There seems to be a buzz word – two buzz words in fact – that has the financial markets jumping these days. Alternative and investments. Yes, that’s right, more and more people are looking outside of traditional trading platforms to expand their asset portfolios. And why not? Alternative investments (sometimes called passion assets), are the perfect way to add depth and diversity to your income.
What Are Alternative Investments?
Ok, so this is where we can answer a few questions. Alternative investments are really anything invest-worthy that lie outside of the traditional stock, shares or bond market. These are usually art, gemstones, jewellery, gold bullion, cars, property and in more recent years, fine wine. But the 21st century has seen an increase in people buying fashion items such as handbags, collaboration clothing and limited edition sneakers for buying and reselling purposes. So really, almost anything can be considered alternative and invest-worthy these days.
Alternative Investments Pros & Cons
Over the past decade savvy investors have begun to look outside of the outmoded stock market to place their free funds. Financial crises’ such as the 2008 crash, followed by ten years of uncertainty, culminating in the global pandemic in 2020 have left investors worried that the traditional methods no longer protect their capital. Thus, they cast the net wide and saw that a wide range of potentially tax advantaged and emotionally satisfying asset options were in fact available for those who wanted it.
And what a wealth of options they found! According to investment bible The Balance, almost anything goes here: real estate, commodities (fancy investing in tea, anyone?), intellectual property copyrights such as song rights and trademarks, coins, stamps … the list goes on. Yet, at the end of the day, the pitfalls with many, if not all, of the above are numerous. A lack of transparency was the number one turn off for alternative investments, as well as the need to use a third party and potentially expensive broker – I mean, you can’t exactly buy the rights to Hey, Jude on the App Store. And while these types of investments are great fun, they can also be complicated, they can generate huge tax bills (as anyone who has ever sold property will confirm) and the ROI is slow in seeing the light of day.
However, there was one asset that seemed to tick all the boxes. Easy? Tick. No vast entry level amount needed? Tick. Fun, sexy and a little bit risqué? Tick, tick, tick. And what is this uber-investment asset I hear you ask? Well, it’s fine wine of course.
Fine Wine as an Alternative Investment
We have already spoken at length about why wine investment is proving more and more to be the savvy investor’s choice when it comes to alternative investments. The impressively high returns are just the beginning. Liv-Ex showed an astonishing 40.5% return rate in 2011 – note this was post 2008 crash when the rest of the financial world was struggling with economic turmoil. They also detailed an annual compound return of 14.1% in the first ten years of 2000. Not bad.
As fine wine is a tangible asset, its supply is naturally limited. Thus, as supplies dwindle, demand soars. And the very liquidity of wine makes it a product that dwindles stupendously year on year. Then there is fine wine’s razor edge uncertainty: only certain regions can produce the good stuff, and even then the stars, heavens and universes have to align in order to produce a vintage that is of interest to serious investors. But when all the above is achieved? Well, this is when the magic happens.
And as great vintages get better with age, they create the perfect storm: low supply (assuming many bottles are drunk before maturity) and high quality, thereby attracting legions of serious drinkers. This creates what Andrew della Cassa, the founding director of the Wine Investment Fund describes as “a perfect inverse supply curve”.
Market trends are an important part of wine investment too. Over recent years, Asian markets have shown an insatiable thirst (pun intended) for fine wines, particularly Bordeaux First Growths. Fine wine is vastly covetable and has great “snob value” amongst the rich middle class Chinese, who have proved enthusiastic wine investors, buying from the top vineyards. The vineyards in turn have been quick to notice this and some now export exclusively to Asia, leaving very little for the European negociants (thereby driving up prices this side of the Pacific). And this demand from the Far East does not look like it will be slackening any time soon – the fashion for wine has caught on with an economic fury.
The moral of the story? Do your homework, buy young, wait patiently and sell when the time is right.
What to Look for in a Wine Exchange Platform?
So, you’re ready to invest in wine. As mentioned, traditional alternative investments such as those detailed above; art, jewellery, real estate etc. all require a broker. These can be costly, and you are reliant on placing your trust in the hands of a third party. There are inroads into being able to autonomously invest but really, would you place your trust in an app that was selling a Picasso for peanuts?
Wine exchange platforms however are a little different. As peer to peer platforms, you are most likely dealing with private individuals and not reliant on brokers, auction houses or a network of professionals. As wine exchange platforms work online, the marketplace is open to anyone, anywhere in the world, be they in Napa Valley, Bordeaux or Birmingham. And wine exchange platforms cater to all tastes: hobby sommeliers, interested enthusiasts, curious collectors and even those who just like a decent bottle of plonk.
Several platforms exist on the markets and they all have their merits. Yet, most also have a few disadvantages: either they are old and their technology is outdated for 2021, there’s no app and they only have an online site. Perhaps they don’t offer insurance or storage, thus leaving the client (i.e. you) to either store potentially incorrectly at home or to organise professional storage yourself, or simply the costs are too high.
Wine exchange platforms
Enter wine exchange platforms for the 21st century. These are (usually) free downloadable apps that offer a seamless user experience from the comfort of your armchair. Apps such as Vindome, Vivino and Vinum Versa all offer a variety of services that will make you go from zero to hero in a matter off minutes. Each app has its strengths but expect low commission rates, delivery, storage and insurance options, detailed wine guides, bespoke accompaniment for those who want to invest in a cellar, and in some cases, ready-built collections that are the perfect answer if you don’t have time to do the research.
A dream cellar of investment wine, low commission fees, and a helping hand if I need it all from the comfort of my armchair? Where do I sign?
If you want to know more about wine investment, make sure to check out our article on How Vindome Works.