Investment Planning in the Wizarding World

Just for fun, let's consider the various investment opportunities in the Wizarding World of Harry Potter. Imagine you've just won the Triwizard Tournament and the 1,000 galleons prize money. You decide to invest it for long-term growth. What are your options?

Let's start with cash. We know that in the UK, we have galleons, sickles, and knuts. There are 17 sickles to a galleon and 29 knuts to a sickle. We can deduce from this that there are 493 knuts to a galleon.

The estimated muggle value of these varies depending on whether you're speaking to JK Rowling, or if you're using a purchasing power parity model. While JK has stated a galleon is roughly equal to ￡5, PPP models give mixed results (e.g. 2 sickles for a butterbeer at JK's exchange rate would be around 59p which would be incredibly cheap when you can't even buy a Coke in a pub these days for less than about ￡2. And, Harry paid 7 galleons for his wand which would make a wand ￡35, but Olivander would've only sold around 150 per year maximum, which simply wouldn't be enough to sustain his business - however, an equivalent muggle Smartphone typically costs several hundred pounds) but this could just be that things cost different amounts in the Wizarding World. This would make sense given that most things would be able to be manufactured far more cheaply (by magic) than in the muggle world. Regardless, the word of JK vs PPP is not the point of this article, which is investment.

In the USA, currency consists of Dragots and Sprinks. In France, they have the Bezant. So, option number 1 is to invest into the different currencies. Furthermore, wizarding currencies could be exchanged at Gringotts Wizarding Bank for muggle money, with investments then made on the muggle markets. However, it could be tricky to get by the muggle AML policies with no muggle address or ID, and this could expose magical investors to significant exchange rate risk.

It's unclear how traditional cash investment would function. Gringotts must make money to function as a business and protect the gold of its customers. It is this security that is attractive, and it's impractical for Grintotts to pay goblins to visit every customer's vault each year and deposit the exact amount of interest required. Furthermore, Gringotts doesn't seem to have any competition in the UK. Therefore my hypothesis is that Gringotts offers either neutral or negative saving rates - that is, they either pay no interest, or they charge money to keep their customer's money in a vault... A vault rental fee, if you like. The cost of security of dragons for savers coupled with a lack of competition could also mean high borrowing rates.

The closest thing to a cash investment I think you'll get is a gilt from the Ministry of Magic. There aren't that many people in the Wizarding World, and the Ministry seems to be the largest employer. The issue here is that there doesn't seem to be a big enough economy in the UK Wizarding World to pay for this, let alone to offer 10,000 galleons for the capture of Harry Potter, without borrowing.

Accounting for the idea that the Ministry is desperate and to entice people away from the security of Gringotts, I'm anticipating the interest rate will be pretty decent, as far as gilts go.

For risk-takers, perhaps the biggest market is in corporate bonds. Lending to Weasley's Wizard Wheezes for them to develop their latest novelties, for example, sounds like an excellent way to earn a high yield. And with a whole host of organisations across settlements such as Diagon Alley, Nocturne Alley, and Hogsmeade, the bond market should be alive and well.

Excluding a very small commercial property market in places such as Diagon Alley, property investment seems like a complete non-starter. Most residential property seems either built by the occupier or passed down the generations.

I expect a very small equity market. Few companies will be big enough to be listed. Even Gringotts is privately owned. That said, there may be a thriving private equity market for wealthy, risk-taking investors. Ludo Bagman types with deep pockets. But, as with all private equity investments, these could be incredibly volatile and illiquid.

Where real money could be made is in commodities such as dragon eggs and precious metals, and rare items such as the vanishing cabinet, and horcrux-type things. Artwork also seems to have a thriving market. The problems here is a lack of income, illiquidity, and the possibility of having to insure the items.

Taking all this into account, we could consider the following multi-asset allocations:

Cautious - 35% UK Ministry Gilts, 25% Wizarding Bonds, 15% Gringotts Vault, 10% Muggle Markets (cautious), 5% Global Wizarding Equity, 5% Magical Commodities and Collectibles, 5% Wizarding Commercial Property

Balanced - 25% Wizarding Bonds, 20% Global Wizarding Equity, 15% UK Ministry Gilts, 10% Muggle Markets (balanced), 10% Gringotts Vault, 10% Magical Commodities and Collectibles, 10% Wizarding Commercial Property

Adventurous - 35% Global Wizarding Equity, 25% Wizarding Bonds, 20% Magical Commodities and Collectibles, 10% Muggle Markets (adventurous), 5% Wizarding Commercial Property, 5% Gringotts Vault

Let me know your thoughts in the comments, and I'll hopefully see you very soon.