As we enter the second decade of the 21st century, amid a global pandemic and a planet that is spiralling into freefall, we have learnt one thing. Nothing lasts forever. Clean sheets. Your goal weight. The honeymoon phase in a relationship. They’re all fantastic while they last but regrettably, their long term potential is slim. And isn’t that part of their beauty? Since birth we have been told to carpe the diem and that we don’t know what tomorrow will be made from. Even the great poet and philosopher Prince told us the “life is just a party, and parties weren’t meant to last”…
But where does that leave people who don’t believe that we need to live only for today? What about all those careful, optimistic planners who believe that the long term is a benchmark for their lives, and that the future is only (or always) a day away? And we’re not just talking about their romantic future or whether they’ll still be at their ideal weight in 10 years time. We’re talking about their financial future. It is easier than ever to manage your finances – you can do it with just a tap on your mobile phone. It has been an accessible option to trade stocks for decades, now there are various apps for alternative investments, too, such as Vindome’s wine trading app.
Having a secure long term investment plan is something we should all invest in, especially if you want to carpe the diem in the short term. But what does being a long term investor mean? Are there any such things as safe investments?
Why Are Long Term Investments Good?
Hands up if you are familiar with Aseop’s Fables? The hare and the tortoise? The hare, brash, over confident and proud rushes up to the finish line in a matter of minutes. He gets greedy, thinks he doesn’t need to worry about the competition, has a nap and loses. The tortoise, slow, humble, steady, doesn’t worry about the hare and plods on, knowing he will get there in the end. Tortoise wins, general merriment all around (except if you’re the hare, of course). The moral of the story? Slow and steady wins the race.
Long term investments are basically the modern day tale of the hare and the tortoise. Short term investments are the hare, while long term are the tortoise. Short term means a temporary investment that can easily be converted to cash after a maximum period of five years. Many people chose the stock market for this – rewards can be staggeringly high if you pay attention. But be aware; all get rich quick schemes come with a caveat, as we saw only too clearly during the 2020 crash. As the FTSE 100, the Dow Jones and the Nasdaq all scrabbled to keep their heads above water during the COVID-19 pandemic, money that had been secured in long term investments continued its slow but steady climb to the top. Once again, tortoise wins.
Long term investments can thus be considered as low risk, high return investments. But it’s not all unicorns and rainbows. Being a long-term investor means that you must be willing to tie up your cash for a long time – usually around 10 years or more. It also means that you must be willing to accept a certain amount of risk too, and be able to hang tight in order to pursue the potentially higher rewards long term investments bring. The purpose of long term investments vs. short term) is not to make an easy buck, it’s about creating a diverse portfolio that will provide you with income at a later stage in life, without touching the capital.
Long term investments are not traditionally made on the stock market. This is far too volatile to secure long term returns. Enter then alternative investments.
Investments other than stocks, also known as passion assets, are tangible assets that are practically exempt from market trends. Traditionally, these are really anything invest-worthy that lie outside of the stock, shares or bond market. Alternative investments are things that you’re passionate about: usually art, gemstones, jewellery, gold bullion, cars, property and yes, fine wine. The 21st century however has seen an increase in people buying fashion items as passion assets: think high brand handbags (Chanel, Hermes), limited edition clothing (particularly when involving a collaboration with a celebrity) and mint condition sneakers, kept in their box. And we haven’t even mentioned Bitcoin yet. So really, almost anything can be considered alternative and invest-worthy these days.
You can check out our piece on alternative investments and discover some of their pros and cons.
Long Term Investments: Wine vs Stocks
Fine wine as a long term investment option is proving time and time again that it is both a viable and feasible option for people who are looking for subtial gains over a long period of time.
Let’s now compare both wine and stocks against the same list of criteria:
Time and Unpredictable Events
Fine wine is a tangible asset that improves over time. In fact, fine wine’s very beauty is that it is created to improve as it ages. Over time, it continues to develop in quality and as it approaches its drinking window (the period of time when it is considered to be at its peak for drinking), it becomes more attractive to consumers. Therefore, demand increases whilst at the same time the supply is inevitably reduced and naturally forces an increase in market value.
Since 1929s Black Monday, the global stock market has suffered immense losses in a very short time space. Entiere fortunes have been wiped out due to unforeseen circumstances, with the Covid 19 pandemic simply being the last one in a long string of unfortunate and unforeseen events. Do you remember the great recession of 2008? Yes, us too. And nobody wants to go back there again. Read our full article on the impact of COVID-19 on the fine wine market .
The stock market can be volatile, meaning returns are never guaranteed. Any stock broker worth their salt will advise diversifying your portfolio in order to decrease your investment risk. This is the very inverse to a wine investment broker who will recommend a diverse portfolio in order to increase your potential market gains.
Collecting fine wine is traditionally seen as an upper-class, bourgeois hobby. In the past, families would invest in a case of Chateau Margaux or Lafitte the year their children were born, and give it to them on their 18th birthday. Thus, investing in blue-chip wines can seem to most like an activity for a closed club of the wealthy few.
Ingrid Brodin, CEO of Vindome, wanted to change this. “The idea that fine wine was only for a select band of wealthy investors seemed completely outdated to me. Wine investment is an interesting and profitable way of seeing your money grow, which I believe should be available for people with all budgets, including a modern generation of younger investors.
With Vindome, we have turned that idea on its head. We offer a brand new way of investing for both experienced and new collectors with our user friendly app. Yes, you can invest €100,000 on our platform, but you can also invest €100”.
In order to make money, you’ve got to spend money, right? Unfortunately, many investors ignore critical investment costs involved with investing in the stock market because financial fine print and jargon are so confusing. Initial investment costs are also very high, and no stock broker will even take your call if you have less than €50,000 to start your portfolio with (with hedge fund managers this amount would be times ten). Brokerage costs are very high, particularly with a larger money sum. The so-called user friendly apps that exist are neither friendly nor user friendly, and require a vast amount of personal data prior to setting up an account. Finally, the stock market investor needs to be very proactive and check their portfolio regularly (contrary to fine wine which increases in value slowly by simply sitting in bond).
Fine wine does not offer dividends in the traditional sense. Because the object is physical – i.e. you actually own the bottle – there is no annual payout such as if you owned shares in Apple.com or Google. But, like property, the value of your investment bottle will go up over a long period of time (assuming you have respected optimal storage conditions). And when you do come to sell your bottle of 1945 Romanee Conti or 1967 Dom Perignon then we guarantee that the final payout will far outstrip any dividends you might have received from stock.
Stocks: Certainly, dividends are stock’s time to shine. Long term investment stocks provide regular dividends – usually every quarter but can be annually or even monthly. This is one of the key reasons why people might choose the stock market over a physical asset such as fine wine. But beware: stock can go down as well as up, and regularly do. So don’t go relying on that extra cash every month, as investing in the stock market, even in long term, as potentially safe and stable companies are usually neither (Lehman Brothers, anyone?). Life, my friends, is transient.
Would you like to try your hand at fine wine investing? Read our guide on 2021 wine investment trends!