Hidden Asset Classes

‘Hidden’ Asset Classes: Four Investments That Nobody Talks About

By Dr. Steve Sjuggerud, President, Investment U
Thursday, February 20, 2003: Issue #215

As long-time readers of the Investment U e-Letter know, we spend most of our time discussing stocks, bonds, mutual funds…as well as “other” asset classes, such as real estate or gold.

But there are still other asset classes out there that we have not examined. So today we’ll take a bit of a detour from our usual course and look at a few of those “hidden” asset classes that are out there.

These are things that nobody talks about… the “hidden” assets that will provide good diversification to your portfolio and the assets that you can invest in with up to 5% of your investable funds.

But the truth is – these types of investments are not for everyone. If, however, this investment class interests you, and you’re ready to further diversify by exploring some opportunities that you may not have considered before – then this list of investments may be very helpful to you.

And for those of you who may not be ready for investments like these you may want to skip ahead a bit to the end of today’s e-Letter, where I share with you a most interesting e-mail I just received today from a reader… along with some ideas that should be helpful for all.

Now then let’s take a look…

Hidden Asset Classes: Four Investments That Nobody Talks About

1. HEDGE FUNDS OR COMMODITY TRADING FUNDS

These are big “secret” funds for wealthy investors. According to Barron’s (www.barrons.com), the 25-largest hedge funds have returned 12.3% a year annualized over the last three years, an excellent return in comparison with the markets. And though 2002 wasn’t quite as exciting (up an average of 4.46%), this was still better than the markets, fulfilling the funds’ promise of “absolute returns” – positive returns in any market.

Hedge funds are not allowed to advertise they are not regulated by the SEC (or anyone) and information about them is hard to come by. Minimums can be $1 million or more. Please do a ton of due diligence before even considering investing in hedge funds, as they are not appropriate (or even affordable) for most investors. If you are interested, places and people to start with include John Mauldin (www.johnmauldin.com), Eric Roseman (www.eas.ca) and www.hedgeworld.com. Also, make sure you read the (somewhat one-sided) article at http://www.forbes.com/2001/08/06/070.html It details the “worst-case scenario” of an unregulated entity. Don’t miss the sidebar called “The Money Vanishes.”

2. COINS

The coin market looks good right now – for the first time in many years. (This is actually the first time I’ve written more than a paragraph on it!) For some perspective, here’s why coins look good

In brief, rare coins as an “investment” really came into their own in the late 1970s (ownership of gold was restricted until 1975). Gold coins (South African Krugerrands) became hot immediately. Gold soared into 1980, and coins did even better, tripling in value in the 12 months that ended with January 1980. Coin values then doubled over the next 12 monthsyes six times your money in two years. (The exact returns are debatable, but we can all agree that coins went up a heck of a lot.)

Prices continued to rise until 1986 – sort of At that time, coin industry insiders call what happened “Gradeflation” (a story for another day), where coins weren’t really worth what they were quoted to be worth. This led to the creation of independent grading services, like PCGS, in 1986.

Then the really big boom came – 1988 to 1990. Now that there were legitimate independent graders of coins, Wall Street was going to start offering mutual funds of rare coins. $100+ million was supposed to be invested by Wall Street firms, and this anticipation drove coin prices through the roof, doubling in the 12 months that ended with June 1989. The outbreak of the Gulf War and a 500-point fall in the stock market abruptly halted Wall Street’s plans, and the coin market went into a tail spin.

The coin market didn’t actually find a bottom until 1994-1995. Since then, it has only been a shadow of its former self. Prices have been slowly rising since then. I think that 1994-1995 was the worst it could possibly get, and that’s a nice “support” level for coin prices the BOTTOM, as this chart shows: http://www.pcgs.com/images/graphs/indexallgraph.gif.

I don’t know enough about coins. But The Oxford Club has longstanding relationships with many reputable coin dealers. To find out more about them, visit their web site at www.oxfordclub.com and click on Advisors & Partners

3. INTEREST-PAYING FOREIGN CURRENCY INVESTMENTS

I just had lunch with Frank Trotter yesterday, CEO of Everbank (www.everbank.com). Everbank’s World Markets division offers foreign currency CDs that are easy for us (in the States) to do. I wrote about these last week, so check out IUEL #213 – Protecting Your Wealth for more details. I will say that it was the first time I’d met Frank, and liked him. The lunch meeting gave me even more confidence in his company’s products. You can earn 5% or more in interest in some foreign currency CDs. And if the currency strengthens (or weakens) by 10% versus the dollar, you can either make (or lose) an additional 10%.

Another option is someone like Howard Goldstein (hgoldstein@pfmail.com), who shares his outstanding income ideas with me regularly. He called me this week with a floating rate Australian income investment, where if interest rates go up, your principal won’t fall. Howard and I have been good friends for a decade now (his assistant is my cousin Alison, actually). Howard and Alison will take great care of you. They can handle it all, but he’s particularly good at international income investments.

4. FINE ART

I find this area intriguing “While art does have the disadvantage of being illiquid and lumpy, its high long-term returns and low correlation with stocks may justify serious attention from institutional investors as an alternative investment class,” says an e-mail I received today from an NYU professor.

