Investors are pumping money into exotic investments for high returns, but proceed with care
You know it’s getting hard to make a dollar when investors start sinking their cash into exotic investments like wine and art. But are things so grim that money is going into seaweed farms?
Rock-bottom interest rates and volatile share markets are forcing some investors to consider ever more unusual alternatives to beat the stickily high inflation rate here.
Wine and art have long been the alternative stand-bys, but more investors are thinking outside the box and looking for better returns in seaweed farms, tree plantations, fish farms and cattle ranches.
All investments come with a certain degree of risk, but these relatively new ventures have the added danger of the unknown.
Naturally, experts do not encourage diving headfirst into such investments; background checks are essential.
Mr Alfred Chia, chief executive of financial adviser SingCapital, said: “As society advances, investors get more sophisticated and they want more choice.
“There is nothing wrong with that but, as with every investment decision, you have to look out.”
Know the risks
Mr David Gerald, president of the Securities Investors Association (Singapore), advised investors not to look just at the good returns, but also to pay attention to the risks that may be involved.
“They need to consider if they will be okay if they lose all their investments, which is possible in these risky products,” he said.
“Personally, I am not into such products, but each individual has to assess if the products are suitable for their risk profiles.”
The usual questions should be asked, no matter how exotic the investment:
Does the company have a good track record of running the business and where is it regulated?
What’s your investment horizon and risk tolerance?
What is your means of recourse if the investment goes bust?
Mr Chia said: “If you are investing for your child’s education, the time frame you are looking at is 10 to 20 years, you can sit it through.” But if one's time horizon is short, for example, if you are getting married in the next two years and would need the money to finance the wedding, it is best not to risk your capital.
OCBC Bank’s head of content and research for wealth management, Mr Vasu Menon, recommends visiting the premises of the company selling the investment.
For some of these investments, it may mean making a trip overseas to check if the farms are well maintained and if the cattle look well-fed and healthy.
“If it looks dodgy, it’s a tell-tale sign to walk away.”
Former banker Victor Hong, 63, placed about $100,000 with Asia Plantation Capital a few weeks ago to invest in Aquilaria trees from which oudh oil is extracted.
Mr Hong, who is also invested in property and blue-chip stocks, said: “It was a way to diversify my portfolio. After doing my due diligence, I felt that the company had previous experience, although they were planting different trees.”
The fact that Plantation Capital is regulated by the Financial Services Authority in Britain also gives Mr Hong some peace of mind.
Mr Chia cautions against companies that advertise that they are “regulated” when they may not be.
He encourages investors to do a thorough check, adding that “not all financial services authorities are equal”.
If regulation is being carried out in another country, it is possible an investor seeking legal recourse may have to go to court in that jurisdiction.
Retired sales manager Eddie Goh, 72, has been investing in Dynasty Marine Farm, a seaweed farm, since 2009.
He put in an initial investment of $200,000 after his wife made a trip to the farm in East Malaysia and confirmed that it was a “genuine business”.
He has since increased his investment amount, and now receives more than $10,000 every six months in returns.
Oudh oil from Aquilaria trees
Who: Asia Plantation Singapore, the sales and marketing arm of Asia Plantation Capital
Minimum investment: $27,500 for 100 trees. Each plantation has 12,000 trees.
Investment time frame: Six-and-a-half to seven years
Returns: Returns are expected to be at 19 per cent to 22 per cent per annum.
There is a buffer stock of trees planted around the plantation in case the ones you buy do not produce the resin or are struck by lightning.
What you are buying: The trees produce a resin which is extracted and sold for up to US$50,000 (S$62,000) per litre. On average, one tree produces about 12 grams in each cycle.
In the wild, 7 per cent of the trees get infected by a fungus that forms a resin that is known as Oudh.
In a controlled plantation environment, the trees are inoculated in their fifth year with an organic compound which ensures all the trees produce the oil.
Marketing director Steve Watts said the typical Singaporean investors are married couples, aged 32 to 65, who are looking to diversify their portfolios.
Asia Plantation Capital is part of the Plantation Capital group in Britain. It has sold about six plantations in Thailand and Sri Lanka.