Related topics: gold, investments, ETF, commodities, stocks
When it comes to constructing the ideal portfolio, investors typically turn to familiar building blocks -- stocks, bonds and cash options like CDs. But that's so 2006.
At a time of global uncertainty, some are reconsidering the traditional formula and opting for something more tangible and portable. Like gold. Or diamonds. Or vintage designer purses.
"They continue to grow in value," says New York public relations executive Angela Calman-Wonson of her collection of vintage bags.
The bags represent a small portion of Calman-Wonson's portfolio; she invests half her savings in items ranging from rare books to limited-edition photographs. The other half is in standard financial vehicles.
"I'm not going to be accumulating a pile of Chanel handbags to pay for four years of my child's college education," she says, though she believes that hard assets are increasingly the way to go.
She's not alone. As evidenced by the much-discussed increases in the prices of gold, silver and even palladium, there's strong demand for precious metals. And some pros say it's a good time to invest in items not necessarily traded on traditional exchanges.
Prices of polished diamonds, for example, rose about 13% over the past year, according to Idex Online, which surveys the diamond market. Even collectibles show solid promise.
While stocks may have experienced a lost decade starting in 2000, the price of autographs of famous figures spiked 147% during the period, according to an index developed by Fraser's Autographs, a memorabilia dealer in London.
It's not just that there's a market for such hard assets. Rather, it's that investors are consciously folding them into their portfolios, not merely collecting them for enjoyment or "play money" speculation.
And in some instances, they're being encouraged to do so by financial advisers, who previously might have placed less emphasis on such alternative investments.
New Jersey adviser Jeffrey Sica, who manages more than $1 billion in assets for a small group of well-heeled clients, says in recent years he's raised the portion of precious metals in client accounts to 25% from 10%. "There's more interest in tangible assets than there ever has been in my 25-year career," he says.
A certain postapocalyptic allure
Concerns about inflation and a weakening dollar -- partly stemming from the widening U.S. budget deficit -- have prompted investors to seek an alternative path, financial experts say.
And there's plenty of precedent: Gold surged 130% during five post-World War II inflationary years (1946, 1974, 1975, 1979 and 1980), while the Dow Jones Industrial Average ($INDU) was losing ground.
More recently, a distrust of financial institutions following the market slide of 2008-2009 has contributed to the search for nontraditional investments.
Finally, there's what might be called the Armageddon factor. When investors see the massive devastation in Japan, they see a more dangerous, unstable world; suddenly, having a cache of wealth they can hold in their hands begins to have a certain postapocalyptic allure.
While many traditional financial advisers acknowledge the gut-level appeal, they point out the obvious: Investing in hard assets comes with all sorts of expenses and risks, starting with a lack of liquidity.
There's no stock exchange for, say, Louis Vuitton handbags, and hard-asset investors shouldn't overlook the costs of storage and insurance.
As for that doomsday scenario, many financial pros say investors would be better off stockpiling cans of tuna. "What do people think they'll do? Use a Rembrandt to buy a carton of eggs?" asks Mitchell O. Goldberg, the president of ClientFirst Strategy, a New York investment company that serves clients in 13 states.
Still, even Goldberg sees a place for something tangible in a portfolio. He suggests commodity exchange-traded funds and says he favors investments in metals with industrial uses, especially copper.
As for the hold-in-your-hands variety of wealth, Calman-Wonson did trade one of her precious bags for three weeks of postpartum care. Turns out, the nurse she contacted a few years ago was also a collector.
"Now that's liquidity," Calman-Wonson says.
This article was reported by Charles Passy for SmartMoney.
