What goes up must come down. Markets certainly follow that rule. Luxury goods are no exception.

But when you look at certain types of luxury goods — such as wine and whiskey — you notice the drops in demand and value are nowhere near as steep as with other luxury items.

There are three main reasons for the lack of correlation.

Downturn Protection #1: The Wealthy Are Always Buying

There are millions of millionaires in the world — 42.2 million of them, according to the 2018 Capgemini World Wealth Report. The report also says there are 226,400 ultra-high-net-worth individuals (over $30 million) and over 2,000 billionaires.

Furthermore, the number of wealthy people grew just over 10% from 2016–17. Their total net worth is $70 trillion — an all-time high.

What does this mean?

It means there are a lot of people insulated from market turbulence. They can (and will) spend on luxury goods no matter what the economy is doing.

And willingness to buy no matter what includes acquiring passion investments.

Live Auction

Last week, I attended a live auction at Acker Merrall & Condit in NYC. As you can see, the seriously wealthy don’t mind shelling out several thousand dollars for some wine — even on a Wednesday…

In fact, it’s not uncommon to see an uptick in demand for very high-end luxury goods and experiences during hard economic times.

This doesn’t mean there are no slumps or fluctuations in wine and whiskey prices… there are. But changes are not, as a general rule, as extreme as in the stock market.

Which leads me to my next point…

Downturn Protection #2: Stocks Don’t Affect Liquid Profits

Wine and whiskey as an asset class have a weak correlation to stocks and bonds.

In a nutshell, the rules for supply and demand for liquid assets and stock market assets are entirely different.

Stocks and bonds have pretty predictable trends. Wine and whiskey do not. Which means they have little crossover.

When the stock market is zigging, the wine and whiskey markets are zagging.

Which makes wine and whiskey good investments for diversifying a portfolio. Beyond the perks of ownership, of course…

The camaraderie… the conversation… the clink of ice against the glass…

These are more reasons the wealthy love investing in wine and whiskey.

Downturn Protection #3: Wine and Whiskey Stand Alone

I’ve got more good news for folks interested in diversifying: The value of wine and whiskey is not correlated to the other major economic indicators — at all.

Wine and whiskey don’t go up or down in relation to what inflation, employment or housing are doing.

You might think that spending and confidence — two oft-cited indicators of economic prosperity — would say something about what wine or whiskey investments are doing. But that’s not the case.

Analysis of the Liv-ex 100 Fine Wine Index shows that not only do fine wines achieve larger returns than traditional equities but they also have lower volatility.

Volatility During 2003-2017 Period MSCI World Index vs. LIV 1000

As you can see, fine wines provide a much more stable investment than stocks…

That’s true of most (if not all) alternative assets. Higher returns… lower volatility… and greater enjoyment.

Do What the Wealthy Do

Now you see why wine and whiskey are favored investments of the rich, and folks who dislike being too heavily invested in the public markets.

Alternative assets in general are popular with the wealthy. According to the 2018 UBS/Campden wealth report, rich families hold 45% of their assets in alternative investments, just 28% in stocks and only 15% in bonds.

The average person, on the other hand, is heavily invested in stocks and bonds and holds few if any alternative assets.

Which would logically indicate if you want to grow your wealth like the rich do, it’s time to consider investing in alternative assets such as wine and whiskey.

To your wealth,

Steffi Baker

Steffi Baker
Editor-at-large, Unconventional Wealth

Steffi Baker

Steffi Baker is the editor-at-large of Unconventional Wealth. For the past 10 years, she worked with a small strategy consulting firm that dealt exclusively with wealth-management companies, helping them market themselves to ultra-high-net-worth clients.

Through this line of work, Steffi attended events in London and New York and hobnobbed with household names and international...

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