Asset classes for investments
Previously, we suggested five better uses of your savings rather than just leaving it in the bank. That advice still holds true, mainly because only by investing your money can you actually beat inflation, and ensure that your money will hold its value over time.
But investing is not as easy as it seems. What companies to buy? Should we be diamond handing? Will our profits rocket to the moon?
Growing up, we would have heard to “never put all your eggs in one basket”; meaning that we should not focus all our resources or efforts in one area alone, but rather, to spread them out. The same would apply to investing – it’s important to diversify our portfolios so as to safeguard our money.
Apart from just investing in conventional stocks or bonds, you can also diversify your investment into alternative asset classes – think of them as categories of things to invest in – each with its own set of risks and potential returns. Here are our recommendations of five alternative asset classes you can invest your money in, to truly up your diversification game.
Disclaimer: All investments would naturally carry some form of risk. If you’re unsure of what to invest in, please speak to a financial advisor who would be able to advise you better on various investment products and how to understand them.
Image adapted from: Jingming Pan on Unsplash
When we think of gold, we might visualise vivid images of pirates hunting for buried treasure or Indiana Jones-esque adventures for a chamber adorned in gold…only because it is that valuable! Since the very early days of human civilisation, gold has been highly sought after in societies all around the world, and is often seen as a symbol of affluence.
Today, gold remains valuable as a safe haven asset – meaning that in times of market or economical volatility or instability, it would retain or even gain value when the market goes down.
The price of a gold item is largely dependent on two main factors: how much gold there is (weight measured in ounces) and how pure the gold is (measured in carats). As seen below, the price of gold has generally increased in the last five years, proving itself to be a pretty good asset class to invest your money in.
Image adapted from: Markets Insider
After all, the value of gold is relatively stable, thus being a strong option especially when you’re looking to hedge against things like inflation. According to DBS, gold traded a modest 9% higher in the first half of 2020, outperforming other asset classes like stocks, bonds and REITs.
How to invest in gold
There are many ways to invest in gold. The easiest, we reckon, is to simply purchase jewellery. Think necklaces, bangles and rings – they are all common gold items and you can pretty much find them in any jewellery or pawn shop.
Plus, you can actually wear them out or even pass them down to your children, and thus enjoy them for more than just their stored value. This is why gold is often used as bridal jewellery, such as being part of the dowry in Indian and Chinese weddings.
If jewellery is not your thing, you can buy other forms of physical gold include bars or coins from gold retailers or even banks. Take note that you’ll have to think about how to store that gold – either securely in a safe deposit box or somewhere safe in your own home.
Of course, you can always circumvent this problem by simply buying gold certificates, which is basically a voucher to represent how much physical gold you own and can be cashed out anytime for actual gold. DBS also offers the opportunity to purchase Gold Linked Notes, which functions a little like options in the stock market.
Alternatively, you can always invest in gold-related stocks or ETFs, such as those tracking gold prices or shares of a gold-mining company, though these are slightly different from investing in actual gold.
In Singapore, the property market is a flourishing industry, given how property prices are mostly always on the uptrend and so investing in property generally yields great returns.
After all, 2021 saw a record number of million-dollar HDB flat transactions in mature estates, and many experts say that similar million-dollar flat transactions in non-mature estates are not far off the radar in the future!
There are various property options available for investors to sink their teeth into, but the top two choices would be either residential property (e.g. HDB flats, condos, apartments) or commercial property (e.g. shop spaces, office spaces). You’ll need quite a high amount of capital to get started though; for example, for a property valued at $1 million, you’ll need 25% of the property value ($250,000) upfront in cash or CPF.
How to invest in property
In terms of returns for property investment, there are three avenues that you can take:
1. Buying and selling for capital gains
Given that most property in Singapore tends to appreciate over time, one of the most common ways to get a return on your money would be to buy and sell after it has gained value (a.k.a. flipping). Of course, certain locations such as the core central region of Bugis, Orchard and Rochor would tend to appreciate better.
If you’re a first-time property owner, one common route would be to get a residential property after marriage, stay there for however long you want as an occupier, and then sell it after.
Take note that for HDBs and Executive Condominiums, there is a minimum occupation period (MOP) that you’ll have to comply with before being able to sell. However, if you’re not planning to occupy the property that you hold or are not bound by MOPs, then what you would want is speed – to buy and flip the property as soon as possible so that you won’t be stuck with any unforeseen risk.
Another tactic would be to buy an ageing property with the hopes that it will be sold en-bloc, which generally earns you a modest profit. This is quite tricky to navigate, though, mainly because going en-bloc is never guaranteed, and so pursuing this strategy is risky especially if you don’t do in-depth research.
2. Buying and renting
Another way to get returns in property investment would be to buy a property and rent it out for monthly rental income from your tenants. Congrats, you’re now a landlord!
Given that most of us won’t be loaded enough to buy out a property with cash upfront, the most common route would be to take out a mortgage loan; in order to be profitable, the rent that you charge will have to be higher than your loan repayments, plus the costs of any repair or renovation work that you do.
