You need to understand: Like fine art, there is a small universe of collectible wines that do well at auction. They are usually on allocation, meaning they are hard to get. They need to be properly stored and eventually sent to auction. Unlike total return stocks, they don’t pay dividends while you are waiting. I recently wrote an article for Barrons on the subject.
7. Buying antiques. Have you been watching Antiques Roadshow? Someone buys a painting at a yard sale for $50 and discovers it is worth $1,500. Should I be checking out local yard sales?
You need to understand: Buying at yard sales and flea markets can be a rewarding hobby, but it’s highly unlikely you will get any great finds that are drastically underpriced. Here is why: Thanks to Antiques Roadshow and the Internet, everyone has the ability to research their goods online. If they are lazy, they might take it to their local auction house on appraisal day. If they missed out on both those opportunities, another dealer would likely have bought it before you got there. Finally, don’t forget what else the proud owner said on Antiques Roadshow: They bought the painting for $50 at a yard sale in 1972! They held it for fifty years! Now it’s worth something.
8. Buying precious metals. There is a good argument for buying gold and silver. These are metals that have industrial uses in addition to their use in the jewelry trade. Like gemstones, you can enjoy your gold jewelry, then perhaps sell it in the future.
What you need to understand: You can probably help in this area. The markup on jewelry can be high. Put another way, the purchase price of that piece of gold jewelry is higher than the value of the metal. Your client can probably buy gold in bullion form, not take delivery and hold it in their portfolio. They might be able to buy a listed security that trades similarly to an ounce of gold or silver.
9. Restoring classic cars. You hear about classic car auctions. You imagine the thrill of riding around in a car that turns heads.
What you need to understand: Except for some very rare and collectible cars, restoring a classic car is a labor of love. When you factor in the value of the owner’s time and the cost or replacement parts, the owner might sell the car for more than they paid, but they likely have not made a profit.
10. Buying foreign debt. Interest rates are not the same everywhere. Your client might see bonds offering high yields overseas. They want some for their portfolio.
What you need to understand: You can help, but they need to understand the risks. Bonds usually carry safety ratings. Accounting standards are not the same everywhere in the world. There is also the currency conversion risk.
Your client might be looking at something they consider an attractive, alternative investment. One of the ways advisors add value is trying to help clients go into situations with their eyes open, understanding the risks.
Bryce Sanders is president of Perceptive Business Solutions Inc. He provides HNW client acquisition training for the financial services industry. His book Captivating the Wealthy Investor is available on Amazon.