Over the last few years we have seen massive volatility in all investment markets as the worldwide economy continues to bump along and the European situation becomes ever more complicated by the day. This has led to a number of investment markets coming to life and others dying a death which has given us some interesting foresight into how expats are looking to invest their funds for the future. One market which has come to life is the “treasure” market, as a recent survey put together by Barclays International and Ledbury Research has shown.
We therefore thought it would be interesting to ask US expats which particular markets they were interested in and how they would invest their cold hard cash. The results are interesting and give a snapshot of the current market situation.
The US economy
Any investment market is driven by the underlying economy and as we are all aware the US economy has been struggling since the 2008 mortgage crisis. While it would be wrong to suggest that the US economy has fared anywhere near as bad as the European economy there is certainly scope for improvement and many investors have shunned the more traditional investment markets to widen their range.
We will now take a look at the individual investment markets available to US expats and attempt to decipher why specific markets are proving to be popular.
Property (42% of the overall vote)
It is interesting to see that 42% of those who took part in our online poll at the expatforum.com believe that the property sector holds more long-term potential investment growth than any other. In many ways we should not be surprised at the long-term attractions of property, especially bearing in mind the recent volatility in property prices over the last few years, because houses will always be required, demand will always outstrip supply and eventually, once the worldwide economy settle down, property will become even more popular again.
The US property market consists of a number of submarkets which have performed very differently over the last decade or so. We saw the rush for mortgages ahead of the mortgage default crisis in 2008 and unfortunately when the crisis took hold there was a massive reduction in property prices not only in the US but around the world. We have seen other financial problems since 2008 which have impacted the American economy and the property market in particular. However, slowly but surely it seems that some investors are now looking towards property for their long-term investment portfolios. Will this prove sensible?
Precious metals (21%)
It will come as no surprise to those who follow the investment markets that precious metals have performed admirably since the US mortgage crisis emerged back in 2008. We just need to take a look at the price of gold which was $300 per ounce back in 2000 and is currently $1600 per ounce having peaked at just over $1800 per ounce in 2011. This perfectly illustrates the so-called “flight to safety” which is very prominent in investment market and has been for centuries.
Gold is not the only metal to benefit from this so-called “flight to safety” with a whole array of mining materials also benefiting. In many ways the movement in the price of precious metals is contrary to that of the movement in equity markets thereby, according to historic trends, it is likely that precious metals will fall in price as worldwide equity markets improve, although when this will happen is anybody’s guess. It is worth keeping a very close eye upon the price of gold and other precious metals as an indication of investor confidence in worldwide stock markets.
You would be forgiven for assuming that an investment in precious metals would mean the physical purchase of a precious metal when in reality you can gain access to these investments via investment funds.
Stocks and shares
Stocks and shares have historically outperformed every other type of investment in the long-term although there is no doubt that those who acquired shares before the mortgage crisis in 2008 will likely still be licking their wounds. Worldwide stock markets suffered major setbacks during 2008 and again in 2009 as the initial concerns about the US mortgage crisis and the collapse of an array of investment houses began to erode investor confidence.
Even today the vast majority of leading indices around the world are well off their recent highs amid concerns that the European debt crisis is far from resolved and further problems are likely to occur in the short to medium term. Whether or not now is the time to invest in worldwide stock markets, or indeed local stock markets, is a matter for debate however it seems that expats in the US are more than happy to start drip feeding their funds into stock markets with a long-term strategy in mind.
The truth is that you will never find the bottom of any market and you will never find the top of any market, if you are able to make money in between those two markers in the longer term then you will have done well. It is also worth remembering that stock markets are by far and away the most popular type of investment for those looking at the long-term because if local economies and the worldwide economy are performing well then this will be reflected in the level of various stock market indices.
Classic cars (9%)
The extreme volatility seen in US property markets, US equity markets, worldwide property markets and worldwide equity markets has breathed new life into some of the more specialised investment markets. The classic car market is something which has benefited from investor concerns regarding direct equity investments and as such this is number four in the list of seven investment groups as voted for by US expats.
The classic car market is obviously an extremely specialised market although the very fact many of these classic cars are rare and set to become even rarer in the future makes them, in the eyes of many people, a much sought after investment. However, it is not simply a case of buying a classic car today and hoping to sell it in the future, because the reality is that this is a specialist market and while there are many people who have made a significant amount of money there are also many who have lost.
As with any investment you need to take professional financial advice at the earliest opportunity and more especially in markets such as classic cars which are not as well covered as stock markets around the world for example.
Despite the fact that the worldwide economy has been struggling over the last few years it seems that every few months the sale price for a specific style of art continues to move higher and higher. Indeed it is estimated that the worldwide art market in 2011 topped US$110 billion which is a phenomenal turnover and illustrates that while not everybody follows the art market there is a very significant interest in this area. It is believed that Chinese investors currently make up around 30% of art investors around the world although in the future this will depend upon the strength of local economies and the confidence of local investors.
If you look lower down the pecking order, below the well-known artists and priceless artefacts, there is still significant investment interest. Indeed, if you are able to pick an up-and-coming artist at a very early stage of their career there is the potential to make a significant financial gain in the longer term. However, as with any investment market, fashions can and do change very quickly and something which is much sought after today may not be in “vogue” next year.
