Can Fine Wine Act as a Hedge Against Inflation?

The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

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Inflation has been a consistent fact in the lifetime of the U.S. economy. 

The Federal Open Market Committee (FOMC) considers 2% an acceptable inflation rate — suitable for both consumers and businesses.

But, in July 2021, the annual inflation rate in the U.S. measured by the Consumer Price Index (CPI) stood at 5.4%, above market forecasts of 4.7% — the highest reading since the 2008 financial crisis. The major reason for the spike is the recovery of the global economy from the COVID-19 downturn — the rise in consumer demand since the reopening of the economy caused an upsurge in commodity prices, supply constraints and wages.

Although a slight increase isn’t something to worry about, sustained inflation could be concerning for investors.

How Inflation Affects Traditional Investments

With sustained inflation, major central banks could tighten policies more quickly than expected, leading to a more volatile backdrop in mainstream financial indices. A diversified portfolio consisting of stocks and bonds could take a hit during periods with high inflation as it is vulnerable to inflation.

To combat a hike in inflation, many investors turn to alternative assets to further diversify and expand their investment opportunities.

Alternative assets are popular choices among investors as they tend to have low correlation to the stock market, making them less vulnerable to inflation. Traditional alternative assets like gold and real estate may have been your Pop’s go-to hedge against inflation, but we’ve come a long way since then.

Fine Wine Against Inflation

Ideally, your investments should age like fine wine, quite literally.

Fine wine is beginning to become a more mainstream alternative investment as its price tends to increase with inflation and remain unaffected during a recession, currency devaluation and adverse economic conditions.

For example, when the COVID-19 pandemic hit in early 2020, fine wine’s downturn was both shorter and less severe than most mainstream financial assets. At its 2020 low on March 21, the Liv-ex 1000, one of the broadest fine wine market's benchmark indices, had only declined by 4% compared with double-digit losses in most equity markets.

Over the long term, fine wine has delivered positive returns, outperforming the International Monetary Fund’s (IMF) worldwide CPI inflation rate.

Source: Cult Wines

According to Credit Suisse, since 1900, wine investments have outperformed cash, government bonds and real estate. On average, wine boasts an inflation-adjusted price appreciation of 3.7% annually, compared to 2.9% for the collectibles class overall.

Fine wine also has notably lower long-term volatility even to other alternative assets, including commodities and gold.

Source: S&P, Liv-ex, Bloomberg, iShares. Data as of March 31, 2021

How to Invest in Fine Wine

The supply of wine cannot significantly change because of a sudden shift in policy, much like how the government and central bank policies influence financial markets. Only a limited number of vineyards produce wine considered investment-grade.

These select wine producers make a finite quantity and are strictly controlled by the various Appellations d’Origine Contrôlée (AOC) in France and their equivalent in other countries.

Historically, wine investments have been reserved for more experienced investors. Today, companies like Vinovest make wine investments more accessible with an investment as low as $1,000.

If you’re not a wine aficionado, Vinovest does all the heavy lifting — everything from curating a portfolio, authentication, insurance and storage. The platform lets you monitor your portfolio as it grows in value and allows you to buy more wine and sell bottles when you deem necessary. 

Vinovest’s platform is free to sign up. You can view your recommended investment plan according to your investment preference and risk appetite. Once you fund your account with the initial investment, Vinovest curates your portfolio with an AI algorithm that uses thousands of data points to select the wines with the highest likelihood to provide the best returns.

To learn more about Vinovest, visit its website here.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.