How to Use Thoroughbred Horses to Diversify Your Investment Portfolio

| June 1, 2020
Diversify your investment portfolio.
Investing in thoroughbred racehorses is a valid way to diversify your portfolio.

Diversity is important when it comes to investing. By using a variety of strategies, you can balance risk, returns, and volatility in your trading or investment portfolio. One potentially profitable asset to invest in is thoroughbred horses. 

Unlike many places in the world, Australians of all economic backgrounds own horses. And if you are already interested in equestrian activities, thoroughbred investment is a good way to turn your hobby into something that’s potentially profitable, or simply highly engaging. 

This investment can be compared to trading the stock market because it requires intelligence, a sense of daring, and a high appetite for risk.

The Basics of Investing in Horses

When you invest in a thoroughbred horse, your goal is to develop that horse into a winner. The prize money is the return on the investment. And some prizes greatly outperform traditional investments. 

The top 100 thoroughbreds have all earned millions of dollars. 

There are many different races in which your horses can compete. The prize money associated with races varies widely. 

  • Smaller regional races can offer as little as thousands of dollars in prize money. 
  • The big races pay millions. 
  • According to Racing Australia Fact Book 2018/19, the top 50 races in terms of prize money range from $950,000 to $12,870,000. 

Be aware, though, that the amount you win drops off significantly as you place further down. 

The winning horse typically gets slightly more than half of all the prize money. Horses coming in 4th or 5th will see little (if any) winnings.

When considering the economics of investing in horses, keep the following in mind:

  • Horses are a medium- to long-term investment. Horses race for several years, and you’ll need that time to maximize your wins and return on investment.
  • The success of your horse depends a lot on its pedigree — sound geldings will, for example, usually have longer careers.
  • There’s a lot that’s out of your hands, including injuries that your horse may incur in training.
  • Owning a horse is costly: even more so, a thoroughbred horse. Be sure to carefully research all costs involved in owning a horse, before purchasing one. 

Ways to Invest in Horses

There are two main ways to invest in horses and each option varies in the risk vs reward ratio.

Buying a Whole Horse

Buying a whole horse can be expensive — the most inexpensive horses cost several thousand dollars, though some can cost over a million. Winx, the top-earning horse in Australian history, was sold by her breeder, Fairway Thoroughbreds, for $230,000 as a yearling.

You are also responsible for all of the costs associated with developing your thoroughbred. These include insurance premiums, day-to-day upkeep (including training fees), veterinary costs, entry fees to races, and so on.

However, if you own the horse yourself, you will collect 100% of your horse’s winnings. In short, you pay a lot upfront, but the potential rewards are great. Of course, if your horse does not win, you are out all that money. And it may not be clear if this investment will pay off until you have invested considerable money.

Buying a Share of a Horse

Instead of going all-in on a thoroughbred, you can purchase a share of a horse. There are various ways this can work, but usually, you divide the total cost of owning a horse evenly among a group of people. Then, if your horse wins a race, the winnings are divided equally to all of the horse’s owners.

If you’re new to investing in thoroughbreds, or if you don’t have the funds to invest in your own horse, getting started with just a share of a horse can be a good way to go. Then, as you earn money from race wins, you can use those funds to increase the number of your shares.

Buying a share in a future Melbourne Cup winner is the ultimate dream but even a share in a stakes horse can provide a return on investment.

New Adventures For Retired Racehorses

Many police horses are actually retired racehorses. Indeed, there are a variety of equestrian disciplines and sports that thoroughbreds are well-suited for. So these horses may enjoy several roles in their “career.”

These sports include: 

  • Polo
  • Fox hunting
  • Hunter and jumper competitions
  • Mounted archery
  • Barrel racing
  • Cowboy mounted shooting

A thoroughbred may also be used as a therapy horse.

Leave betting out of your investment portfolio

It’s not a good idea to include betting in your investment portfolio. It’s not only hard to find the best free horse racing tips but the percentages are not in your favour. Betting on horse racing leaves too much to chance, which heightens the risk on your investment. Unless you have a water-tight staking plan, betting is best left to the professional punters.

Summary

Diversifying your portfolio can increase the stability and rewards of your investments. One asset that you might consider for the purposes of diversification is thoroughbred horses. 

It’s risky. And it requires a lot of research. But there are major rewards to be had.

Category: Special interest, Uncategorized

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