Alternative investments in a volatile
The nightmare on Wall Street got
you gobbling antacids and wishing you'd left your life's savings
in a cozy little low-interest, FDIC-insured savings account?
You're not alone. These days, investors great and
small are feeling sorely used by the market meltdown.
Throughout the Roaring '90s, the only real risk associated
with the stock market was the eyestrain you might experience from
reading the fine-print disclaimers at the bottom of a prospectus.
Sure, it said you could lose money, but who believed it?
Lately, however, it's as if someone suddenly switched
the movie. Instead of "It's a Wonderful Life," we're now
quaking in our seats watching Hannibal devour our portfolios with
fava beans and a nice Chianti.
Some investors are not waiting for this stock market
horror flick to end. They are walking out of the equities theater
and exploring other investment features.
Here's a preview of seven popular alternatives. But
remember: Investments aren't for entertainment purposes only, so
don't buy any new ticket to riches lightly.
1. The REIT way to invest
Looking for a relatively low-risk investment that generates
dividend income and routinely outperforms the S&P 500? Check
out real estate investment trusts, or REITs, a way to benefit from
property ownership without becoming a landlord.
Most REITs are commercial real estate trusts that
sell shares in portfolios of large-scale commercial properties.
REITs typically specialize in a particular property type: office
buildings, self-storage facilities, shopping malls, health care
facilities, hotels, apartment buildings. A small percentage of REITs,
known as mortgage REITs, engage in real estate financing, typically
Jay Hyde, spokesman for the National
Association of Real Estate Investment Trusts, says REITs this
year are up about 8 percent, which includes share appreciation and
a current dividend yield of 7 percent. REITs are required to pay
out more than 90 percent of their taxable earnings in the form of
Earnings aside, Hyde says REITs have one quality investors
like: "The fact that it's tangible is something that is easy
for investors to relate to. It's something you drive by every day,
or live in, or shop in or work in."
You can invest in a REIT directly or though a real
estate mutual fund. Hyde suggests REITs make sense as a 5-percent
to 10-percent core holding in a portfolio; that's about what pension
funds typically put into REITs.
REITs aren't immune to risk. Corporate downsizing
and regional downturns can result in high vacancy rates, for instance.
But as a low-worry alternative, REITs may provide shelter from the
2. Prepay your mortgage
You've probably been approached in recent months by your
mortgage company with an offer to help you step up your mortgage
payments and thereby save thousands of dollars in interest over
the term of the loan.
Conventional wisdom states that if you stand to realize
a greater return after taxes by investing that money elsewhere (say,
the stock market), don't prepay. But the ugly collapse of Enron,
WorldCom and Global Crossing is making the prepayment option look
pretty good about now.
Here's a thought: Take that savings you realized on
your monthly mortgage payment by refinancing
and prepay it toward your principal. As the British say, that's
as safe as houses.
3. BAM! POW! Collect comics!
This may not seem like the best time to let the kid in you
take over the investing. On the other hand, that might be just the
antidote to pervasive corporate greed.
Comic books are a surprisingly fun commodity that
come with their own soundtrack (KA-RAAK!) and increase in value
quickly, according to Ken Brown, who owns Downtown
Comicbox, an online collector's site.
"The average comic will see an increase in value
within a three-month time period," he says. "Books that
achieve a seven-day sellout will increase within one to three weeks."
The good news: Almost all comics increase in value
over time. Many dime and quarter books now sell for $2,000 to $3,000,
with rarities going for as high as six figures.
The bad news: "Investors forget that a book will
only achieve its return when you find a buyer that will pay the
price that the market is bearing," says Brown. "If you
invest large sums of money with no buyers to make your product liquid,
the profits may not be achieved in the desired time frame."
Brown says the key to successful comic investing is
to research the industry, read trade magazines and sites such as
his that offer investor tips, then visit live online auctions like
those on eBay
before purchasing a high-ticket comic.
