There are currently criteria in existence that many agree to regarding what classifies wine as “fine wine.” It is strong enough to allow people to differentiate between a bottle of wine from a supermarket that costs around £10 all the way to bottles that easily range within the hundreds. However, there are still exceptions to the so-called “guidelines.”
All of that said, fine wine is highly valued. Investors are increasingly turning to investment-grade wine as an alternative to the traditional markets. Fine wine offers steady returns and bond-like volatility, with a lower correlation than the stock market.
We are going to explore some of the key factors that make wine a great alternative investment:
Consuming Wine Is At Record Levels
For 2020, over a billion gallons of wine were consumed in the United States. The demand has also translated into an increase of fine wine consumers and investors in emerging markets in areas such as Asia and Russia.
Investing In Fine Wine Does Great Against Many Global Equities
The strong returns on investment (ROI) of fine wine have a long, storied history. While non-traditional, over the last 15 years alone, it has yielded an annualized return of up to 13.6 per cent. People that choose to make an investment into fine wine will then be able to double their finances within six to seven years.
A good example is the indices of Liv-Ex fine wine since the year 2003. At this point, they have practically tripled in value since.
Stock markets have been unable to keep the pace, even with a decade-long bull run. The Dow Jones has since registered an annualized return of 7.8 per cent over 15 years. For people who chose for their dividends to be reinvested, that meant 10.47 per cent.
S&P 500 did not manage this any better: it was at 8.56 per cent and 10.66 per cent.
There Is Low Volatility In Fine Wine
If you hold onto fine wine for too long, it becomes less volatile. The longer wine sits in a cellar, the more people are willing to pay for it. The price of commonly traded wines, on the other hand, can drop precipitously. This means that fine wine is more volatile than traditionally traded stocks and bonds.
This is easily determined with a look at the volatility of benchmark equities against the Liv-Ex Fine Wine 1000 Index.
Traditional Markets and Alternative Assets Do Not Correlate
Investors aiming for wealth preservation in the long-term quickly learn that it is unwise to have everything riding on a single investment. Having a portfolio that is well-diversified is a much better approach to take. It also helps prevent risks against your bottom line overall.
Compared to traditional assets, fine wine has a low correlation. When 2020 started, that was particularly evident. Both the S&P and Dow Jones fell beyond 20 per cent in the first quarter of the year due to the global coronavirus pandemic.
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