Diversifying your investment portfolio with fine wines is becoming an increasingly attractive choice by those in a position to make solid long term investments and who want to see a good return in a less volatile market.
Investors are increasingly looking for alternative assets to diversify their funds and bolster their investment portfolios. In doing so, they give greater balance to equity performance and reduce market risk. Proficient investors are looking toward more tangible assets such as fine wines, art and gold to invest in times of uncertainty and potentially rising inflation.
WHY FINE WINE IS AN EXCELLENT ALTERNATIVE ASSET
- Lower risk from rising inflation
- Strong performance history
- Long-term growth potential
- Protected in a bonded warehouse
- Tax savings – Capital Gains (potentially), Excise Duty and VAT
- Secure finance against the collection
While traditional investments such as property, oil, gas and infrastructure have typically been considered the best options to diversify funds, these types of investments are still exposed to risk and influenced by the financial markets.
Tangible assets such as fine wine and alternative assets are increasingly becoming the best way to diversify an investment portfolio. As with any investment, it is always prudent to either seek expert industry advice or do your homework to weigh up the balance of risk and return.
The fine wine market is characteristically stable, delivers value over the long term, and can hedge inflation. This contrasts with alternative equities with a higher propensity for short-term gains but greater exposure to risk and losses.
Because fine wines are asset-backed, they are considered to be a very low risk investment.
Liv-ex recently published a comparison of its key fine wine benchmarks, the Liv-ex 50 (measures the ten most recent physical vintages of the five Bordeaux First Growths), the Liv-ex 100 (the 100 most traded wines on the market) and the Liv-ex 1000, the FTSE 100, S&P 500, Nasdaq and commodities oil and gold from December 2003 to June 2021.
The fine wine market has increased exponentially over the past twenty years, and this shows in June 2021 that the Liv-ex 50 is up 263%, the Liv-ex 1000 has risen 276%, and the S&P500 recorded 286.5% growth.
The top performing asset in the past five years, fine wine performs well even in times of economic uncertainty. Average annual returns tend to be in the region of 10 to 15%, while others can show growth of 150 to 200% in five years. Fine wine can be a rather lucrative investment compared to the stock market average return of around 10% per annum.
Thanks to the restrictions of the pandemic, many people who enjoyed dining out were no longer able to and so decided to spend more on enjoying fine wines at home. This trading-up and increased consumption had a positive impact because the availability of some of the best wines became restricted.
This may not seem a good thing to some, but to wine collectors and investors, it is excellent news because those wines are now even more investible due to their rarity increasing.
It’s easy to see why fine wines are now such an attractive investment for those who want to diversify their portfolio and join the thrilling world of wine collecting.