April 24, 2012
With the volatile stock market and bumpy U.S. economy, many investors are looking to non-traditional investment ideas such as collectibles and peer-to-peer loans.
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For years, people have invested in art, wine, sports and other passions, but with stories like the vintage check that was used to buy the rights to Superman selling at a record $160,000 last week, alt-investments are getting attention. And $160K is just small change compared to last year’s record $2,161,000 sale for one of the most expensive comic books ever sold, a 1938 Action Comics #1-Superman, according to Vincent Zurzolo, of Metropolis Collectibles in New York City, which sold both items.
“You look at real estate and it’s a complete nightmare, the banking system with 1 percent returns, and you think, I gotta be able to do better than that,” Zurzolo says.
From railroad ties to cereal boxes, alternative investments offer a way to broaden your portfolio, and for some, a way to blend a passion with investing. Peer-to-peer loans and crowdfunding are also changing the game.
With so many upsides, why do people still buy stocks and bonds? The cons are that many of these offbeat investments tend be illiquid, says financial advisor John Graves of The Renaissance Group in Ventura, Calif., who also collects wines and old maps. They’ve also typically been a playground for ultra-high net individuals, and Graves tells his clients that they have to be very knowledgeable about the collectibles or field they are interested in investing. His clients have varied interests, from restoring old cars to collecting old writing desks from the Colonial Period.
Also, if you’re attached to that bottle of wine or baseball card collection, it will make it difficult to sell and get a price that’s fair, he says.
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Doug Allen of Legendary Auctions, a sports memorabilia auction house in Lansing, Ill., tells the story of how his teenage daughter took a look at his sports memorabilia collection with new interest. He asked her why. “Mom said this was my wedding and college [money],” she said. “I thought it was my collection; my wife looks at it as just investments,” he says.
If you have the passion, interest or curiosity to try offbeat investments, here are four options that have been generating buzz lately:
1. Collectibles: Sports memorabilia/comic books. Most collectors of sports memorabilia are men, Allen says. “Even if they got hammered in the stock market, they are still interested in collecting. They convince their wives their collections are investments,” he says. For example, a rare Honus Wagner card bought at auction a few years ago for $350,000 sold for $1.6 million. “With high-end sports memorabilia, there is unbelievable appreciation,” Allen says. Don’t deal with anything post-1970s because production advances have made collectibles less valuable, he advises. If it’s too good to be true, it probably is. Allen recommends investing in one high-end collectible rather than several low- or mid-price ones. If you can’t buy high-end, look at it as a nice collectible that holds value. As a collector, buy what you like. As an investor, be more selective.
2. Broadway shows or Hollywood movies. These ventures are high-risk investments, explains Stanley Fishler, a 95-year-old inventor, entrepreneur and philanthropist in Los Angeles. “You have a good chance of losing your shirt but if you don't, then you can make a very large ROI,” he says. In 1962, he backed a Broadway musical-comedy titled "Never Too Late." The show was not only a hit on Broadway, but was made into a successful Warner Bros. film produced by Norman Lear.
“I’d be the last one to tell you to make your primary investment vehicles Broadway shows or Hollywood movies,” he says. But as always, with high risk comes high reward. “I rolled the dice on this investment vehicle, but I liked the odds and it paid off in spades,” he says. The typical minimum Broadway show investment is $10,000, according to broadwayinvestments.com. Most investors in big Broadway productions have deep pockets and meet wealth requirements set by the SEC, but the recent revival of Godspell was funded by a grassroots effort, with shareholders investing in as little as $1,000. Unfortunately, Godspell has performed only modesty at the box office so far and investors won’t see any money until the show starts making a profit.
3. You become the bank. Peer-to-peer lending services such as LendingClub or Prosper allow investors to loan money to consumers. The majority of people who turn to LendingClub loans have good credit and are aiming to consolidate their credit cards at a better rate than their banks offer. Ninety-six percent pay back the loan at 14 percent; 4 percent default. LendingClub investors earn a 10 percent return, compared to investing in Treasury bonds at 1 percent, says Brendan Ross, of Ross Asset Advisors in Los Angeles. “The process of explaining [peer-to-peer loans] to clients is a lot longer than it takes to explain mutual funds,” says Ross, who specializes in creating portfolios for retirees and other conservative investors.
The most common question from his clients is: How do I get my money out? The typical portfolio includes two-thirds of the client’s investment in 3-year loans and one-third in 5-year loans, Ross explains. LendingClub turns down 90 percent of loan requests.
4. Crowdfunding. President Obama recently signed The Jumpstart Our Business Start-ups, or JOBS Act, which will allow entrepreneurs to access online investors through social networking for their start-up businesses. Although investors won’t be able to do anything until 2013, there is a lot of buzz about what Obama called a “game-changing” idea. The average amount for crowdfunding is $80, says Sherwood Neiss, one of the entrepreneurs who led the effort and runs StartupExemption.com & LegalizeCrowdfunding.org.
Right now, most crowdfunding ventures and sites such as Kickstarter.com are similar to money given to charity, where you can donate to help fund a creative project such as a film or book. But when the JOBS Act goes into effect, entrepreneurs will need to show a strong social network, a solid idea and a clean and transparent background. After start-ups pass a thorough background check, they’ll be able to send out loan requests via LinkedIn, Twitter, etc. Neiss advises investors to avoid investing in anyone you don’t know. (If you’re receiving emails similar to letters from Nigeria begging for money, be suspicious.) He also recommends buying products or services you believe in. Investing in the coffee roaster company your neighbor wants to start, for example, rather than some random idea. All start-ups have risks, so don’t put all your eggs in one basket, he adds.
Correction April 25, 2012: This piece originally stated that Vincent Zurzolo is with Comic Collectibles. He actually works for Metropolis Collectibles.