But not all economic downturns are the same, and luxury markets somehow stay afloat. Savvy investors are now turning to alternative assets like wine and art as ways to keep their money invested in asset appreciation during tough times.
Fine wines have a compound annual growth rate of 10% over the past 30 years, according to the Liv-Ex Investment Index which tracks prevailing rates for fine wines. It also has a fairly low correlation with the stock market, making it a valuable hedge against stock price fluctuations. Physical assets also tend to resist inflation quite well.
Traditionally, alternative assets should make up between 5% and 10% of an investor’s portfolio, said Atul Tiwari, CEO of wine investment firm Cult Wines Americas, “but the traditional 60/40 portfolio doesn’t work. right now and we’re seeing clients increasing the amount they invest in alternative assets because they tend to be great diversifiers.”
“There is only a limited amount of investment-grade wine produced each year and through consumption that amount decreases over time,” Tiwari said. “In the case of fine wine, with more and more countries becoming wine-drinking cultures, as well as the wealth being created in the world, the demand keeps increasing.”
Supply chain issues are only increasing that demand, Tiwari said. Champagne’s value rose 41% in 2021, in part because people were so worried it wouldn’t be delivered to wine store shelves, he said.
The world may be focused on NFTs, but collecting physical art remains a popular bet for wealthy investors. The entry point for fine art, however, is much steeper than for wine and other alternative assets.
Art prices generally fall less than stocks. Between 2007 and 2009, art auction prices fell about 27.2% while the S&P 500 fell 57% from its peak, according to data from MeiMoses.
Another item that typically retains its value during economic downturns is a high-end watch. At the height of the Great Recession in 2008, watch auction sales for the year totaled $83 million, compared to $55 million in 2007. Watch prices also rose in the months following the 11 September 2001 and the subsequent economic downturn, according to a Sothebys analysis. .
Trading card games like Pokémon have also seen their sales increase by more than 500% during the same period.