“The last five years yielded a 12.9% annualized return for art versus no increase for stocks,” it continues. Over the last 50 years, stocks and art have apparently both returned about 11% annually. The full story is available for free (though you have to register) at www.meimosesfineartindex.org.
Well, you know I could go on. But this little tour has gone on long enough for today. We’ve covered a lot of bases. I try to keep these Letters short, but sometimes I’ve just got too much to say.

Good investing,

Steve

P.S. I received an e-mail from a reader today. She’s taking charge of her investments for the first time in her life. As her concerns are probably similar to your concerns, I wanted to share her letter with you, and my answers.

“Steve,

I’ve been a reader since November. I inherited my mother’s stocks and accounts some 3 years ago, but due to more life crises following on the heel of her demise, and having been already burned by listening to investment advice from my husband who doesn’t know what he thinks he knows, I couldn’t bring myself to pick this ball up until a month ago. I’m smart enough to learn, I just don’t have any experience.

“But after studying many issues and Investment-U letters, today I finally got up the nerve to cut my losses (and was told by my Edward Jones broker to go elsewhere because I didn’t agree that we were out of the woods and going into a healthy stock market again). So, now in my own little boat and am going to have to decide what to do. It’s scary admitting to and accepting a loss. You’re perfectly right.

“I don’t tend to follow the crowd on any point. I guess that’s why your writing makes so much sense to me. And, I’m praying that you continue to give the most reasonable advice and guidance possible. People like me are betting their futures on you.

“I have e-mailed one of your trusted financial guys (Jeff) – I hope I hear from him, because I think I need someone who can guide me. What I have is a real tangle of underperforming investments meant to be secondary income for someone else, and given I have no retirement and am a young 57, my decisions need to be good.”

“Blessings on you. We’re counting on you. D.

Congratulations D. I’m proud of you. The reality is, many people would prefer to have someone else to blame for their losses, instead of taking personal responsibility. The scary part is of course, now that you’re in charge, you have no one else to blame but yourself going forward But this is actually good

Because who cares about protecting your wealth more than you? No one. Who knows exactly what’s right for your situation? Nobody but you, knows best. I promise I will continue to give the most reasonable advice and guidance I possibly can. But you’ve got to hold up your part of the bargain as well What? You didn’t know you had a part of the bargain???

Yes, now that you’ve picked up this ball, you’ve got a little work to do. You’ve got to be willing to “invest” a little in yourself – you’ve got to continue to increase your investment knowledge. Please don’t feel overwhelmed. You’re doing great already. Following the lessons of these E-Letters and reading some of the books I’ve recommended are a great start. What you’re ultimately doing is developing your own investing beliefs and an investment style that works for you.

In particular, I highly recommend going back and reading E-Letter #176 – The 50 Timeless Rules of Investing. Stick with those rules. You may even want to print them out and put them next to your computer or phone. If you don’t break those rules, you really will do very well with your investments in any market. You’d be amazed at how many supposed “professionals” like your Edward Jones broker don’t even know these rules, and break most of them every day.

I could go on here. But I have other topics I wanted to get to today. Let me just close this up by saying D., I really am proud of you. You are doing the right thing. Since nobody cares more about your wealth than you, you are the best person to look after it. That is, as long as you have a little knowledge to keep you from hurting yourself. And much of that knowledge is in those 50 Timeless Rules. Thanks for your letter.

Today’s IU Crib Sheet

For more details on fine art as an investment, please visit the Investment U E-Letter archives and check out #184 – The Investment That Beat Stocks 256% to -27%! And as I mentioned at the beginning of today’s message, remember that these kinds of opportunities are not for everyone. But – for the right investor looking to diversify – having up to 5% of your portfolio in one of these “hidden” asset classes may be very wise.
Earlier in today’s message I mentioned that The Oxford Club has longstanding relationships with a number of reputable coin dealers. For more information on The Oxford Club – including a free report outlining what may be the single biggest investment opportunity of 2003 – please click here.
Finally today time is running out for you to sign up for this year’s Investment U. Investment U is a truly unique learning opportunity and this year – as it’s our 5th Anniversary – promises to be a very special event. Beginning March 5 – in beautiful Delray Beach, Florida – you’ll spend four days learning first-hand from the Investment U faculty. You’ll walk away much better prepared to invest wisely and you’ll get a chance to enjoy some beautiful Florida weather as well. For more information, please call Michael Whetstine at 800.926.6575 or 561.243.6276 or simply click here. And be sure to mention that you’re a reader of the Investment U E-Letter!

Related Investment U Articles:

Sign Up now and receive this Free report:

Collect 122% in the Next 12 Months From Gold's Surge.

The Single Best Investment for 2009

Forget another stimulus package. Or retreating into "safe-havens" like cash and gold. All you need in 2009 is a small exposure to the "secret" White Cap Index.

It's up as much as 171% straight through Wall Street's meltdown. And one of the latest stocks to be added - an Internet-related venture capital company - is up over 100% since its inclusion into the Index.

Just weeks from now, we'll add another White Cap stock to this market-trouncing index. To get a sneak peek, click here for full details.

Share Investment U:

Comments

**By submitting your comment you agree to adhere to our Comment Policy and Privacy Policy.

Check out our selection of daily Investment Research: