Alternative investments have always held a certain allure for wealthier private investors that can also make them appealing to the masses. If premiership football managers can see the merits of owning a racehorse then it's a clear signal to millions of devoted fans to jump on the bandwagon. Alternative investment opportunities, such as art and fine wine, are now starting to form an ever wider appeal among investors.

Art as investment, for example, is now becoming more accessible than it has been historically. It has been prohibitively expensive to visit the top art exhibitions in the past, but now even this barrier is falling away.

The Armory Art Show in New York is considered by many to be the world's top art exhibition, and it charges just $20 per ticket. It has grown in attendance from 11,000 visitors in 2000 to 40,000 in 2005.

Prices for works of art at this show range from $2,000 to $150,000. The Affordable Art Fair, which takes place in London every March and October, gives investors and collectors access to a truly egalitarian experience. Prices for all of the works of art for sale are less than 3,000.

Russia provides a good example of the opportunities that can be had from art investment. The collapse of the Soviet Union in 1991 created an opportunistic economic climate when it came to Russian art. Moscow now has more billionaire residents than any other city in the world, which explains the capacity for alternative investments. In the past five years, the price of early 20th century Russian art has increased by over 30%.

There is, however, a high cost to entry in this particular market. To buy a piece by Ivan Aivazovsky, Ilya Repin or Isaac Levitan will cost 250,000 to 1m. There are some doubts over the authenticity of Russian art work as well. During the revolution in 1917 many works of art were mislaid. If you plan to invest in this specialist market it could be well worth paying for expert and unbiased advice to ensure that you do not get your fingers burnt.

Holding alternative investments in your portfolio can be beneficial for a number of reasons. They provide an important level of diversification when compared to a traditional portfolio containing equities and gilts. A run on the stock market, like we started to see last week, can often lead to a rise in the value of some alternative investments that are viewed as a safe haven for investor's cash. The risk profile of alternative investments may discourage more cautious investors but they can still play a part in a larger portfolio.

Alternative investments also have the potential to add a new level of interest to a traditional portfolio. In a world where interest in long-term saving appears to have faded, the forthcoming ability for your pension fund to own a Penny Black or two might encourage a whole generation to take a new interest in retirement planning.

The Inland Revenue issued a statement in 1999 about the capital gains tax consequences of investing in wine. Bottled wine is a chattel for CGT purposes. Gains on the disposal of chattels which are also wasting assets are generally exempt from CGT under section 45(1) Taxation of Chargeable Gains Act 1992.

The biggest question to address is whether or not the wine in question is a wasting asset. If a bottle of wine is deemed not to be a wasting asset then there are still some exemptions to be had. If the disposal proceeds do not exceed 6,000 they are deemed to be exempt from capital gains tax.

If a set of bottles of wine are sold, then this exemption figure applies to the overall sale proceeds rather than the price of any individual bottle.

Top wines from the best vintages have demonstrated their ability to produce outstanding investment returns in recent years. Wine brokers Berry Bros & Rudd provide examples of growth in excess of 450% in a 15- year timescale. However, for many investors the high initial acquisition costs and ongoing storage and maintenance costs of wine will reduce these returns to an unacceptably low level.

The general guideline for any would be alternative investor is to stick to what you love. While objects like art and fine wine might be considered in the same league as a traditional investment by many, they should first and foremost be considered for your own consumption - either with your eyes or your mouth.

Pros and cons of alternative investments

Advantages:

they can provide diversification within a traditional equity and gilt investment portfolio;

they bring a greater degree of interest and involvement into the acquisition and management of investments; and

investment returns can be spectacular when the right assets are purchased and realised.

Disadvantages:

art has no intrinsic value. Its value is extremely subjective because it is based on current trends and tastes;

headline performance figures might not take into account transaction and maintenance costs;

picking a winning art or wine investment is difficult for beginners;

there are often high costs involved with the insurance, storage and maintenance of both art and wine; and

alternative investments do not often produce income or ongoing financial returns.

Key points

Alternative investment opportunities are growing in appeal among investors and art, for example, is becoming more accessible.

Alternative investments can provide diversification, allow a greater degree of interest and involvement and returns can be spectacular.

But they do not often produce income or ongoing financial returns, while insurance, storage and maintenance of art and wine can be very expensive.