Often it can feel like everyone giving you investment advice is only promoting share portfolios, dropping the microphone and walking off stage. This remains brilliant advice but does not mean we should ignore the merits of alternative investments. The big hype around the campfire these days are alternative investments in bees, blueberries and cows. Crowdfunding ventures like the ones offered by Fedgroup are exciting and satisfy the farmer in each of us. I mean it makes sense, you make a product and sell it. It can’t be simpler.
How does this compare to equity investments though? The first of these investments is in Honey Bees. Who doesn’t like honey? On top of this, bees are cute and fluffy. What can go wrong? Investors pay R4 000 per hive, which is expected to start producing honey after three months. The first year’s production is estimated at 10% of your initial investment, growing systematically to 30% in year 10.
At this point, the hive is decommissioned. This is an income of R400 per year, increasing to R1 200 by year 10, linearly. After 10 years you have received R8 800 over the period of your investment. Subtracting your initial investment of R4 000 from the income, you have a profit of R4 800, which is great. In my mind, the only drawback so far is the fact that you don’t get your capital back as with other investments.
Equity vs alternative investments
What interest rate would you need to achieve, to turn R4 000 into R8 800 if you had invested in equity?
The main difference between the two investments is the capital that is lost when investing in bees. As a result, you only need to achieve a return of 8.2% with your equity investments to match the return from your beehive. This means that the 14-16% interest quoted on the website is simple interest, which I feel is a bit sneaky. For the last 10 and 20 years, the Johannesburg Stock Exchange (JSE) has returned 10.5% and 12.4% respectively. Assuming an average growth of 11%, investing the R4 000 on the JSE will return R 11 358, about R2 500 more than investing in bees.
I purposefully chose the investment in bees since it is the alternative investment from Fedgroup with the highest return. It doesn’t however, stack up against equity investments. I must admit though, I really wanted it to be a worthwhile investment, and to be honest I did invest some money. I see it as an investment in a worthy cause. Bees are endangered and critical to us. Well, that’s what I tell myself at least; it helps me sleep.
Article reposted with permission from the Tigers on a Golden Leash blog.