By Charlotte Beugge

If you’ve had your fill of funds and have plenty of money on deposit, you may be looking for a more colourful alternative – one that is interesting as well as potentially lucrative.

Welcome to the world of alternative investments. This wide investment class covers tangible assets such as wine, art and stamps, as well as non-tangibles such as carbon credits.

While diversification is a good thing where portfolios are concerned, alternative investments are a high risk. Such investments are seldom regulated, so there’s no comeback if something goes wrong. Tangible assets are also, by nature, illiquid – even if the asset is drinkable (illiquid means that you may not be able to sell your asset quickly to realise money).

And while company share prices can be affected by unpredictable events, with alternative investments there’s also the random nature of changes in taste and fashion. You might buy a work of art as an investment – but unless someone else likes it, then you could lose money.

A big downside of alternative investments is that they don’t pay income, because they will only generate money when you sell. And you do need to be an expert or have specialist help to hand, because fakes are all too common. You also need to pay to store, insure and maintain your asset, which will add to your costs.

If your alternative investment makes you money then you may have to pay capital gains tax. It’s best to seek professional advice if this could be an issue. And it’s always worth being extra-cautious. The Financial Conduct Authority (fca.org.uk) has a number of scam warnings on alternative investments. Some of these, such as those involving carbon credits, rare earth metals and graphene, often come with cold-callers promising you returns that never materialise.

While the downsides of alternative investments are all too evident, there can be advantages, too. As the price of a tangible alternative investment will have little if any correlation with stock market movements, it could offer a valuable diversification.

Gold is a popular alternative investment because, unlike shares, cash and even property, it will always have a value – which is why the gold price tends to rise in times of political upheaval. But there is a safer – and easier – way to buy gold by using Exchange-Traded Commodities, a form of ETF (Exchange-Traded Funds). These track the price of gold – or other commodities you might be interested in – without the need for you to buy the physical metal.

If you want to buy an actual alternative investment, then at least you will own an asset that could be attractive to look at, which is something you could never say of a unit trust. If you invest in wine, for example, you’ll always have something to drink even if your investment falls in value.

Returns on alternative investments are mixed. According to the latest Objects of Desire index from Coutts, between January 2005 and June 2013 the price of classic cars rose 275pc. The Stanley Gibbons GB250 index – which tracks the performance of the top 250 investment-grade stamps – rose by 11.7pc a year over the 10 years to the end of 2014.

Its English Coin 200 index shows yearly growth of 10.1pc a year for the same 10-year period.

If wine is more your thing, the Liv-ex Fine Wine 100 Index shows a 12-month return of 1.91pc to the end of January – but over five years it’s down 1.13pc.

The Antiques Trade Gazette’s Annual Furniture Index recorded its seventh successive fall in 2014, dropping a total of 4pc last year. Its Victorian and Edwardian Index has lost two-thirds of its value in the past decade – thanks to changes in taste and fashion.

www.telegraph.co.uk/sponsored/finance/new-pension-rules/11501302/toast-to-the-art-of-alternative-investment.html