Market losses due to inflation 1:22
(CNN Business) --
Markets in the United States are sore and investors panicked as stocks enter a bear market as fears of a possible recession gain traction.
Inflation rates remain at 40-year highs, interest rates are rising, geopolitical chaos and supply chain problems continue to loom, and top CEOs are warning of an economic "hurricane."
Global markets fall amid concerns about rising inflation in the US.
But not all economic downturns are created equal, and luxury markets somehow stay afloat.
Savvy investors are now looking to alternative assets, such as wine and art, to keep their money invested in assets that appreciate in hard times.
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Fine wine has a compound annual growth rate of 10% over the past 30 years, according to the Liv-Ex investment index, which tracks fine wine indices.
It also has a fairly low correlation with the stock market, making it a valuable hedge against swings in stock prices.
Physical assets also tend to resist inflation quite well.
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The Liv-Ex index shows that fine wines rose by 10.3% 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.
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Traditionally, alternative assets should make up 5% to 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 working. doing well right now and we're seeing clients increasing the amount they're putting into alternative assets because they tend to be great diversifiers."
Cult Wines advises, buys, stores and sells fine wine on behalf of investors who wish to participate with a minimum investment of US$10,000.
“There is only a finite amount of investment-worthy quality wine produced each year, and through consumption, that amount decreases over time,” Tiwari said.
"In the case of fine wine, with more countries adopting wine-drinking cultures, as well as wealth being created around the world, demand continues to increase."
Supply chain problems are only increasing that demand, Tiwari said.
The value of champagne rose 41% in 2021, in part because people were so worried it wouldn't make it to wine store shelves, she said.
Art
The world may be focused on NFTs, but physical art collecting remains a popular bet for wealthy investors.
However, the entry point for works of art is much higher than for wine and other alternative assets.
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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 didn't begin to affect the art market until 2009, according to Masha Golovina, Director of Market Analysis at Masterworks, a top-notch art investment marketplace.
"This decline occurred just as share prices were starting to rally."
Art prices also tend to 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 has calculated a correlation coefficient of 0.12 between art and the S&P 500 index, which is relatively low, and Masterworks calculates that there has been an annualized appreciation of 13.8% of art between 1995 and 2021.
watches
Another item that tends to retain its value during periods of economic crisis are high-end watches.
At the height of the Great Recession in 2008, watch auctions totaled $83 million, up from $55 million in 2007. Watch prices also soared in the months after 9/11. 2001 and the economic recession that followed, according to a Sotheby's analysis.
Demand and prices for Rolex and Patek Philippe watches have grown significantly since inflation hit a 40-year high, according to the watchmakers.
collectible items
It is important to be careful when getting involved in new assets that are surrounded by a lot of hype.
After all, Beanie Babies – a line of popular teddy bears – were considered a surefire way to make millions.
But sports card trading has increased in recent years.
In the first quarter of 2021 alone, more than $871 million worth of sports cards were traded on eBay, according to the online sales platform.
In total, eBay reported a 142% increase in business card sales in 2020 over 2019.
Trading card games like Pokémon also saw sales increase by more than 500% in the same period.
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