1. Thinking Outside
the Investment
BOXby Terry Hanley
N
ontraditional investing has
become a popular way to diversify
among individual investors since
the stock market crash of 2008.
Thenontraditional,oralternative,investments
being referred to are any investments beyond
common money market products and mutual
funds. These types of investments can pay off,
but according to Centenary College professor
of economics David J. Hoaas, Ph.D., a large
return on these types of investments is rare.
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2. “Financially, it’s probably not a great
idea,” said Hoaas. “Where you could say
there would be some reason to do it is if
you are interested in what you are investing
in, if it also becomes a hobby. I am a
member of the American Association of
Wine Economists ... so I kind of have some
knowledge of wine investing, but I don’t
invest in wine because financially it’s not
the best thing to do.”
Anyone with some money and
an E-trade account can trade on the
stock market without assistance from a
professional. Individuals can control their
portfolio while paying low transaction
costs or brokerage fees using the myriad
of low cost information available
regarding those markets. According to
Hoaas, nontraditional investments are the
opposite.
“Any time you go to a nontraditional
investment, the transaction costs become
high,” said Hoaas. “For example, let’s talk
about wine. There are a limited number
of places where you can invest in wine.
Most of those are in the UK, so you are
dealing with an overseas brokerage house.
There are a few places in New York, but
not nearly as many as there are in the UK,
so you are going to pay their fee. When
wine, as an investment good, is bought and
sold, it’s usually sold at an auction house.
They’re going to charge a fee when there’s
a transaction. You are probably never
going to take possession of your wine
investment so there is going to be a storage
fee. Any type of appreciation in that wine
investment is going to be eaten up with
fees. Even if you make a positive rate of
return, it is going to be very modest.”
Though wine is one of Hoaas’s areas
of expertise, he also spoke about other
types of alternative investments that are
popular.
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3. LAND/RENTAL PROPERTIES
“I think land is always a good investment.
Productive land, farmland, would be even
better. If you are going to make money on
rental property, it really is fortuitous if you
can fix problems yourself. If you have to
pay someone to keep up the property, it
really eats into any of the profits you are
going to make. So if you are able to put
some sweat equity into that investment by
doing work on the property both at initial
rental and by keeping up the property, you
can make some money in rental property.
But if you have to pay the note and pay
somebody to come and fix it, it is going to
be tough to make some money.”
RENTING PROPERTIES
THROUGH AIRBNB
“Usually we see that in what I am going to
call a transient area, which is a vacation-
type area. I was recently in western
North Carolina, where I was renting
an apartment for a week above a retail
location and the person who owned it had
his or her own home in the area, so if you
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5. are in a desirable vacation area, this is a definite possibility. Could I
make money doing that in Shreveport or Bossier? No, I couldn’t. So
where you can make money in this is in vacation-type areas where
there are a number of people who want to come in for a short stay
and want to get beyond the Hampton Inn. You have to be careful
what market you purchase in when you do this. Colorado used to
be a wintertime escape. The state of Colorado, all of the cities
in Colorado have done a really good job of influencing tourism
throughout the year –— biking, hiking, the whole deal. They are
doing things to get people to come through that state more and
more, and that really helps those people who have that vacation-
by-owner rental property.”
CROWDFUNDING
“Crowdfunding works well if you have a noble cause. I think
people like and are willing to put some dollars into noble causes.
The beauty of crowdfunding is that you can get in as an investor
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7. at a pretty low level. There is some
crowdfunding where a $20 bill will
make you part owner. Obviously
there is some crowdfunding where
the thresholds are much higher,
but most are fairly modest, which
means returns are probably not
going to be great. When I think
about what my percentage return
will be, it is not going to be very
high, which again, is probably why
I want to put my money into noble
projects so I get this aesthetic
feeling that I could help somebody.
As far as making money at low-
dollar entry points, I am not going
to make a big rate of return if I
am investing in crowdfunding.”
BROADWAY SHOWS/
HOLLYWOOD MOVIES
“I don’t know if you could get
into that for six figures. I think we
almost have to cross the million-
dollar mark to get into that. That
is a big number.”
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8. THOROUGHBRED HORSES
“That’s an expensive market. It’s not movie
or Broadway show market expensive; it is
a six-figure market though. You know, we
hear these stories like ‘I bought this horse
for $5,000 and it won the Preakness stakes.’
Yeah, they bought that horse for $5,000,
but they put hundreds of thousands of
dollars into training it, feeding it, housing
it, transporting it and getting medical care
for that horse. That is a big number as
well.”
Trusting companies like Merrill
Lynch, JPJ Investments or King Poljak
Group at Morgan Stanley as well as taking
trading into your own hands are the safer
bets according to Hoaas because there
is so much data available that validates
traditional investing. There is far less data
when it comes to nontraditional investing.
“Traditional investments, or investing
in companies that produce something all
the time is still what I recommend for an
investment strategy,” said Hoaas. “Can
you make money in other investments?
Yes. Have we heard of people making big
dollars in these other investments? Yes.
What we haven’t heard about are all the
people who didn’t make any money. The
person who bought the bottle of wine and
it was a fake. There are people who have
made some nice returns off of alternative
investments, but most of them who did
that were lucky … You have to be willing
to be a collector, though you are collecting
something that might allow you to merely
break even in the future.”
Consulting with a financial advisor or
other finance professional before investing
money into an opportunity is advised. You
should always know what you are putting
your money into and how that investment
fits into your future financial plans.
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