Weaning yourself from the bull market: gold coins, collectible cars and other investments can help diversify your portfolio

Money Digest, March, 2000 by David Karas

I come bearing a warning: "the bull market must end." When it does, it will be traumatic, expensive and in some cases financially devesting.

However, many respected market watchers predict a long life for the current bull market. Alexander Christ, one of the original partners of Mackenzie Financial, used to predict that market strength would last until somewhere around 2112.

Myself, I feel the bull market will run further and higher than you or anyone else currently expects. The question is, what do we do to diversify our assets, lock in our profits, and avoid taxes during this run. How do we avoid getting financially velocitized, getting hooked on higher and higher returns, not acknowledging the ever-higher risk that not taking profits creates?

I am not advocating getting out of the stock market, or locking down, going to cash and waiting for a crash. However, it is prudent to protect yourself from your own greed, and from the financial velocitization that surely will happen. A good rule is to set a regular review date for yourself, then force yourself to take a portion of profit, from all your winners.

Yes, this causes tax, and slows down some of your gains. It also forces you to lock in some of your profits into an alternative, and hopefully not positively correlated, asset. It is more likely interest rates in North American will go up than down. It is probable that inflation will come back: Bonds will be subject to any rise in interest rates, therefore bonds unless they are short term, will most likely fall in value. Be careful if buying bonds.

As an alternative to bonds, you could consider an equity/cash mix, with tangibles for variety. The reason I am suggesting cash is that it has little downside, if the market does sag.

Today I am virtually 100% invested in equities. In the coming year, a cash portion must be created, along with tangible alternative investments. Tangibles to consider include recreational and residential real estate.

For select investors, it may be a good strategy to take money out of your house and invest it in the markets. The idea is to create a tax deductible loan and growth on money that otherwise sits stagnant. Investors who have a heavier weighting in stock market investments and may not have as diversified an asset class in alternative assets may want to consider placing money in one of the following investment vehicles:

* U.S. Rare Gold coins pre 1932. Each coin is serialized and packaged in proper storage and display case. Each is graded by a professional grading firm, PCGS. These coins are sold in various auctions globally, with prices from a few hundred dollars to several thousand.

There are unique factors to consider as a Canadian investor. You can buy coins, yet not take physical delivery, and leave them in an insured and audited facility in the U.S. If you purchase less than $100,000 worth, it is not required that you report your ownership to Revenue Canada. The average return over 20 years, has been 14% per year.

There is a guaranteed resale market in that the major supplier in the States, US Tangibles, will automatically buy coins from you, at a standard discount rate, within five days.

* Consider buying rare stamps. Get a good counselor as this area has a lot of hobbyists, not necessarily investors.

* Consider purchasing high end collectible antique cars. Only do so if you have storage and a way of maintaining. Cars that start in the $50,000 range could appreciate.

Pick up a copy of the Robb Report magazine to get an idea of collectible car market prices. If you drive your collectible car, you lower the value and move it from an investment to a hobby vehicle.

* Consider artwork. Unless you are an expert you need professional help. Good quality investment pieces can be had in the $25,000 plus range.

Ultimately, you must continue to rebalance all of your stock market assets. Mutual funds provide the best vehicle for doing this without having to sell odd lots of stock.

With technology mutual funds boasting gains in the 150% to 180% range in the last year, you have to ask yourself when and how you're going to take profits.