Investor interest in fine wine as an alternative asset is growing. It offers low connection to regular markets, consistent returns, and volatility akin to bonds. Investment-grade wine is becoming more and more popular among savvy investors as a means of portfolio diversification. In comparison to many other financial assets, fine wine is more resistant to changes in inflation.
Investors are faced with a very significant issue as a result of the return of inflation. Inflation in the UK hit 5.4% in December, its highest level in 30 years, and is predicted to increase over the next months. Similar pressures are present in North American and European economies.
HOW CAN INVESTORS SAFEGUARD THEIR ASSETS FROM THE INEVITABLE VALUE DECLINE THAT INFLATION BRINGS ABOUT?
The solution for many investors is to look to alternate assets, including good wine increasingly. They are trying to diversify their bets in order to lessen risk because interest rates are locked at historically low levels, and investors are concerned about the future of traditional assets like shares and bonds. According to studies from numerous experts, more than two-thirds of high net worth investors presently dedicate more than 10% of their portfolios to alternative assets, with 30% intending to increase their holdings.
WHAT DRIVES THIS STRONG PERFORMANCE?
Wine is a tangible, physical asset. Therefore, supply is inevitably limited, much like other alternative financial assets like gold and property. Investors are only interested in exquisite wines produced in specific regions, and exceptional vintages only occasionally occur. The wine gets better as it ages, and as more of it is opened and consumed, the supply actually goes down.
The price of wine has been steadily supported on the demand side by an expanding preference for wine in the Far East. The increasingly wealthy middle classes there place a high value on fine wine, and wealthy Chinese have become ardent consumers of wine from the best vineyards, given the growing popularity of wine and the expansion of the economies in the Far East. It doesn’t seem like this desire will go away soon.
There are additional significant advantages to investing in quality wine in addition to its strong performance. Wine is not connected with more widely held assets like stocks, cash, fixed income, and property, just like all of the alternative investments we have covered in this column. This makes it a potent tool for portfolio diversification and lowers the danger of an investor being overexposed to one industry or area. The value of wine will not be diminished by inflation or falling currencies, two issues that cash and other paper assets currently face because it is a directly owned investment with no counterparty risk.
REASONS FOR CAUTION
After all these pros, why don’t more people invest in wine, given its impressive performance and the advantages of alternative investments?
How to invest in wine as an asset class is the first concern, and caution should be exercised properly. In the specialized field of wine, which calls for a high degree of understanding, dishonest business tactics and blatant fraud can easily trap the naïve. Without specialized knowledge, it is quite challenging to distinguish between real good wines and fakes, and there have been numerous recent press reports about schemes using imposter wine.
Furthermore, only specific wines purchased at the proper price are wise investments. Only certain wines from particular chateaus and vintages will appreciate in value over time; these wines must be produced in small quantities, adhere to strict production guidelines, fall under a recognized system of classification, and have a complex flavor and longevity that enhances their quality over time. Basically, you want to make sure your investment will still be in demand in the future. To put this in perspective, approximately 0.1% of the wine produced each year globally is of investment quality. Since the wine industry is unregulated, many unethical investment firms will have no qualms about selling the incorrect wines at the incorrect pricing.
So, is it worth investing? The best way to avoid these hazards is to invest in a specialized wine fund rather than make a direct purchase. One of the best-marketed and most well-known platforms for collective investments is Crurated. Crurated provides its users with a platform where they hold amazing and thrilling online wine auctions through which people may spend a lot of money on real wines. One of the hottest methods to buy real, authentic wines is through online wine auctions. Crurated is all you need for wine auctions on the internet!