Issue #123: Wait — you can invest in WINE?!

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December 8, 2021 • Issue #123

Hi y’all —

In the mid-2000s, an odd phenomenon came out of nowhere to grip teenagers everywhere: scene culture. At my Florida high school — which was admittedly not the most hardcore hXc place — scene kids were easily identifiable by their skinny jeans, dyed hair, side bangs, overdrawn eyeliner, dramatic MySpace pages and affinity for the band Metro Station.

Needless to say, I wasn't a scene kid. (I was nowhere near cool enough, although come to think of it, “Dollar Scholar” would be a killer scene name.) But I did, and do, like alternative music. I’m into Panic! At the Disco, Hellogoodbye and Fall Out Boy to this day.

So naturally, when I recently read an article about alternative assets, my curiosity was piqued.

What are alternative assets, and should I invest in them? How do I even do that?

I called Kevin Mirabile, author of Exotic Alternative Investments: Standalone Characteristics, Unique Risks and Portfolio Effects, for help. He told me that when people talk about traditional assets, they're generally referring to stocks and bonds. When they talk about alternative assets, they're usually referring to hedge funds, private equity, real estate and commodities.

But that scope has expanded in recent years. Investors have flocked to affinity assets like artwork, Bitcoin and vintage cars because they're emotionally or culturally significant items they can relate to.

"The current generation, like millennials, think about investments that are more aligned with lifestyle," Mirabile said. "That has put a lot of these asset classes on the map."

At the same time, investors are seeking assets with returns that aren't correlated with stocks and bonds. Owning assets whose value tends to rise when other assets, especially stocks, fall can help me build a diversified portfolio.

Alternative assets give investors a chance to do that. As JPMorgan Chase's Anton Pil wrote in a 2020 report, "alternatives, perhaps once considered optional in investors’ portfolios, have indeed become essential." The Chartered Alternative Investment Analyst Association found that alternative investments grew from 6% to 12% of the global investment market between 2003 and 2018.

"The infrastructure is evolving, and that has moved some of the investors from just individuals who can relate to the asset class to investors who want it for financial characteristics," Mirabile adds.

Investing in alternative assets requires a ton of work. Individuals face hurdles getting involved because there's so much homework involved in advance of buying these items.

That's where services like Alternative Assets, a research platform started in 2020, come in.

Founders Stefan von Imhof and Wyatt Cavalier noticed an uptick in people  educating themselves on how to invest rather than paying someone else (like a financial advisor) to pick investments for them. They also saw a proliferation of startups like Masterworks, Otis and Rally focused around fractional investing, or buying an affordable piece of an asset, like a share of a vintage record, instead of paying an arm and a leg to own the whole thing.

"There's dozens upon dozens of fractional platforms that allow you to fractionally invest in everything, from art to wine to sports cards to sneakers to video games to islands," von Imhof says. "There's no upper limit to what can be invested in and fractionalized."

This could be intimidating for amateur investors like me. Cavalier and von Imhof saw an opening for a Seeking Alpha-type community that would do the research for them — and provide recommendations.

Alas, succeeding with alternative assets isn't quite as simple as finding an opportunity to invest in a pair of sneakers Magic Johnson wore in 1987 and pulling the trigger. 

Because each asset is unique, it's difficult to pinpoint value. Mirabile says a lot of the time I'm relying on data from its last trade — but the last trade doesn't always match with the item's current value. Basically, I don't know how much something is worth until I sell it.

I'm also at the mercy of changing consumer preferences. Fluctuations in demand can dramatically influence price. Aaron Filbeck, managing director at the CAIA Association, pointed out that many of these more esoteric assets are risky. Just look at the volatility of crypto — Bitcoin lost a fifth of its value last weekend.

"Making sure you are diversified even within the asset you're buying is key," he says.

Another challenge is ensuring the providers giving you access to these assets are legit. Filbeck recommended checking what their background is, investigating how they generate valuations, what their fees are and more. 

THE BOTTOM LINE

(but please don't tell me you scrolled past all of my hard work)

Alternative assets can be a super fun investment opportunity, but I should be properly educated before I hand my money over. I may want to use sites like Alts or simply practice moderation.

Seth B. Mullikin, a financial planner in Charlotte, North Carolina, told me he typically discourages clients from investing in collectibles because they're illiquid: It's not easy, or cheap, to convert them to cash. Owning a piece of a decades-old Beatles record might be cool, but Miami CFP Charles Sachs says collectibles don't have a lot of economic utility.

"These are not investments but rather things some people enjoy collecting, and that should be the motivation in acquiring," Sachs says.

VIA GIPHY

RECEIPT OF THE WEEK

check out this wild celebrity purchase

VIA INSTAGRAM

How much would you pay to be Snoop Dogg’s neighbor? No, not in real life — in the metaverse. Someone recently spent the equivalent of about $450,000 to claim the virtual lot next door to the rapper in his Snoopverse, where participants can park their luxury NFT cars and attend digital pool parties with Snoop’s avatar. No word on whether Martha Stewart is invited.

INTERNET GOLD

five things I'm loving online right now

1	No thoughts, head empty, just these beautiful mushrooms.
2	I love this 1992 interview where Will Smith, who is clearly supposed to be talking about a NCAA Basketball video game, won’t stop gushing about The Legend of Zelda. “He needs help,” his friend DJ Jazzy Jeff says. “I called him and he didn’t hear a word I said on the phone. I could hear him in the background collecting coins or something.” Incredible.
3	You want a ton of quirky historical facts, like that Salvador Dalí thought he was a reincarnation or that gin used to be cheaper than beer in England? Your wish is my command.
4	Obviously I adore Olivia Rodrigo — three of my top five songs on Spotify Wrapped were from SOUR — but I’m here to report that Joshua Bassett’s new songs are fire. Gen Z is so dramatic, I love it. Makes me think wistfully of the Niley days...
5	Otter birthday party!

401(K)9 CONTRIBUTION

send me cute pictures of your pets, please

VIA BRITTANY MAYES

Meet Miso, a picture-perfect pup who loves to invest in pawlternative assets.

I think I'm gonna go dig out my hair straightener, kthxbai.

See you next week.
 

 
P.S. I’m still rounding up money tips for a year-end issue, so please share your best personal finance advice! I’d also love to know… do you have any alternative/exotic investments? What was your most-listened-to song this year? Contact me at julia.glum@money.com or @SuperJulia on Twitter.

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