How alternative assets like fine wine can benefit you

Are you looking to diversify your investment portfolio and explore alternative assets? Have you considered fine wine? Investing in this liquid real asset has a lot to offer. For wine enthusiasts, it's a chance to collect some of the world's finest and rarest wines. For investors, it can be a way to enhance the return potential of their portfolios, increase diversification, or hedge against market risks.

Why are more people turning to alternative assets like fine wine?

The global alternative investment market is growing rapidly and expected to continue expanding in the coming years. The challenging macroeconomic environment and swings in equity and bond markets will likely boost the appeal of assets other than traditional equity, bond, and currency investments. These can include financial instruments like hedge funds, private equity and debt, distressed funds, as well as physical assets like commodities, precious metals, infrastructure, or real estate. Collectible assets, such as fine wine, also fall into the alternative space.  

In 2022, fine wine's investment benefits were on full display while traditional portfolios struggled.  This recent performance is one example of the potential benefits of alternative assets alongside:

• Diversification
  ‍Alternative assets can help reduce the correlation between an investment portfolio's performance and the ups and downs of the economic cycle. These assets often have different drivers of performance compared to traditional equity and bond investments, which means they may have lower correlation, or sometimes negative correlations, to those investments.

  Hedge against market risks
  ‍The different drivers of performance for alternative assets mean that the risks facing equities or bonds may not impact them in the same way. Although they are not completely insulated from market risks, their different market dynamics can provide some insulation in the event of a sudden shock to the macroeconomic environment.

  Potential enhanced returns
  ‍Alternative assets can offer investors new opportunities to identify alpha and boost the return potential of their portfolio. The market for many alternative assets is often less developed and less efficient than traditional financial markets, providing selective investors with potential growth and arbitrage opportunities.

What drives fine wine’s potential?

We recommend including fine wine in your portfolio due to its unique characteristics. Investment-grade wine improves as it ages, meaning demand typically grows as it approaches its drinking window. Wines also become scarcer with time as bottles are drunk, broken or not stored properly. The combination of decreasing supply and stronger demand establishes the core engine of price appreciation.  

Since the fine wine market is primarily driven by this supply-demand dynamic, it has a low correlation to traditional 60-40 portfolios, which can help diversify your investments. Fine wine is also relatively liquid compared to some other alternatives and can be sold relatively quickly if needed.

Overall, investing in fine wine can be a fun and potentially profitable way to explore alternative assets. Just remember to do your research and choose wisely.

Get started with fine wine investment

If you are looking to explore alternative investments and start your own wine collection with low fees then CultX’s wine investment app is for you. Start investing in wine with CultX by creating an account today.