Is Fine Wine the Best Portfolio Hedge?
My portfolio consists of many investments and they seem to have a higher correlation than they are ‘supposed to.’
Index funds, equities, commodities, Bitcoin, wine, REITs, and even foreign markets.
The problem with most of these is that when the US Stock market is falling, most of these investments also enjoy a nice steady drop in price.
When everything seems overvalued, any crisis on the horizon can make the markets over react in every aspect. That means my portfolio, which is supposed to be uncorrelated, actually end up rising and falling together.
Out of all my investments, wine is the only one that is staying uncorrelated to the U.S. Stock market. Its prices have continued to go up with demand, people seem to be purchasing more and more real assets as the uncertainty of the future global economy is in question, making wine one of my best performing assets (or the best) so far this year. Wine, art, gold, are all experiencing a nice boost in value.
With a recession you would naturally see all asset classes take a hit, but during these flat/bearish markets wine has been a great hedge for my portfolio, gaining in value, but more importantly keeping up with inflation without much risk.
Looking at the Year-to-Date returns since Jan 1st 2022, we can see that gold is up 3.83%, the S&P is down -7.76%. The 4 largest REITs are AMT at -21.83%, CCI at -21.74%, PLD at -14.82% and SPG at -9.75%. When it comes to international markets VXUS, VEU, and IXUS are -2.28%, -1.85% and -2.48% respectively. Bitcoin is -11.37% YTD, which has recently been following the market, just with larger dips and larger gains. (All of this information was found on Marketwatch.com on Feb 17th, 2022)
I don’t have data on the entire fine wine market, which I typically get from quarterly reports, but my personal and well diversified portfolio returned 4.91% YTD. I think it’s also important to recognize that other real assets are doing quite well, like fine art.
I want to mention that wine has been doing well since the 2020 crisis, and the only other asset that is currently in the green for the year that I am tracking is gold, which has stumbled through the last few years. (I currently don’t invest in fine art or any other alternative real assets)
In the last 3 years gold is up only 7%, which is less than inflation over the same time period.
The fine wine market has been up over 20% in the same time period, however in 2021 it was up over 15% and with access to wine investing increasing, as well as demand for wine increasing, these returns should continue to increase over time.
Over the last 15 years fine wine has beaten the S&P 500. During the 2008 financial crisis, fine wine dropped about 0.6% and the S&P dropped 38.5%. Same with the pandemic in 2020, fine wine dropped 4% and the S&P dropped more than 23%. (Yahoo)
It seems to me that wine goes up a little less than the market during good times but drops a LOT less than in bad times. It is uncorrelated and due to the difficulty in panic selling wine many people will hold onto their bottles during those bad times.
Wine appears to be a great hedge against inflation, a lovely hedge for global crisis, and a fantastic long-term investment if you want to attempt to beat the S&P 500 with seemingly less volatility.
Wine has had less volatility than even US Treasury Bonds over the last 3 years at 1.10% for wine, and 1.62% for T-bonds.
I am slowly adding more and more to my wine portfolio. I’m loving wine as an investment currently and believe it is one of the few assets that doesn’t seem to be overvalued to me.
It will continue to be where I invest as a hedge for the market, as well as Bitcoin (for different reasons) and potentially start dipping my toes into the fine art world.
We also continue to max out our Roth IRA with basic S&P 500 index funds, and purchase a few shares each week in a taxable account.
If you’d like to also invest in fine wine please use my link below:
Vinovest is the platform I use and I have written articles about their services.
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