But not all economic downturns are the same, and luxury markets somehow remain afloat. Savvy investors are now looking at alternative assets like wine and art as ways to keep their money invested in appreciating assets during tough times.
Fine wine has a compound annual growth rate of 10% over the last 30 years, according to the Liv-Ex investables index which tracks the going rates for fine wines. It also has a fairly low correlation to the stock market, making it a valuable hedge against swings in stock prices. Physical assets also tend to withstand inflation fairly 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 isn’t performing well right now and we’re seeing clients who are upping the amount that they’re putting into alternative assets because they tend to be great diversifiers.”
“There’s only a finite amount of investment-grade wine produced every year and through consumption, that amount decreases over time,” said Tiwari. “In the case of fine wine, with more countries becoming wine drinking cultures, as well as wealth being created around the world, the demand keeps increasing.”
Supply chain issues only increase that demand, said Tiwari. Champagne increased in value by 41% in 2021 in part because people were so worried it wouldn’t be delivered to wine shop shelves, he said.
The world may be focused on NFTs but the collection of physical art is still a popular bet for wealthy investors. The entrypoint for fine art, however, is a lot steeper than it is for wine and other alternative assets.
Art prices also usually fall less than stocks. Between 2007 to 2009, auction prices on art fell by about 27.2% while the the S&P 500 fell 57% from its peak, according to data from MeiMoses.
Another item that generally retains its value during economic downtimes is a high-end watch. At the height of the Great Recession in 2008, watch auctions for the year totaled $83 million, up from $55 million in 2007. Watch prices also surged in the months after September 11, 2001 and the economic downturn that followed, according to analysis by Sothebys.
Collectible card games like Pokémon also saw sales increase by more than 500% over the same period.