Interest money

Where do you put your money in a bear market? Try wine, art and baseball cards

Stocks entered a bear market as recession fears gained momentum. Inflation rates remain at 40-year highs, interest rates are rising, geopolitical chaos and supply chain issues are still looming, and top CEOs are warning of an economic “hurricane.”

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.

The Liv-Ex Index shows that fine wines gained around 10.3% in value between January and June. During the same period, the S&P 500 fell more than 13%. In 2008, during the fiscal crisis, the S&P 500 fell about 39% while wine prices fell less than 1%. Also, you can’t drink Apple stock.

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.”

Cult wines advises, buys, stores and sells fine wines on behalf of investors wishing to get involved with a minimum investment of $10,000.

“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.

Art

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.

Historical analysis reveals that the art market has some correlation with the stock market, but there is usually a lag of six to 18 months. For example, the 2007-2008 recession only started hurting the art market in 2009, said Masha Golovina, director of market analysis. at Masterpieces, a marketplace for prime art investments. “This decline happened just as stock prices were beginning to rebound.”

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.

Citi calculated a correlation coefficient of 0.12 between art and the S&P 500 index, which is relatively low, and Masterworks estimates that there was a 13.8% annualized appreciation in fine art between 1995 and 2021 .

Watches

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. .

Demand and prices for Rolex and Patek Philippe watches have risen significantly since inflation hit a 40-year high, watchmakers say.

Collectibles

It is important to be careful when getting involved in new assets surrounded by hype. Beanie Babies were once considered a surefire way to make millions after all.
But the trade in sports cards has grown in recent years. More than $871 million worth of sports cards were traded on eBay in the first quarter of 2021 alone, according to the online retail platform. In total, eBay reported a 142% increase in trading card sales in 2020 compared to 2019.

Trading card games like Pokémon have also seen their sales increase by more than 500% during the same period.