New Zealand, and plant primarily Pinus Radiata, a type of tree developed by New Zealand's world class forestry research scientists to be ideally suited to the climatic conditions there. As a result, New Zealand has some of the fastest tree growth rates in the world.
  
  You should also ensure that the site is reasonably close to a port. Land transportation of timber is usually costly, particularly in countries such as New Zealand, so it is important that your forest is a reasonable distance from a log exporting port.
  
• Expertise of the manager: Self-explanatory really. Forestry is a very specialised activity, so it stands to reason that the more experienced and expert the manager is, the better the likely eventual harvest return. There should be provisions in place within the scheme to replace the manager and other professionals if their performance is felt to be below par by the investors.
• Yearly financial and forestry audits: A forestry investment is made up of two components; the money that you have invested, and the forest. Make sure that both are audited annually, in order to be sure that your money is being used and accounted for appropriately, and that the forest is being managed and developed in the most appropriate way.
• Investor reporting: Make sure that there is regular and comprehensive reporting to keep you abreast of what is happening in your forest, and how your money is being spent.
• Ability to liquidate your investment: One forestry crop rotation is approximately 28-30 years, so obviously you need to make sure that you will be able to sell your investment before the end of this life cycle, should you need to.

Many forestry investment schemes welcome international and expatriate investment with open arms, and as well as the tax benefits which international investors may be able to accumulate to be claimed against the income at harvest, forestry investment in some countries, for example Panama and New Zealand, can be used to support an application for residency. To conclude, then, if you are looking for a long-term investment (for example to supplement retirement income), or would like an alternative way of acquiring permanent resident status in a country, forestry investment may be the way to go.

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Real Estate

Another possible avenue (if you'll pardon the pun!) for the international expat with a reasonably long-term investment horizon to explore is international real estate investment. Real estate can be purchased in many forms, and has traditionally been sold as an investment for income and long-term gain, as well as a hedge against inflation and stock market volatility.

Some investors opt for the low key approach, and having decided to relocate to somewhere sunny and sandy in their twilight years, purchase property there, and rent it out until they are ready to retire. Others, who would prefer to take a more pro-active approach to real estate investing with a view to making it a primary source of income, choose to purchase and rent property on a larger scale, or to purchase property and then resell it at a profit at a later date. (Although care needs to be taken here, because many countries impose punitive taxes if the property is resold within a certain period.) You may want to consider the establishment of some kind of offshore vehicle to hold your real estate investments if you decide that it is the type of investment for you, but where you establish this, and what sort of instrument you choose will depend on your personal circumstances and the tax and legal regime of the area concerned. For example, many investors used Gibraltar exempt companies to hold Spanish property during the Marbella boom in the 1970s/80s, but this type of vehicle would not necessarily be appropriate for all property purchases, or indeed all investors.

Both approaches have their own benefits and drawbacks, and which you choose will depend on your circumstances, means, and inclination. Here, however, we will principally concentrate on real estate investment for the purposes of providing pre-retirement income. According to some experts, one of the secrets of successful real estate investing is to keep an eye out for distortions that create greater value in one place than another where there is equal utility, and invest in property in the distressed area before it becomes desirable. (This is not, by the way, a recommendation to rush out and buy property in the most war-torn, technologically backward, or otherwise stricken country you can think of. It obviously takes a lot of real estate and investing know-how to be able to predict which countries or areas will become desirable in the future.)

An investor that had purchased real estate in London during the property market depression of the seventies, for example, would be a very rich man (or woman!) today. This is because the circumstances which caused the property market to fall were more or less localised, so while property prices everywhere else were high, London's prices were low, and stayed that way for about 5 years.

However, in those intervening years, technological advances began to change the face of big business, creating what essentially became a global community. Now where did many newly mobile multi-nationals choose to locate? That's right - London, which had the same level of business infrastructure as other major cities, but substantially lower property prices. To cut a long story short (too late), this drove property prices up again, which meant that anyone that had invested in London real estate during the bust period was very firmly in the money. This approach to real estate investing, while interesting, is perhaps a little too labour intensive, and expensive for some, however, and a more accessible way to take advantage of the benefits afforded by international real estate investment could be to invest in an international real estate fund, which allows you to benefit from professional expertise and global diversification.

Oh, and a final note for those more interested in the low-key, retirement investment approach. As with forestry investment, purchase of a substantial (definitions of which vary from country to country) luxury residential property can sometimes prove to be an aid to residency applications. This is especially true of many of the smaller, more selective offshore jurisdictions, where space and resources are at a premium, and ordinary immigration is restricted.

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Wine

Now for the fun bit - wine investing. (As a rule of thumb, if it disappears down your throat the day after you bought it, it isn't an investment!) Of all the non-financial areas in which a profitable investment can be made, wine investing seems to be one of the most popular. Wine investment takes two basic forms - you can invest in a particular wine producer, vineyard, or region by buying shares listed on any of the major stock exchanges, or you can invest in (buy) the actual wine itself. Here, we will be dealing with the latter, as the former option does not differ much in principle from ordinary stock trading.

However, the matter is complicated further by the fact that in any discussion of wine investing, a further distinction needs to be drawn between those that collect wine, and those that invest in it. Collectors tend to buy fine or rare wines with the intention of ageing and appreciating them at some point in the future. They can be spotted by their tendency to wail inconsolably when forced to part with an old favourite. Now of course collectors of fine wines make investments when they purchase new cases or bottles of wine, but the mindset is entirely different to that of the wine investor proper.

Some investors in wine do so primarily for profit, and on paper it is easy to make a profit from wine (for example a $10,000 investment in selected vintage Bordeaux in 1975 was worth $225,000 in 1996). However, although wine investment has the potential to outperform many other commodities, and to offer better returns than stocks, bonds, or real estate, it isn't always easy money…

In order to make a profit investing in wine, you need to be able to predict which wines will be in demand in the future, buy them at the lowest possible price, and sell them once their value has escalated. Easy, right? Well, no. No easier than predicting which stocks investors will be clamouring for in years to come. You may know a great deal about wine, and what determines a fair market value (roughly, in order of importance: demand, quality, provenance, and quantity) but there are a lot of variables.

It is worth remembering that the demand for fine and rare wines is linked strongly to the health of the general economy- if times are hard, people will be less likely to shell out for expensive luxuries. Although the returns offered by the Bordeaux mentioned above seem very attractive, only a few wines appreciate regularly, so although this is by no means the exception, it isn't quite the norm either. As a final word of warning; the market for fine wine is not a terribly liquid (groan) one, although there are alternative avenues such as charity wine auctions (which may bring additional tax benefits).

However, on the plus side, the product both improves with time, and the quantity declines over time, so the demand for it is greater. And if you can catch a good wine at the right time, the returns can be incredible. There are an increasing number of private client and institutional brokers starting up (many of them online) to offer professional expertise, long range financial planning and diversification, and general support to the less experienced wine investor, and some will arrange for your immature wines to be stored in bond, thus avoiding the need to pay duty on wines that are too young to drink or sell. As with any kind of investment, though, it is unwise to follow unthinkingly the advice of others, so it would be a good idea to decide for yourself a strategy which suits your needs and goals.

You could go with the blue chips (such as leading Bordeaux, or highly regarded Californian Cabernets) which are always popular, but if you focus on high-end collectibles, you will be buying at the top of a rising market, so it may be wise to wait until prices drop. Alternatively, you could invest in less expensive wines that may become hot tickets in years to come, although many of the highly touted up and coming wines are made in such small quantities that getting your hands on enough may be a problem. The most important things to remember in wine investing are to pay close attention to the market and be prepared to sell, and to make sure that your wine portfolio is diversified, so that you don't end up top-heavy in a particular wine or vintage that suddenly declines in value.