Fine wine (4%)
It may surprise some to learn that fine wine was number six in the seven most popular investment categories according to votes from expats in the USA. This is an area of the investment market which is now more tightly regulated than ever before and indeed a number of the historic tax breaks and tax incentives have been removed. However, it is worth noting that there is particular interest in the fine wine market from areas such as Asia, Russia, South America and India.
The fine wine market may not be an area which the vast majority of people are familiar with but it is one which is very fluid and very liquid. As with the vast majority of the more obscure investment markets it is the rarity value which very often dictates the price of goods although fashions and demand will obviously play a major role as well. The cost of fine wines can vary from just a few hundred dollars to literally tens of thousands of dollars.
It is possible to invest in the fine wine market via a number of investment funds which specialise in such areas. They will allow you to create a more diverse portfolio than you could hope for when investing yourself as well as access to detailed research.
Again, it may surprise many people to learn that the antique market only attracted 3% of the vote with regards to investment by US expats. This is an area of worldwide investment market which has proven to be very popular over the years and has indeed attracted more than its fair share of interest from not only professionals but also domestic investors. Whether or not the term “antiques” was a little too general for some people is open to debate but it does really cover a vast array of different investment opportunities.
Like so many of the less well followed investment groups the antiques market is also very much at the beck and call of fashions and trends. Some styles of antique may well be popular in specific areas of the world and investors may push prices higher than “fair value”. Once this short-term demand for specific antiques has been fulfilled we often see a significant reduction in prices as investors then move on to the next hot sector. There are many ways to invest in antiques and as ever you should take professional financial advice to ensure your investment is as safe as possible.
Risk reward ratio
We see much mention of the risk reward ratio with regards to investment and while on the surface it is fairly straightforward and easy to understand, there are a number of factors to take into consideration. In simple terms the risk reward ratio is the potential risk associated with a potential reward and then the opinion of investors as to whether this is acceptable or not. Therefore it will come as no surprise to learn that the risk reward ratio has increased dramatically over the last few years with investors demanding more potential reward for a higher potential risk.
This principle can be incorporated into any investment market because ultimately that is what makes a market, appreciation of the risk reward ratio. This was perfectly illustrated by the increase in money market rates after the 2008 mortgage crisis and the various financial troubles which have appeared since then. In simple terms, those looking to invest in the money markets were demanding higher and higher interest rates because there was an increased risk of companies defaulting on their liabilities. We saw the Lehman Bros collapse of 2009 and the massive impact this had upon the money markets and the investment markets.
There are two types of risk which are systematic risk, which is a general risk that markets will move in the wrong direction, and specific risk which is the specific exposure to a particular situation, or investment companies. For many people the Lehman Bros collapse was a major wake-up call and while some lessons have been learned it is in many ways human nature to be optimistic in the good times and overly pessimistic in the bad times. The risk reward ratio is very difficult to track specifically because it will vary from individual investment to individual investment and market to market.
Despite the fact that the US economy is by far and away the leader of the worldwide economy it has over the last few months been impacted significantly by the growing crisis within Europe. So while many investors have their eyes on the US economy and various economic statistics released on a regular basis they also have one eye on the European debacle.
Over the last few years we have seen the likes of China and India continue to grow despite the worldwide economic downturn and in many ways this has helped to support the worldwide economy and avoid further reductions in productivity. However, it is very dangerous to rely upon a limited number of countries for economic survival and it is unlikely we will see a major improvement in worldwide stock markets, or general investment markets, until the worldwide economy is back on an even keel.
There are some who believe that the European problem could take decades to resolve completely and while this is perfectly understandable when you consider the complex nature of the euro and the European Union, nobody really knows the truth. Investors have returned to some of the stronger investment markets with fleeting appearances although in many ways it is one step forward and two steps back with regards to economic stability around the world. There will always be pockets of interest in specific investment markets and specific investment areas but on the whole we will need to see a definitive improvement in the worldwide before investors return to traditional markets such as property and stocks and shares in great numbers.
In many ways this has been a wake-up call for investment regulators around the world and indeed the banking system and the investment system which entered the worldwide recession will be very different to the one which exits this ongoing downturn, whenever that may be.
It will come as no surprise to learn that property investment was the leading investment group amongst US expats but some may be surprised to learn that precious metals received nearly twice the number of votes as stocks/shares. The apparent reluctance of investors to move lock stock and barrel back into the stocks and shares market is perhaps a sign of the times and the fact that there is still significant doom and gloom surrounding not only the worldwide economy but specific areas of the world such as Europe and the US.
Both our poll and the research by Barclays International showed increased focus on some of the more obscure investment markets which are very often valued upon the rarity of specific items. Fine wines, classic cars, antiques and art investments are perhaps more commonplace than they ever have been although whether they will reduce in popularity when the more traditional markets improve remains to be seen.
The ability of worldwide investors to look away from the traditional areas such as property and stocks and shares has never been more prominent. As and when the worldwide economy returns to a more even keel remains to be seen but many believe this will prompt a return to more traditional investment markets. Whether this will be the case or not remains to be seen and whether investors will ever trust worldwide stock markets as much in the future as they did in the past is an interesting matter for debate.