Modules for Investors
Alternate investment options in India outside of pureplay financial instruments
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Wine and luxury
Let’s say you have read through the previous modules of Smart Money, understood the different investment options available, and have successfully managed to create a fairly diversified investment portfolio. And now, after investing for all your life goals, you find yourself with a steady stream of income or receive a lump sum windfall, and you aren’t sure what to do with it.
You want to invest it, but you have no idea what to invest in. But you are clear about one thing - you want to take on some risk and invest your funds in an alternative asset - one that is not mainstream. Well, in that case, investing in wine or luxury items may be just what you’re looking for.
Why is wine a good alternative investment option?
Not all wine is worth investing in. However, investment grade wine is rare and its potential value increases over time. This is because as the years go by, the availability of a certain vintage of wine may reduce, leading to short supply and therefore, higher value. Additionally, wine by itself is an asset that is more valuable the more it ages.
A research report by Knight Frank reveals that the value of wine has appreciated by 13% over the past year, and by 127% over the past decade! See how the value of fine, investment grade wine evolves with time?
What are the benefits of investing in wine?
Investing in wine as an alternative asset comes with many benefits for your investment portfolio. Check out the top advantages below.
Resistance to recession and inflation
Recession refers to a period of significant decline in economic activity. Income, employment and the GDP are all affected by recession. Inflation, on the other hand, refers to the rise in the prices of items over time, and consequently, a decrease in the value of the returns offered by an asset. Wine as an investment may be resistant to both inflation and recession.
Low market correlation
Like most other alternative investment options, investment grade wines are not correlated with the stock market. So, irrespective of the performance of the market, the investment value of wines continues to steadily increase over time. This can offer some protection to your portfolio during periods of poor market performance.
Physical custody of the product
You can also enjoy physical custody of the product if you choose to invest in wines the old fashioned way. This may not be essential for everybody, but some investors find it safer and more comfortable to have physical ownership of their investment, especially in the case of a luxury wine or a high quality vintage.
Since the value of investment grade wines is not directly vulnerable to market forces, the prices of wines do not fluctuate wildly. This limited volatility is another benefit of having an alternative asset like wine in your portfolio.
The different ways in which you can invest in wine
There are many ways in which you can invest in wine. Check out the top three options below.
Buy the asset yourself
You can choose to do things the conventional way, and buy the investment grade wine directly. This will give you physical custody over the asset, but it comes with steep initial costs for shipping, storage, and even insurance.
Invest in wine stocks
If you want the best of both worlds, you can choose to invest in the stocks of companies that operate in the wine industry. Keep in mind that if you opt for this route, the benefit of zero market correlation will be lost.
Join a wine investing platform
If you are new to the luxury wine investing market, a platform that specializes in wine investing can be of great help to you. You can become a member of such a platform and create a diversified folio of top grade blue-chip wines.
Investing in luxury: What does it mean?
Investing in luxury items essentially involves purchasing assets that come with a high initial investment, but possess a potential for steep increase in long-term value due to rarity or popularity. Aside from luxury wine, there are also several other luxury items that you can invest in. Here is a preview.
- Classic cars
- Designer handbags
- Luxury homes
- Luxury watches
Things to keep in mind before investing in luxury goods
Before you invest in these luxury goods, you need to keep certain important aspects in mind. Here is a set of pointers that can help you make some informed decisions about your alternative asset portfolio.
- Most alternative assets require a high initial investment. So, it is a good idea to invest in these assets only if you have a lump sum amount to spare.
- The value of these assets only increases significantly over the long term. This is why it is never a good idea to choose alternative assets if you have a short-term financial goal in mind.
- It is vital to do your research before you invest in a luxury item, since there is a great deal of ambiguity involved in the pricing of these goods.
- There is also a high possibility of counterfeit products in the luxury market. So, use an evaluator or an expert’s opinion to make the right investment decisions.
Investing in wine and luxury products is a major financial decision. And it is not one that you can take lightly. So, ensure that you plan well ahead and get to know the assets you wish to invest in. And if you want to diversify your portfolio in a different way, one that has a positive impact, you need to head to the next chapter to learn all about ESG investing.
A quick recap
- Not all wine is worth investing in. However, investment grade wine is rare and its potential value increases over time.
- The benefits of investing in wine include a resistance to recession and inflation, low market correlation and volatility, and physical custody of the product.
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