The current economic climate has led most to focus attention on personal finances and the performance of investment portfolios. The majority of both high net worth and retail investors’ investment pots consist of a mixture of equities, bonds and SIPPs but with recent performance being either unsatisfactory or underwhelming many have decided to look for growth outside of the norm and increase their exposure to tangible assets.
Tangible assets have an intrinsic monetary value and exist in the physical form. Fine wine is one such asset and provides a great example of why many are turning to tangibles in the current financial climate. Contemporary investors see their wine portfolio as a form of value diversification to be used as a hedge against underperformance in their traditional investments, as well as wider economic uncertainty.
Top investment advisers recommend that investors diversify part of their portfolio with resilient alternative assets such as fine wine.
The Telegraph, December 2020
Often described as an Alternative Investment, wine has performed very well in recent years due to its low positive correlation to equities and bonds. A carefully selected portfolio of fine wine could actually help to reduce your exposure to overall market risk and offer some protection against volatility.
Wine can also offer some protection against inflation. To give a historical example, the value of the dollar declined by 95% over 100 years since the creation of the Federal Reserve. Over the same period, the inflation-adjusted value of gold (another tangible asset) increased by more than 2,500%. However, as an additional boost wine differs from most commodities as each individual vintage can be collectable in its own right and has a finite, reducing supply. Wine is after all a consumable and this can help to increase demand and values as remaining stocks begin to dwindle.
Amidst 2020’s turbulence, the fine wine market showed its strength – steadfast returns and low volatility.
Liv-ex, January 2021
Although not essential, if you also happen to be a wine lover you will benefit from the enjoyment of building a portfolio of world-beating wines, and also provide yourself with the opportunity to consume wines that might otherwise be out of reach to you. One tried and tested strategy is to purchase multiple cases of investment-grade wine and wait for the value to increase, effectively allowing you to consume one case either for free or at a greatly reduced price.
Of course, due to the current climate, we appreciate that fresh investment capital may not be readily available, but if you already have a portfolio of wine we could help to identify selling opportunities within your portfolio and reassign the capital to wines that offer the potential for an improved growth profile.
We would be happy to take a look at your portfolio and highlight any immediate opportunities that could elevate your growth rate without the need for fresh capital. If you would like to explore your options or discuss them in further detail, please get in touch.
By Spencer Leat