This route does come with its fair share of challenges. For instance, if there is a slump in demand for rental units, you may struggle to find tenants, resulting in pockets of time where you’ll have no income but still have to service the mortgage loan. Or worse, if you have horror tenants, you will have to deal with difficult issues such as ensuring they pay rent on time and repairing unexpected damages.
Otherwise, renting out property can be a very prospective source of passive income, especially if it’s fully paid up without you servicing any loan. This way, you’re effectively earning a decent profit every month.
3. Investing in REITs
If owning actual property is something you can’t really afford at this time, one alternative option to still participate in the real estate market is to invest in real estate-linked stocks such as CDL, UOL Group or even Propnex.
You can also invest in a real-estate Exchange Traded Fund (ETF), which is basically a basket of real-estate related stocks. They are generally great investments to get regular payouts in the forms of dividends, and would generate anywhere between 2%-5% in dividend yield – i.e. interest in your money invested.
Unless you have been living under a rock all this while, you would know that the hottest thing in the investment market recently has been cryptocurrency. We’ve seen how OG tokens like Bitcoin and Ethereum have recorded massive gains over the years, and becoming a crypto millionaire is a dream that isn’t too impossible if you have an extremely robust plan, coupled with some luck of course. 😉
Similar to gold, some believe that cryptocurrency is also a great alternative asset class to hedge against inflation. According to investment research platform The Motley Fool, cryptocurrencies such as Bitcoin have often been referred to as “digital gold” because of their limited supply, unlike traditional currencies where more money can simply be printed to create more supply, hence its staying power as an inflation hedge.
Whether or not this is the case is still up for debate, but there is no doubt that its popularity has soared over the past two years, with more and more people drawn to the prospects of investing in crypto.
In the past year, there has also been a huge influx of new players to the cryptocurrency scene – not just memecoins like Dogecoin and Shiba Inu coin, but also cryptocurrency-related outlets such as non-fungible tokens (NFTs) and play-to-earn (P2E) crypto games that you can invest your money into.
How to invest in cryptocurrency
The first thing to do is to open an account at any crypto exchange platform, transfer money to it and then use those funds to purchase your crypto. You can then buy and sell crypto anytime you wish to secure those sweet, sweet profits.
While most exchange platforms would allow you to hold onto the crypto you own, you can also separately purchase a digital wallet and transfer the crypto that you own if you want to have an extra sense of security. For example, you can get a cold wallet such as those offered by Ledger or Trezor, which is a piece of hardware that operates like a thumb drive.
Apart from just holding your crypto and selling for a profit, you can also earn some passive income through staking your crypto. Basically, what you’re doing is lending your crypto holdings to support the blockchain network to facilitate other transactions, letting them work for the broader crypto market and earning you some coins while at it. As for how much you’ll get in return, the results will vary but it is estimated that for Ethereum you’ll get anywhere between 5%-17% a year.
But before you jump into the crypto world in hopes of bringing in the bucks, do note it does come with high risk. For a more in-depth guide, check out our article on making your first crypto investment.
Related somewhat to cryptocurrencies, non-fungible tokens – or NFTs – are the latest phenomena in the crypto-investing world.
So what exactly is an NFT? Well, the technical answer is that NFTs are pieces of digital content linked to the blockchain database underpinning cryptocurrencies. Unlike traditional coins, NFTs are unique and not mutually interchangeable (hence, non-fungible), and so are more or less one-of-a-kind. This is unlike Bitcoin where you can exchange one coin for another identical coin or a simple swap of a $2 note for another one.
NFTs are not interchangeable, only because there is only one version of it that exists. Think of it as owning a painting – of course the artist can sell prints of it, but there will only be one original painting, and that will belong to its owner.
The returns are by no means trivial – for instance, the first-ever NFT artwork to be sold at a major auction house fetched over $69 million, setting a record for the highest ever price of a digital art piece. And no, right-clicking the image below and saving it to your desktop isn’t going to secure you any money, but nice try!
“Everydays: The First 5,000 Days” is an NFT artwork by creator Mike Winkelmann a.k.a. “Beeple”
Image adapted from: CNN
If that definition’s got your mind in a boggle, fret not. The layman answer is that NFTs are just one-of-a-kind digital items that have real-world value. Remember the days where you would use cash IRL to purchase in-game credits to buy character skins? That’s essentially the concept of NFTs.
Today, popular NFTs are in the form of digital artwork, such as images, GIFs, video game character skins and more. You can buy and sell them just like any other item in the real world, just that you’ll have to do so with cryptocurrency and you’ll need a digital wallet to store it.
Image adapted from: Bored Ape Yacht Club, OpenSea.io
There are also various NFT games that you can put some money into, and they allow players to earn more crypto through playing the game or buying and selling in-game real estate, items and characters. If you’re interested, check out our review on one such game, Axie Infinity.
How to invest in NFTs
Investing in NFTs is also relatively simple. All you need is to search out NFTs on marketplaces like OpenSea or Mintable, connect your cryptocurrency wallet to an account there and purchase whatever you like. The ownership will then reflect it under your name, and you can then either hold or eventually sell it for a profit if it appreciates. This also works for NFT games, if you’re purchasing in-game character skins, for example.