"Online auctions are the most accurate indicator
of what a book will immediately achieve on the open market,"
4. Max out your retirement
If you're like many who dabbled in tech stocks and otherwise
speculated in the stock market rather than investing for maximum
tax advantage in your IRA, 401(k), SIMPLE or SEP retirement account,
you have heard the dreaded "I told you so!" from the parents
There's still a chance to redeem yourself, especially
during the ongoing market volatility, by "maxing out"
your annual contribution. IRA contribution limits were increased
from $2,000 to $3,000 this year, and you can toss in an extra $500
if you're age 50 or over. Employee 401(k) contribution limits are
currently $11,000 and will step up $1,000 per year through 2006.
If you have a SIMPLE, you can contribute and your employer can match
up to $7,000. SEP holders who earn less than $200,000 a year can
contribute up to $40,000.
In addition to the tax advantages of retirement plans,
there are other programs such as Medical Savings Accounts and Coverdell
education savings that allow you to dip into your account for
If your employer offers any sort of matching program
and you're not taking maximum advantage of it, you probably should.
Sure, many of these accounts are invested in stock funds, but the
tax breaks they offer, as well as their generally longer time frames,
can help make dealing with market turmoil a bit easier.
5. The grapes of wealth
Lending new dimension to the term "liquid assets,"
collectable wine can provide a tasty haven from the stock market
if you're willing to do your homework, according to David Parker,
president and owner of Brentwood
Wine Company, one of the largest online wine auction houses.
"As wine reaches maturity, demand goes up while
supply diminishes every year, thus driving the price up," he
says. "If a wine doesn't go up in the future, you can always
'liquidate' (i.e., drink it). It's a way of getting your money back."
Parker says only 1 percent to 2 percent of all wine
made will improve with age, and of those, perhaps only a half percent
are truly blue chip investment quality. Wine collectors know the
good stuff, which means it will cost anywhere from $80 to $1,000
a bottle on release. Some wines, such as Bordeaux, actually sell
as futures years before they're bottled. It can take up to 20 years
for some collectable wines to mature.
To come out ahead as a collector, you'll need to follow
Market Journal, the Wall Street Journal of the industry, and
have a dependable place to store your investment (most major cities
have commercial facilities), as wine quickly shows signs of poor
"I would never recommend that people buy wine
for investment until they have truly educated themselves on the
market," says Parker. "It's like gold. You put 3, 5, 10
percent of your investment fund in wine."
6. The best little ore house
Speaking of gold, there's plenty of evidence that the 20-year
bear market in the precious metal may be over and the running of
the bull(ions) may be under way.
According to September's Austin Report, gold bullion
and coins are up 14.5 percent this year, increasing in per-ounce
price from $268.40 on Jan. 2 to $311.80 on Aug. 15. During the same
period, the Dow lost 14.2 percent, the S&P 500 was down 33.1
percent and NASDAQ declined 59.8 percent.
Gold investors always point to the last bull run,
when gold reached $850 an ounce. Can it do it again? Opinions vary;
some even predict it can top $1,000.
Gold has definite advantages: It's portable, private,
affordable, in limited supply and offers immediate liquidity and
underlying value. Combine these advantages with the stomping of
hooves and it may now make sense to sock away a few American Eagles,
Aussie Kangaroos or Krugerrands.
7. Give it away!
Barry Katz, a certified fee-only financial planner and owner
Financial Services in Sunrise, Fla., says sometimes the best
move is to put the money to other uses rather than investing it.
"Maybe if the money is not doing much in your
conservative portfolio because you're retired, you can gift it to
the grandkids who can be more aggressive with it because they are
younger and their goals are further off," he says.
Or perhaps it's time to take that cruise you've always
dreamed of. An added bonus: Cruise packages are selling at rock-bottom
prices, too. "If you're losing sleep over the fact that your
portfolio is losing money, maybe it is time to take the cruise,"
It's also a good time to consider donating
"If the issue is the money is doing nothing in
my portfolio but going down in value, and I've done my financial
planning and know there are sufficient assets there to meet my goals
and objectives, in this down market maybe it can be put to better
use by giving it away to a child or grandchild, giving it to the
Red Cross or taking that cruise," says Katz.
Jay MacDonald is a contributing
editor based in Florida.
-- Posted: Sept. 20, 2002