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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:
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Market
Risk: There is a danger that 'stumpage' prices (the
price paid by loggers for wood on the stump) may
be depressed at the proposed time of harvest, or
that prices might increase at a slower rate than
general inflation. However, the good thing about
forestry investment for those not in a hurry, is
that trees, unlike many other crops, do not need
to be harvested at a particular time. They can simply
stay on the stump and continue biological growth
until the markets are more attractive.
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Natural
Risks. These include things such as fire, storm
losses, insects, etc. Other than insuring where
you can, there ain't a lot you can do about these
factors, other than make sure before you are committed
to an investment that the area in which you are
planning to invest is not particularly prone to
natural disasters and acts of God!
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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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Alternative Investment
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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Alternative Investment
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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Alternative Investment
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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Alternative Investment
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