There are many creative types of tangible assets to consider owning for wealth protection. Diversifying into some of these “alternative” alternative assets can give you more ways to profit, more ways to barter, and more ways to become independent from the financial system. That’s not to say that you should sell all your stocks and close all your bank accounts in order to load up on gold and silver coins. We’ve never advocated that approach.
Diversifying away from conventional financial assets is an essential step in boosting your resilience to the various economic, social, and political threats to your wealth we bring to your attention every month in Independent Living. What we do advocate is being thoroughly diversified so that you are neither wholly reliant on financial assets nor on “bunker” assets such as precious metals. Yes, it is possible to be overexposed to precious metals, and some people in the gold bug community are. Of course the truth remains, the vast majority of Americans are underexposed to gold and silver and hard assets in general.
So yes, physical gold and silver remain a foundation of any tangible assets allocation. But there’s no reason to limit yourself to just precious metals.
Look at Gold’s Cousins, Such as
Diamonds, Gemstones, and Jewelry
First, let’s look at some hard assets that are closely related to gold and silver bullion. Diamonds, gemstones, and jewels are also precious and are used by millions of people around the world to hold and transfer wealth.
The single biggest source of demand for gold is, in fact, jewelry. If you want to acquire gold without drawing attention to the fact that you’re in it for investment hoarding, jewelry is one way of doing so. It can also be held and transported during times/places where gold bullion (coin) ownership may be restricted or banned. But jewelry isn’t the most efficient way to accumulate gold. Gold jewelry is less pure than bullion coins. Prices are heavily marked up when you buy and may only fetch scrap prices when you want to sell.
Other jewelry items – namely, diamonds and gemstones – are more interesting because they have totally different properties and price drivers than do gold and silver. Some gemstones are exceedingly rare. For example, the beautiful bluish gemstone tanzanite is found only in Tanzania. Geologists estimate that only 10 years of new supply remain. Tanzanite is 1,000 times rarer than diamonds in the earth.
The best investment-grade diamonds are fancy colored diamonds, some colors of which are very rare. Diamonds can be almost any color of the spectrum, red, yellow, green, blue, pink, brown …. Some colors are preferred for investments because they can’t be convincingly reproduced in a laboratory the way white diamonds used in industry and jewelry now can be.
Modern techniques can produce synthetic diamonds with great clarity in a matter of days that are as good as or better than the diamonds nature made over the course of millions of years. In fact, the Gemological Institute of America is grading this new breed of manufactured diamonds as chemically true stones. As technology brings manufacturing costs down, synthetic diamonds could flood the market in ever greater quantities. Naturally fancy colored diamonds offer some protection against this potential threat to diamond prices.
If owning actual diamonds as an asset class isn’t for you, there are still opportunities for you to profit from rising investor interest in them. You can gain exposure to the diamond industry through a conventional brokerage account by owning diamond mining companies. Many trade in Canada, and many of these companies are obscure and on the high-risk end of the equity spectrum.
One large and well established Canadian diamond stock that trades as an American Depository Receipt on the U.S. exchange is Dominion Diamond Corporation (DDC). The $1.1 billion company, formerly known as Harry Winston Corporation, is engaged in the production of rough diamonds.
Rare Coins Are an Option if You
Really Understand That Market
Unlike fine art and other niche collectible asset classes which have been heavily bid up in recent years by wealthy investors, collectible coins have seen virtually no action. They may be one of the few areas in the collectibles space that is selling at relative bargain levels. That makes them intriguing as a potential speculation.
Now let me be clear that collectible, or so-called numismatic, coins are an entirely separate asset class from bullion coins. In the past, this newsletter has exposed the tricks and deceptions many coin dealers employ to try to steer bullion customers into numismatics that come with significantly higher mark-ups. We’ve warned those who seek the protection of physical precious metals as a form of money to ignore rare coin pitches and stick with bullion products that can be purchased for close to their actual melt value.
Those warnings and the advice to accumulate low-premium bullion first still stand. Collectible coins are suitable only for those with specific collecting interests or for long-term speculators who believe collectible premiums will rise over time. If you have already established a substantial and diversified stash of gold and silver bullion products and you’d like to devote some additional funds to speculation, then you might consider going into rare coins.
Rare Stamps Require Specialized
Understanding, But Do Hold Value
Rare postage stamps, like rare coins, aren’t investments per se. They are more of a hobby – though one that could potentially make you wealthier over time, especially in an environment where cash and most financial assets are depreciating.
