The Follies of Alternative Investments

He won more games than any quarterback in NFL history... But after 22 seasons, Tom Brady was ready to move on.

Brady announced his retirement in February. The last touchdown of his career was a 55-yard pass. It was a beautiful play... and a part of sports history.

The ball auctioned for more than $518,000 on March 13. A lucky fan owned a piece of Tom Brady's final touchdown...

Except – it wasn't Brady's final touchdown.

Brady announced his return to the game hours after the auction closed... And the ball's value plummeted to about $6,500.

This story has a happy ending. The auction house declared the sale "void" earlier this month. But it's a warning to anyone considering alternative investing.

These kinds of opportunities are exciting... But they come with more baggage than you might realize. Once you figure that out, regular investments start to look much more enticing.

This month, cautionary tales of investing in memorabilia have been all over the news...

In 2000 and 2001, Tiger Woods used the same set of clubs to win all four major golf championships in a row. The clubs auctioned in 2010 for more than $57,000 – but they weren't the right clubs. Woods claimed the real "Tiger Slam" equipment was still in his garage.

Nevertheless, the dubious clubs sold for $5.16 million this April.

In Canada, collector Aron Gratias spent 40 years acquiring Wayne Gretzky memorabilia. He had a hoard worth $100,000 CAD...

That is, he did until early this month. Someone stole it from his storage container.

In 1986, soccer player Diego Armando Maradona closed out a World Cup game with an all-time goal. The point was so iconic, it was nicknamed "The Hand of God."

The jersey he wore will go to auction this month. It's expected to fetch 4 million to 6 million British pounds. But his daughter Dalma insists it isn't the right jersey. She says her father changed jerseys at halftime.

It's unclear if Dalma's word will affect the sale price of the shirt. But the fact that it might should give alternative investors pause.

People pour money into collectible assets like these for many reasons. But it often boils down to this...

They're just more fun than stocks.

With $10,000, you could own 22 shares of an S&P 500 exchange-traded fund... or a classic 1923 Ford Model T.

With half a million dollars, you could own one share of Berkshire Hathaway class A stock... or a second home off Florida's Fernandina Beach.

The alternative options are more exciting. But there's a problem with investments like these. They usually come with more hassle and risk than anyone realizes.

That Model T may look great – but it might need extensive work if you want it to retain any value. That second home sounds scenic – but prepare to change lightbulbs and deal with floods.

The problem with alternative assets is they come with unexpected baggage. That just isn't a part of traditional investing. Stocks and bonds are truly "set it and forget it." They're completely passive – at least, if you want them to be. That's something alternatives can rarely promise.

Sure, with stocks and bonds you have to deal with ups and downs in the market. But the hassle factor is non-existent.

This doesn't mean you should ignore alternative investments entirely. But they're getting darn popular these days... And few folks understand the risks that can pop up.

So, if you're going to go down that road, think of it as your "fun" money. And be ready for problems. They're inevitable.

For the rest of your wealth, stick with traditional investments. They may be "boring"... But smart investing usually is. And that's exactly why you want to own those assets.

Good investing,

Sean Michael Cummings

Further Reading

"The financial world is full of intangibles that can attract outrageous valuations," Dan Ferris writes. While it's thrilling to seek alternative investments, sticking to traditional assets usually offers the best way to protect your portfolio... Read more here: This Is What Unbridled Financial Excess Looks Like.

"We place a higher value on something simply because we own it," Dr. David "Doc" Eifrig says. But blocking out emotional bias is critical to ensure we're making sound investments... Learn more here: Clear the Junk From Your Portfolio With This Simple Test.

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