With the global banking system looking shaky, stock markets plummeting around the world, and the housing market looking far from safe as houses, Tom Scotney looks at some of the alternatives for canny savers.
ART AND ANTIQUES
Seventy million pounds. It’s the sort of figure you might hear bandied about in terms of a bailout to a failing bank, or a new strike force at Manchester United.
But a few weeks ago, British artist Damien Hirst proved not all industries are being affected by the credit crunch, taking that amount in a single day with an auction of dozens of his latest pieces at Sotheby’s.?
And the £70.5 million haul – a record for the art industry – is down to rich investors looking to get out of the financial system, according to the Royal Institute of Chartered Surveyors.?RICS spokesman Andrew Davies said despite the housing downturn impacting on purchases of art and antiques in general, a select band of people was increasingly using it as an alternative way to invest.
He said: “Against a backdrop of turbulent financial markets, the higher end art and antiques market has continued to perform well.
“Investors are now becoming more selective in their purchases and this is likely to carry on as the super rich continue to use the industry as an alternative investment vehicle.
“The contemporary art sector has rocketed over the past few years, with a sudden correction now a strong possibility.
“Other ‘traditional’ areas of collecting, such as antique furniture, are slightly undervalued as people shy away from purchases during the housing market downturn. However, we do not expect this to last for long as savvy investors are never far from potential bargains.” ?
With the housing market no longer looking reliable, and the banking market looking to be going the same way, the upper echelons of investors have been casting around for ways to look after their millions.?
And art and antiques have provided the answer.?The super wealthy are never far from high-priced quality pieces with cash rich Middle Eastern, Russian, and Asian buyers on the lookout for traditional native items and contemporary art. ?
Jewellery and silver antiques continue to perform strongly at auction on the back of strong commodities and precious metal markets, with prices on the rise, according to a RICS survey.?But only the top end are choosing to get involved, the group said, with most of the growth in items worth £50,000 or more.?
Despite Damien Hirst grabbing all the headlines with his recent record breaking sale, many surveyors said antique and art auction prices had dropped recently, signalling a slowdown that will become more visible through what is usually a busier fourth quarter.?
Lot prices for furniture, oils and water-colour paintings, ceramics, and clocks, remain stagnant with surveyors reporting slight drops across these sub sectors.?
“The world economy is in crisis, and no one’s got any faith in the banking system,” says David Johnson, MD of Birmingham jewellers Rex Johnson and Sons.?
“People are literally taking their money out of the bank and buying gold with it all.”?
Rex Johnson branches in Birmingham and Dudley have seen queues form as people look to put their money into a more tangible form after becoming wary of the financial system.?
And it’s not surprising too. With the price of gold hitting an all-time high earlier this year, and looking unlikely to drop any time soon, people are starting to see the benefits of having a hoard of gold hidden under the figurative mattress.
A website set up by Rex Johnson to trade gold over the internet was inundated with tens of thousands of hits in the first few days, meaning the company is now rushing to change what began as a pilot project in the north-east into a national scheme.
Gold investments can be relied upon to keep their value because there is little hope of miners increasing supply, as they are already working flat-out to keep up with demand.?And the worldwide acceptance of gold is another reason for its popularity, Mr Johnson said.
“The point is, with gold, you can go to any country in the world you like, and you will always be able to feed your family.”?
Coins are among the most popular way to invest in gold, with supplies of coins like the South African Krugerrand drying up as people hoard them.?But as the masses flock to stock up on coins, jewellery and ingots, one man’s investing decision is starting to look a bit foolish.?
Beleaguered Prime Minister Gordon Brown decided when he was Chancellor to sell off the UK’s gold reserves – 400 tons of bullion – at the turn of the century, when prices had hit a 20-year low.?Since then, as prices have rocketed, the cost to the taxpayer by the ill-timed move has gone up and up, leading to serious criticism of Brown’s decision.?
Last year he had to face questions in Parliament over allegations that he had ignored advice from the Bank of England over the decision to sell, which has meant the public purse has lost out on more than £2 billion that would have been generated since by the stockpile.
“It’s looking more and more like a silly decision,” said Mr Johnson.??
Bonds. Premium Bonds.?While people with their money in stocks and shares, or an extensive housing portfolio, those with Premium Bonds will be taking a quantum of solace in the fact that the Government-run lottery is still paying out at the same rate.?
And premium bonds always make an attractive bolthole when the going gets tough financially.?
Like the National Lottery, but you get your money back. That's the simplicity of Premium Bonds, when the rest of the financial world seems to be going crazy.?
In 2007/08 alone savers bought £6.6 billion worth of Premium Bonds, with more than £104 million paid out last month.?
When Gordon Brown took over as chancellor, UK savers held about £8.6 billion pounds of bonds. In what could be a commentary on the faith people have in the now Prime Minister, the total today is nearly £36.5 billion.
There was a surge in bond-buying in the late 1990s, as shares were still expanding on the back of a hi-tech bubble, but the recent buying spree has come about in completely different financial conditions.?
Not surprisingly, the Government is very keen to persuade people to buy more bonds, as the National Savings and Investment scheme – of which bonds are the largest part – props up public spending and generates cash flow.?
But the low rate of return has often put people off. In fact, looking at the hard numbers, bonds are one of the worst ways to invest money imaginable, ranking just higher by return than the time-tested “money in a sock under the bed” method.?
The proportion of winnings is based on a calculated interest rate of around 3.4 per cent – not too different from a standard savings account.?But while UK savings accounts are still waiting to see if they will have any protection from the Government, it’s not surprising people are moving to the already-guaranteed bonds scheme.
What they offer is stability.?And the big sell is the lottery effect, the thought that any second there could be £1 million winging its way towards you, although in fact the chances of winning a million on Premium Bonds are far more unlikely than even the National Lottery.?
But there’s always the fun of checking your numbers every month, which might be reason enough for some people.?What investors have to ask themselves is whether they feel lucky.?Well, do you???