Alternative Investments

Question 1

Give an example of Works of Art and
Collectables and provide an example of how these can be invested

Answer 1

Medals, expensive paintings, coins, stamps,
cars, vintage wine and antiques.

Can be invested in directly. Don’t typically
provide an income. There is usually cost
for storage, security and insurance of said
items, which needs to be factored in when
considering performance. Value driven by
a number of factors and is very much
related to supply and demand (limited
supply and varying demand) and can be
highly volatile and dictated by

Question 2

Give an example of commodities and provide an example of how these can be invested

Answer 2

Raw materials split between Hard (things that are mined; gold, silver, oil and gas) and Soft (things that are grown; coffee, cocoa, corn, sugar, wheat.

Can be invested in directly in commodity
producing companies, commodities
themselves or through commodity funds
and Exchange Traded Commodities
(ETC’s). Used for diversification purposes.
Can be subject to price volatility as a result
of climate factors, stock supply, changes in
costs of exploration and extraction.
Gold is often used as a hedge against
inflation and seen as a “safe haven” in
times of a economic downturns.

Question 3

Give an example of Cryptocurrencies and provide an example of how these can be invested

Answer 3

There are over 4000 currencies in existence at the time of writing with Bitcoin gaining a lot of publicity as being one of the first and most popular.

Digital Currency not managed or influenced by banks. Blockchain is a network, creating a secure digital ledger which documents, records and processes all cryptocurrency transactions, anonymously. Once the transaction has taken place and becomes part of the blockchain it cannot be unwound, and details are immediately available to the whole network. Investors store their bitcoin in a digital wallet. Mining is the process of confirming the legitimacy of the transaction and creates new currency by paying the miners. Cryptocurrencies are
not regulated (e.g. the FCA) and are not backed by central banks or governments.
It is highly volatile (due to the thought that
supply will reach a peak by 2040) and due
to its anonymity can be exploited for money laundering or tax evasion.