Of course, you can also create NFTs and hope that they will sell for a modest sum. You can put them up for sale on the marketplaces, plus some actually pay you a small amount every time the NFT exchanges hands. Take note that there will be fees for putting NFTs up for sale though!
Overall, while there is potential for NFT investment to yield some pretty good returns, at the end of the day this industry is still relatively new, and thus highly speculative. The value of digital art or collectables are the same as their physical counterparts – they only are as valuable as what people would want to pay for them, and so it’s important to do your due diligence and research extensively before diving into the world of NFTs as an investment.
5. Luxury Goods
Luxury goods such as watches, designer bags and art pieces can also be great alternative investments, mainly because they generally appreciate over time and are not as volatile as the stock market or crypto. In addition, you’ll have the added satisfaction of enjoying them in your possession and wearing them out, all while still having them maintain their value.
For instance, the demand for luxury timepieces has grown almost exponentially over the last few years, and even more so during the pandemic when people had cash but could not travel.
This fuelled a surge in demand for luxury goods and conversely a thriving secondary market economy that sends prices of watches well above their original retail price. Of course, this would hold true for only certain brands – not all timepiece brands will appreciate over time.
Highly-sought after pieces such as the Audemars Piguet Royal Oak, Rolex Daytona and Richard Mille models are virtually impossible to get at retail shops, with the only way to get your hands on a piece would be to either purchase it on the secondary market at an elevated price or get really lucky with an authorised dealer.
Image adapted from: Singapore Watch Insider
For ladies, you might know that a Birkin bag is almost impossible to get from Hermès due to limited production runs and increasing demand.
If you do manage to get one, you’ll be pleased to know that a bag appreciates an estimated 14% – 16% year-on-year, which curiously is almost double the average growth of the S&P500, which are the top 500 companies in the US. In some cases, it is not uncommon for a truly exclusive bag to be sold at above twice its original retail value, so that’s pretty prospective.
Overall, luxury goods are a viable asset class to invest in, though it will be perhaps one of the hardest to get into. In order to truly get a good return on your money, you will have to invest in extra-exclusive or limited edition pieces, rather than “normal” luxury pieces that are generally easier to get. This would also mean that you’ll need a hefty sum of money to put up as capital, which not many of us have.
How to invest in luxury goods
Exclusivity aside, investing in luxury goods is straightforward – all you have to do is to just purchase the item, keep it in pristine condition and sell it when its price has gone up considerably.
To get the returns on your money, a lot of research will have to be done, especially on both market trends and also historical performance and demand. Not all luxury brands will appreciate at the same rate – or even at all – so do research extensively before committing any money.
As a general guide for branded bags, brands such as Hermès and Chanel tend to perform better in price appreciation, whereas other brands like Burberry or Gucci do not appreciate as much.
Other notable mentions
Other than the five that we’ve listed above, there are a few other asset classes that you can consider investing in. These find themselves in the notable mentions list mainly because the returns aren’t that great, and would be better off as enjoyment pieces rather than a serious option for returns.
Remember our childhood days when we collected trading cards like Pokémon? Turns out, they’ve seen somewhat of a resurgence in popularity in the last two years or so, thus being a healthy demand for collectable cards.
Extremely rare Pokémon cards such as the Alternate Art Rayquaza from the modern 2021 expansions can fetch a decent $400 in price, and even older cards from the 1990s and mid-2000s can fetch prices up in the thousands, especially if they are graded and are in mint condition.
Image credit: Benjamin Wellesley
Apart from cards, other forms of collectables would be things like Funko Pop statues, figurines, stamps or even old currency…basically, anything and everything that can be collected as the name suggests.
In terms of returns, we would say that collectables are not the most viable investment options. This is because it is a largely consumer-driven market, and so demand can just as easily drop, which will then leave your collection hanging onto whatever value it can hold.
Of course, there may always be a ready buyer who is keen on purchasing them off you, but be prepared to go through the stresses of negotiating a fair price.
Our recommendation would be to instead just enjoy the process of building your collection and enjoying them in your possession, rather than exploring ways of getting investment returns.
Alcohol such as rare whiskies or wines can also be a part of a collection and bought and sold if the market is right. Of course, you’ll have to find a willing buyer for it, and it’ll have to be exclusive enough for it to be sought after.
For example, wines by brands such as Lafite Rothschild and Chateau Angelus are seen as investable wines, alongside those from a very vintage year or limited quantities. Whiskies that win awards are also quite hard to source, and so would generally command a good price if you were to sell them.
Investing in alternative asset classes with caution
If you think you’re ready to invest, be sure to do your research – and with any investment, go in with a mindset that the money you commit can just as easily drop in value. Investments come with a good amount of risk, so do bear that in mind.
However, if done right, you can definitely set yourself up for some impressive gains and have a well-diversified portfolio to make your money work for you.
Cover images adapted from: Sama Hosseini/Unsplash