Investing in Non-financial Assets: Collectibles,Resources, and

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Presentation transcript:

Investing in Non-financial Assets: Collectibles,Resources, and Chapter 23 Investing in Non-financial Assets: Collectibles,Resources, and Real Estate

Important General Considerations Source of returns primarily possible price appreciation Risks usual investment risks additional risks such as possibility of fraud or theft

Marketability Lack of liquidity Poorly developed secondary markets Role of dealers and auctions

Illustrations of Collectibles Art Oriental rugs Antiques

Investing in Gold Gold coins Gold bullion Mining stocks Specialized mutual funds Gold futures and options

Investing in Natural Resources Owning the resource (e.g. a tree farm) essentially is running a business Importance of cash flow Supervision - active management is required

Alternative Means to Invest in Natural Resources Partnerships Stocks in resource companies

Importance of the Price Response Inelasticity of supply

Real Estate Home ownership Potential price appreciation Tax benefits of home ownership

Mortgages Conventional mortgages loans Adjustable-rate mortgages (ARMs) Renegotiable mortgages Graduated-payment mortgages Role of the FHA and VA

Land and Properties Revenues Minus operating expenses depreciation interest taxes Equals net income

Cash Flow Earnings plus non-cash expenses Possible to operate at a loss but generate cash

Real Estate Investment Trusts (REITs) A specialized investment company Equity trust - owns properties Mortgage trust - holds mortgages Cash flow may be distributed to stockholders