A successful wine investor should have an appreciation of wine, and should ideally be a mixture of collector and investor. Wine, like many other forms of investment, can be alternately lucrative and risky, but it is unlike other forms, in that even if your investment doesn't appreciate as well as you had hoped, there is always something to drink at the end of the day! And however you choose to invest in wine, you have the perfect comeback if anyone takes you to task about your drinking habits; you aren't drinking too much wine, you are simply checking your inveshtment…hic!

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The Best of the Rest…Antiques, Fine Art, and Coins.

Although investing in collectibles can bring substantial profits and tax advantages in the right circumstances, due to the relatively uncertain nature of the market for these objects, experts agree that one of the primary reasons for making a purchase should be aesthetic appreciation of the object itself, for the simple reason that if it doesn't appreciate, at least you'll always appreciate it!

As with wine investing, however, a distinction must be made between collectors and investors (see previous section for the identifying characteristics of a collector- same applies here) and for the purposes of this article, we will be concentrating on the latter group. Numismatism (the collecting of rare gold and silver coins) has many advantages for the investor interested in diversifying his (or her) portfolio. Coin investment can provide an effective hedge against inflation, as gold and silver have intrinsic value in a way that securities do not, is a portable and usually easily maintained investment, can provide long-term tax-deferred capital appreciation, and can be totally confidential. (Should you be so inclined, you can bury your investment at the bottom of your garden, although needless to say, we don't recommend this!)

However, there are risks- the market for rare coins, while not linked to inflation, does fluctuate due to factors such as change in tastes, lack of interest due to a bullish stock market. So while investment in numismatic gold may provide you with a degree of protection in the event of runaway inflation and other such financial crises, and may be a profitable sideline, you are unlikely to amass vast fortunes investing in coins…

Investment in art and antiques brings with it a whole new set of risks again, but also the possibility of substantial rewards in the right circumstances. The degree of knowledge, and the amount of capital needed to invest successfully in these areas mean that the collection of artwork and antiques is not usually recommended for inexperienced or small investors, and the practice requires a great deal of patience, a quality not usually associated with investors! This is because the market for these commodities (collective grinding of teeth from art collectors the world over…) is not a terribly liquid one, and investment quality art and antiques cannot generally be resold quickly at a profit, but must be held until their value increases sufficiently for a profit to be made. (Taking into account the fact that although you will probably be buying the piece at the retail price, you may be reselling it at a wholesale price, or lower.) There are also other costs to be considered, which may include storage, maintenance, and transportation (which is where coin collectors get the last laugh!)

Investing in antiques and works of art can be advantageous, however. As previously stated, experts in this, and related fields, hold that the primary reason behind any investment purchase of this nature should be aesthetic, and for many, this is enough. However, the resale of an investment piece at the right time can bring spectacular returns, and meanwhile you have the advantage of tax-deferred capital appreciation.

Experts suggest that in order to increase your chances of successful investing, you should limit your field of investment, and reduce risk by acquiring as much information about your area of interest as possible. Other tips (by no means a comprehensive list- you should consult a professional before taking the plunge) include:

• Find a reputable, well-established, and knowledgeable dealer. This is a must, as their background knowledge about quality, market trends, and pricing policies in your area of interest will be essential to effective investing.
  
• Buy top quality pieces, and limit yourself to a field in which top quality items are within your budget. This is necessary because top quality pieces tend to appreciate even in poorer market times. Areas to look to for ascertaining the quality of an item include: Authenticity, condition, rarity, provenance, familiarity, importance, and technique.
  
• Provide regular maintenance to the item, and make sure that any repairs are in keeping.
  
• Insure the item adequately.

To conclude, although investing in rare coins or fine art and antiques may not be to everybody's taste (or indeed budget!), there can be clear advantages to these forms of investment in terms of taxation, aesthetic appreciation, protection against inflation (and other potential financial crises), and diversification. However, the illiquid and unpredictable nature of the markets in these and other commodities (for such they are, essentially), does pose risks, and it is therefore generally recommended that any such investments form a small part of a balanced portfolio (usually no more than 15%) for investors with fairly substantial net worth.

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