A few years ago I did a net search on Gerard Butler, who is among my favorite actors. I wanted to see what was up, and was interested to see him pop up as a defendant in a lawsuit against the multiple owners of a restaurant. Was I horrified to see this celebrity’s image injured by this scandal? Actually, I wanted to meet his financial adviser to see what investments he or she had to offer me.
When we think about financial portfolios, we are often thinking of the list of stocks, bonds, or pass-through financial instruments included in the various mutual funds that hold our retirement accounts. There is so much to gathering wealth that has nothing to do with the stock market. I can guarantee you that Mr. Butler was not putting in the requisite 20 hours a week to be a full partner waiting tables (though I would have paid handsomely to get a table if he was).
What he bought was most likely a limited partnership. It’s an investment in a business where you’re a “silent partner”. Mr. Butler has no say in how the restaurant is run, and his earnings probably have a cap. However, he has no liability past his investment, whereas a regular partner can lose personal property if the business goes under. Restaurants are risky, and their rate of return is comparable, 2-3 times what you’d earn on stocks. If you can lower your risk by offering to buy an interest in a restaurant that has been packed every weekend for 20 years, so much the better.
Some investments hold special places in your portfolio. Precious metals are an example. Individual metals are effected by changes in their supply, such as a cornering of the silver market or a new mine of gold. In general though, precious metal prices move with inflation. This makes sense. If you have to pay more for a candy bar, you’d expect to pay more for a gold ring, right? The opposite is true financial instruments. When inflation rises their values decline, either in a market shock for stocks or bonds or just slowly over time for a CD. If you have a precious metal in your portfolio, you could sell that for cash needs while waiting for the rest of the investments to ride out the business cycle.
Art is another good option, particularly if you enjoy it. Works are often large enough to be difficult to steal, and you can get them insured with your homeowner’s insurance. If you buy an older piece with an established value, make sure to have it appraised by as many people as you can afford to hire. If even one is concerned, have it throughout investigated. Art forgery is becoming quite sophisticated. If you commission something, please leave the artist to work. Too much input from patrons has spoiled innumerable works of art in the history of the world.
Other options are purchasing patents, funding and sharing in the profits of websites, financing film production (unfunded producers are everywhere), buying land for the sale of natural resources, or just loaning it to family members that you know will feel guilty if they don’t pay you back. The opportunities are limitless. The returns are harder to predict, which is why these investments are only part of your portfolio. But the richest people of the world have gold hanging on their neck and Picasso’s hanging on their walls. They are doing something right.