In the digital day and age of today, a lot of hot investments are in the fields of science and technology. This presents itself in a manner of ways, from what’s going to be the next Facebook, Twitter, or Bitcoin, to things like advancements in the pursuit of fully automated vehicles. The list of tech startups grows rapidly year after year, and while a certain percentile turns out wildly successful – there is a sizable margin of failure. The basics of the stock market dictate that in certain contexts, the higher risk equals a higher potential reward. However, rules of investing would argue that this strategy is best grounded by a foundation of baseline stocks in tangible assets. With that in mind consider something that might seem off the wall, at first: investing in wine.
First things first, wine is a tangible asset. In other words, it’s real. It exists, we can drink it, we can touch it, we can ruin our clothes with it. There’s no virtual reality needed, no underlying code, or spectacular programming. It’s been around for ages, and all it truly needs is time.
Tangible assets serve a variety of purposes in an investment portfolio. One of the main purposes is to provide a group of less risky stocks that are grounded in something other than cash-flows or potential earnings. This is part of a diversification strategy as well. Because tangible assets have innate value, they exhibit much less volatility in the market. Other examples of tangible assets are real estate, gold, silver, exquisite collections, etc.
Non-Traditional Financial Asset
Beyond the classification of a tangible asset, wine operates as a non-traditional financial asset. This is because its value is not tied to the market the same way that many other assets are. In other words, the variables impacting the value of wine are completely different from the variables that heavily influence other asset values, even in tangible assets.
What this means for a portfolio is that wine investments hold their value through more economic events than most other investments. The variables that most heavily influence the value of wine are things like annual harvest yields, weather, and the latest trends in the wine consumer community.
Value With Age
Another factor that investors consider when making investment decisions in tangible assets is the longevity of the asset. In other words, what happens to the value of this asset over a period of five years? What about ten years? And so on. With wine, the answer is in the process of aging itself. Most fine wines increase their value over time. This makes a series of wine investments very attractive for investors looking for a foundation of portfolio investments that are on a secure route to growth.
Most fine wines take decades to reach their peak, which means their value increases steadily over that same period.
Recession and Inflation Resistant
One of the strongest selling points for wine investment is the fact that it is somewhat recession and inflation resistant. For example, in the first quarter of 2020, during the beginning of the COVID-19 pandemic, the s&p 500 fell more than 23%. During that same timeframe though, the Liv-ex Fine Wine 1000 index took a minor hit in comparison dropping only about 4%. This is a very strong, and very recent, indication on how the fine wine market acts in comparison to the rest of the economy.
Instilling an investment portfolio with groups of investments and assets that are relatively recession resistant helps steady a portfolio and maintain a baseline value in any circumstance.
Portfolio diversification is usually the very first lesson someone learns about investing at all. It’s essentially the number one rule outside of supply and demand. Because wine is a tangible, non-traditional financial asset it retains its value, offers steady growth, and gives any financial portfolio a positive floor value.
This makes wine an excellent addition to the investment portfolio of a beginner, or an expert, seeing as wine has been around for centuries, and will be around a lot longer than any of us here reading about it. Besides, it can be a barrel of fun to invest in something that brings you joy.
There are a lot of options when it comes to investing in the year 2022. From tech, to biotech, to astro tech, to A.I., and Bitcoin, and NFT’s, and so on and so forth. Yet, unique portfolios stand above and outperform in a saturated marketplace so focused on a single industry. This is why diversification is such an important strategy.
Wine offers steady value-growth over time as it ages, offers investment portfolios recession insurance, and retains its value as a tangible non-traditional financial asset. Plus, it’s a fun investment to make.