Recession Proof Investment in Luxury Wines
Are luxury wines a recession proof investment? The recent financial crisis coupled with today’s turbulent financial market is leading to a growing demand for recession proof investments. Therefore, it is no surprise that an increasing number of investors are reaching towards Bordeaux fine wines not only due to the financial stability and immense capital appreciation, but also for its recession proof nature.
What is Recession Proof?
The term “recession proof” is defined as an entity (an asset, company, industry or similar) that is economically resistant to the outcomes of a recession. Meaning, a recession – as experienced in recent times – will have no significant effect on the market or industry.
Even though many traditional markets have been tagged as recession proof, in times of economic uncertainties the numbers speak for themselves. While many industries have taken a serious hit (the subprime mortgage crisis for example), the fine wine market continues to shine in a gloomy financial climate. Although the numbers did fall slightly as a result of the economic recession in 2008/2009, the industry has since consolidated and stabilized, and was one of the first to show an upturn with consistent growth over the last 2 years.
That begs the question, what makes luxury wine a recession proof investment?
Why Luxury Wines are Recession Proof
The main reason why luxury wine is recession proof is because the investment wine market is unaffected by the financial climate and conditions. Regardless of global economic fluctuations and market spikes, the fine wine industry has shown immense stability over the past decades. Unlike traditional investments, luxury wines are minimally influenced by exchange and interest rate changes.
Furthermore, there is a negative correlation between the fine wine market and the stock market. A traditional investment avenue like real estate will suffer if the stock market is struggling. On the contrary, the fine wine index remains unaffected by stock market fluctuations. Luxury wine investment is also considered recession proof because demand for that particular asset class is constant and always rising.
There is a finite supply of the top investment wines produced each year, and as time passes, more and more bottles are consumed driving the demand even higher as supply decreases. Regardless of impending financial crises or economic downturn, wine will always be consumed. Whether it is in celebration or in times of trouble, these exceptional and highly rated bottles of Bordeaux fine wine will always find a consumer.
Moreover, investments in luxury wines are completely free of tax. With no VAT (value added tax) and CGT (capital gains tax) the profits obtained through fine wine remain yours to keep in entirety. These factors, along with all the other reasons for investing in luxury wines, are clearly what makes wine investment so popular.
A Recession Proof Investment for 2012
Unlike almost all traditional investments, luxury Bordeaux wines have shown a consistent appreciation in value, on a much higher scale. On average, stocks recorded on the FTSE 100 appreciated just 3.4% over the last decade, whereas the top 100 wines have shown a rate of appreciation as high as 40%, on average. Although these numbers can be hard to believe, the Liv-ex (Electronic fine wine exchange platform) has clearly shown the staggering potential of the fine wine industry.
Global investors are seeking maximum capital growth and minimal risk for their investment portfolios, following the economic recession and consequently volatile financial markets today. The recession proof nature of luxury wines coupled with the lucrative returns and benefits, makes fine wine the perfect investment for a diversified and well balanced investment portfolio.
Bordeaux Traders - The Fine Wine Investment Brokerage GmbH
Kaerntner Ring 5-7, 1010 Vienna
Phone: +43 1 20511 60 1241
Fax: +43 1 20511 60 1008