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Discussion Starter #1
There are many conversations about investing in the publicly traded markets. (eg. stocks, bonds, mutual funds, etc)
In this thread, let me start a discussion on the investing instruments and/or asset classes that are NOT correlated (or minimally correlated) to the generally known stock and derivative markets. This means that possible gains are generally not influenced by the daily fluctuation in the broader stock market.

Let's brainstorm or share some ideas. I'm not interested in if the idea is good or bad. The merits of each investment vehicle can be discussed in a new separate thread.


Here are some off my head..

  • Rental Properties
  • REIT - Real Estate Income Trust
  • Life Insurances - A contract between the policy owner and the insurer, where the insurer agrees to pay a sum of money upon the occurrence of the insured individual's or individuals' death or other event, such as terminal illness or critical illness (Wiki)
  • Gold Bullion - Traditionally consider them a non-correlated asset class.
  • Land Banking - Practice of purchasing land with the intent to hold on to it until such a time as it is profitable to sell it on to others for more than was initially paid (Wiki)
  • Life Settlements - Refers to the sale of a life insurance policy by a policyowner for less than the face value of the policy to third party investors. (Wiki) From my understanding, this is not legal in Canada, but we can participate in the US market)
  • Mortgage Investment Corporation (MIC) - Owning shares of the corporation enables you to invest in a diversified and secured pool of mortgages.
  • Wineries - Private investment into the shares of winery. Perhaps you can get your dividend in bottles of wine :)
  • Private Investment Fund in Care-A-Minium - Investing in a private/public retirement homes. Starting to take off in westcoast.
  • Frontier Markets - It is commonly used to describe a subset of emerging markets (EMs). They are investable but have lower market capitalization and liquidity than the more developed emerging markets. The frontier equity markets are typically pursued by investors seeking high, long term returns and low correlations with other markets. (Wiki)
  • Flow Thru Shares - Tax-advantaged investment in the Canadian natural resource sector. People purchase specifically for the tax credits.
  • Segragated Funds - A type of investment fund administered by Canadian insurance companies in the form of individual, variable life insurance contracts offering certain guarantees to the policyholder such as reimbursement of capital upon death (Wiki)
  • Angel Investor - An affluent individual who provides capital for a business start-up usually in exchange for convertible debt or ownership equity. (Wiki)
  • Venture Capital Funds - Refers to a pooled investment vehicle that primarily invests the financial capital of third-party investors in enterprises that are too risky for the standard capital markets or bank loans. (Wiki). Working Opportunity Fund is one example.
 

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I would add:

Internet Property or Domain Names

These virtual properties are much like physical raw (undeveloped) land which can be:
- left sitting
- rented
- sold with or without improvements
- developed into a fully functioning commercial endeavor

From what I have seen the domain name aftermarket has softened along with the global economy but it seems to be recovering.

Recent Domain Name Sales FYI

I am sure this area of investment will be contentious to many but keep an open mind.
 

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Before venturing off into other asset classes, particularly ones for which management fees will take a significant bite out of one's returns, one should probably consider how much of a trade off one should be making. Particularly, how much of a trade off in reduced after-fee performance are you willing to take for the sake of increased diversification. Also, how much of a trade off in expected return are you willing to make in order to increase the diversification of your portfolio.

From the list of possible non-market correlated investments, I would personally steer clear of gold bullion. Gold may be an inflation hedge, but if you want that protection with less volatility, and possibly a higher return, real-return bonds might be a better choice.

I'm not too enthused by segregated funds either. Their management fees are usually around 3%, and the underlying portfolios are going to be just as correlated with other asset classes.

Venture capital funds, specifically labour-sponsored investment funds, offer some diversification, but they are likely to be correlated with equity returns. They are also illiquid, and charge high fees. The tax credit is nice, but it's not worth holding them if you need your money back in less than 8 years. The Working Opportunity Fund can't be redeemed at all before the 8-year maturity date. Other LSIFs, such as the GrowthWorks Canadian Fund can be redeemed early, but you then have to pay back the tax credits and pay a deferred sales charge.
 

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I know a few people who have taken up equipment ownership.

Basically they buy a truck and someone else operates it and the split the profit down the middle. Even a small dump truck with a single operator hauling gravel or whatnot charges out at $90/hour. Short haul oil trucks usually charge per load and it can be very lucrative (though the trucks can cost over $250,000 from what I understand).

Smaller entry would be a Bobcat, where with an operator charges out at around $80/hour - the trouble with this is that entry may be as little as $20,000 and eventually the operator realizes he can afford to be an owner/operator him/herself.
 

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I know a few people who have taken up equipment ownership.

Basically they buy a truck and someone else operates it and the split the profit down the middle. Even a small dump truck with a single operator hauling gravel or whatnot charges out at $90/hour. Short haul oil trucks usually charge per load and it can be very lucrative (though the trucks can cost over $250,000 from what I understand).

Smaller entry would be a Bobcat, where with an operator charges out at around $80/hour - the trouble with this is that entry may be as little as $20,000 and eventually the operator realizes he can afford to be an owner/operator him/herself.
In Alberta there are quite a few small vacuum / pressure truck owners; with the same split on revenue with operators described above. A vacuum / pressure truck is basically a 5 ton truck with a big tank and a pump. They are used for sucking up and hauling away drilling mud, catalyst from chemical plants, pressure testing pipelines, and hydro-excavation. The trucks are expensive, so there's a barrier to entry. The operator isn't likely to buy one. The trick is keeping the truck busy, and functioning. However, this is the furthest thing from a "passive" investment!
 

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Discussion Starter #8
Before venturing off into other asset classes, particularly ones for which management fees will take a significant bite out of one's returns, one should probably consider how much of a trade off one should be making. Particularly, how much of a trade off in reduced after-fee performance are you willing to take for the sake of increased diversification. Also, how much of a trade off in expected return are you willing to make in order to increase the diversification of your portfolio.
Agree with your statement; however, people could own other assets for different reasons - hobby, appreciation for art, peace of mind, possible greater gains, speculating, personal values, or even just a thought of happiness. It's not always sorely dependent upon the management fees.

These instruments are not for everyone. All depend on their financial circumstances, personal interests, and risk tolerance levels. The seg fund for example, I'm not a bit fan, but I know people who benefited dearly during this market meltdown. Some gambling minded investors might dive small portion of their investment portfolio into VC funds. I do understand some are way more risky and some are not even regulated in Canada; nevertheless, they could potentially be a good fit for others. For every naysayer, I’m sure there will be few who will swear by these unusual asset class. I decided to create this thread because most investing public do not know that there are other instruments exist aside from stock, bonds, GICs, and mutual funds. Just thinking outside the box.

PS: I personally been collecting small amount of gold bullion since 1996 till reached mid 600's. I'm sure many thought I was crazy and maybe still think I'm crazy. I just love shiny stuff. :)
 

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Discussion Starter #9
I would add:
Internet Property or Domain Names
Geez, never thought about that.


CC, how would you propose to invest in “Timber”? Buy a wood lot? Or futures?




I know a few people who have taken up equipment ownership.
Interesting concept. I do know one individual who purchased a small a mini-bobcat just for the snow clearing around his neighbourhood and making few bucks. (or lots esp. last winter.. $120/hour)
 
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