Certain types of stamps appreciate in value due to interest from collectors. Consider getting involved in stamp collecting if you have a keen interest and plenty of time to devote. Stamp collecting can be an invigorating pastime for retirees.
Since 1970, according to Stanley Gibbons, a benchmark index of rare stamps has produced a compound average annual return of 11%. That doesn’t account for bid/ask spreads and other real-world transaction costs, but the fairly consistent price appreciation associated with widely tracked collectible stamps does suggest that long-term holders can see their wealth grow over time.
Due to transaction costs and a potentially illiquid market, it can take years before you are able to realize gains on a stamp collection. If you don’t have an interest in historic stamps, then you probably won’t enjoy sitting on them.
Before you buy collectible stamps from any source, you should arm yourself with the Official Blackbook Price Guide to United States Postage Stamps 2014, available in bookstores.
Financially Savvy Fine Wine:
It Isn’t Just for Sipping
Welcome to an ancient, proven wealth protection practice. You know the saying: a fine wine gets better with age. That’s not entirely true – after several decades of aging, even a great wine will pass its prime and start to go bad. But it should be noted that some antique wines can continue appreciating in value long after they’ve turned to vinegar.
According to the pink pages of the Financial Times (May 24/25, 2014), “Wine’s long-term value is made clear by a new academic study…as an asset class, the finest wines – taken to be the five Bordeaux ‘first growth’ wines of Haut-Brion, Lafite Rothschild, Latour, Margaux and Mounton-Rothschild – have outperformed assets such as art and stamps since 1900, and far outperformed bonds.”
Burgundy and Bordeaux wines are now tracked and accumulated like stocks and bonds by specialty wine investment funds.
Historically, fine wines have appreciated at an after-inflation rate of better than 5% a year, on par with stocks. And like stocks, wine prices can have their ups and downs. The Liv-ex 100 Fine Wine Investables index shows that benchmark wines have fallen 25% since 2011. That’s good news if you’re looking to enter the market now. Prices for wines are no longer bubbly like champagne; they’re flat like a cheap Chardonnay!
The market for collectible wines has long been murky and difficult to navigate, except by insiders and their wealthy friends. But the Internet has helped open up the wine marketplace to individual buyers and sellers around the world.
At WineBid.com, you can browse fine wines up for auction based on type, year, country of origin, and other factors. Some wines sell for as little as $25, while others go for several thousand dollars. If you have a wine collection you’d like to sell, you can arrange for a consignment through WineBid.com. They’ll receive your wine, inspect it, put it up for auction, and then send you the proceeds.
Bulk Food and Other Household Necessities
Hold Value Despite Inflation Pressures
Before you put a wine cellar in your basement, make sure you’re stocked up on more essential “liquid” and edible assets – namely bottled water and non-perishable foods. The stuff you need to survive isn’t going to make you rich, but it could save your life in an emergency.
Stocking up on water, food, and other household essentials can also help you stay ahead of inflation. By buying today what you’ll consume tomorrow, you’ll avoid paying tomorrow’s higher prices.
Long lasting food you will eat years from now gains 5-7% in value each passing year. There are no taxes on these gains. (If you go to the Do-It-Yourself section of our website, www.independentlivingnews.com, there is lots of useful information there.)
Some packaged food products can even acquire collectible value over time. For example, discontinued or vintage boxes of cereal or bottles of soda may become increasingly sought after by collectors as they become harder to find.
Guns and Ammunition Will Continue to Hold
Value Over Time – See Why
If you’re an avid shooter, loading up on ammunition is a must. Even if you’re not, bullets and shotgun shells can be useful for barter or just a tangible store of value. Some have even profited recently by speculating on rising prices due to government-created shortages.
After government agencies bought enormous quantities of ammunition and private gun sales surged in the wake of President Obama’s re-election, ammunition suppliers couldn’t keep up with demand. Gun store shelves were cleared out, causing prices to surge and small black markets to emerge. For example, .22 long rifle ammunition
has tripled in price over a period of 18 months.
However, the opportunity to profit may have passed, at least for the near-term. Manufacturers have finally been able to ramp up production, alleviating shortages and driving prices down to some extent. But shortages could emerge in the future. That’s why it makes sense to stock up on ammo – provided you can do so at non-elevated prices.
Guns, too, should be in your possession for obvious reasons. Antique or collectible firearms may also be of interest due to their potential to appreciate in value. If interest in gun ownership in general picks up, then guns that are rare or of historic value may also attract more interest.