investing in wine

Have you thought about investing in wine? When most people hear about investing, what comes to mind is buying stocks, funds, and bonds. However, you could also realize a decent return on investment from bottles of fine wines.

Like with other alternative investments, fine wine investments can be a great way to diversify your investment portfolio. Unlike bonds and stocks that go through boom and bust cycles, returns from investing in collectibles like fine wines have no correlation to conventional assets.

Wine investment is often negatively correlated with the stock market. Investment experts always stress the importance of diversification. Wine provides a unique form of portfolio diversification because its performance has no correlation to economic conditions, corporate earnings, interest rates, or conventional investor sentiment.

Wine vs Stock: Which is a Better Investment?

The benchmark index for the United States stock performance is the S&P 500, while the benchmark for the fine wine market is the London International Vintners Exchange, commonly referred to as Liv-ex.

Over the last two decades, from July 2001 to July 2021, the Liv-ex Wine 100 rose by 270.7%, outperforming the S&P 500 by 8 percentage points without considering the dividends reinvested.

The S&P 500 surpassed Liv-ex by 60% after considering the reinvested dividends. However, since 2005, the Sotheby’s Wine Index has constantly outperformed the S&P 500 though the performance converged briefly in 2021.

The above statistics indicate that wine is a lucrative investment. However, you should understand that indexes track the performance of tens or even hundreds of wines. You should consider investing in several types of wines instead of placing all your funds on one vintage brand or producer.

You should also focus on investment-grade wine instead of less expensive wines. When investing in wine, the quality of the product matters. With good wine, you have a longevity guarantee, meaning there will be no time pressure on when you should sell your wine. Rarity is also a key determinant of the returns of your investment.

Evaluating Investment-Grade Wine

Many factors determine whether a wine has the potential to appreciate. While some factors are fundamental, others are market-driven, depending on demand and supply.

For example, the prices of Burgundy and Bordeaux will continue to rise over time, given their limited supply in terms of vineyard sizes and appellations.

However, other than appellation and vineyard, several factors influence the investment potential of every wine. Below are some of the factors that you should consider if you decide to invest in fine wine:

Producer’s Reputation

The wine’s potential appreciation highly depends on the reputation of the wine producer. Wines that perform well in the wine market come from producers like Pétrus, Domaine de la Romanée-Conti (DRC), Château Lafite Rothschild, Château Mouton Rothschild, and from other regions like Bordeaux and Burgundy.

Go For Vintage

Vintage is the year when grapes are harvested, and wine is produced in a particular region. The quality of harvest differs from year to year due to different weather conditions. As a wise investor, you should understand the vintages that yield the best production for the wines you intend to invest in.

Wine’s Aging Potential and Longevity

Certain types of wine age better than others; therefore, ageing potential is a key consideration when investing in fine wine. The type of grape and the level of acids and tannins influence a wine’s aging potential. You should also consider whether the producer has a record of producing wines that age well.

Longevity depends on the type of wine. For example, investment-grade wines take around ten years after bottling to mature. Other wine types could mature over extended periods, appreciating in quality and value. Others have to be consumed within a short period after maturity.

What Are the Wine Critics Saying

You should never overlook the recommendations of wine critics. Critic ratings have a significant impact on a wine’s potential to appreciate. The most influential wine critics include James Suckling, Robert Parker, and Jancis Robinson. Before you venture into wine collection, consider the critics’ opinions on the wine you intend to invest in.

Wine Scarcity and Price History

Wine scarcity increases the value of the vintages you invest in. Consider a vineyard like Domaine de la Romanée-Conti that produces the most sought-after Burgundy. However, despite the high demand, this vineyard produces only around 450 cases every year. Still, when ranking producers based on their aggregate sales, Domaine de la Romanée-Conti always tops the list.

When it comes to the wine’s past performance or price history, you should consider investing in wines that have recorded a steady increase in value. You could even consider attending a wine auction to learn about the market trends, how different wines are selling, and the pricing before you venture into the wine market.

Gather Sufficient Information

Wine is a complex asset. You require ample knowledge and preparation to invest in diversified wine portfolios. Educate yourself about every aspect, including wine selling, insurance and storage costs, wine insurance, constellation brands, storing wine, and the leading producers.

How to Invest in Wine

There are several ways of investing in wine. The best way will depend on your budget, financial situation, and financial goals. Below are the different ways of investing in wine:

Wine Bottles

You can buy wine bottles with a proven track record at wine auctions or through secondary markets. In some cases, you could buy directly from the producers.

You could buy or sell wine through websites like Christie’s, Sotheby’s, or WineBid. However, it is important to note that you may have to pay a commission if you decide to re-sell the wine through an auction.

You will need a place to store the wine if you choose to invest in individual bottles. For example, you may have a wine cellar to keep the bottles at the right temperature, away from the sun and other elements. You may also have to purchase additional insurance.

Wine Futures

Purchasing wine futures is another way of investing in wine. This involves buying wine before it is bottled. Usually, you buy investment wines while still maturing in the barrels.

This is the best way to invest if you want to get access to new vintage wine like Grand Cru Bordeaux. You will have more options if you choose to invest in wine futures. However, it is crucial to note that wines do not ship until three years after the vintage.

Wine Stocks

You could invest in the wine industry itself instead of purchasing wine bottles. You can do this by buying dividend-paying stocks from producers or wine merchants. With stocks, you do not need to worry whether a bottle has investment-grade wine. There are no wine-specific ETFs. However, you could invest in alcohol or food & beverage exchange-traded funds, including wine stocks.

Investing Through a Dedicated Platform

A dedicated investing platform such as Vinovest allows you to invest in wine, but a wine expert does the work for you. Numerous platforms specialize in wine investing; when you buy bottles of fine wine, you don’t have to store them. In addition, the wine experts will handle most of the curation.

The Benefits Of Investing In Wine

Most wine investors invest money in this asset class out of a genuine interest in wine. Most investors derive the pleasure of wine investing from keeping the wine in their possession.

Most investors are high net-worth individuals; since they are passionate about wines, they take time to learn what constitutes a good investment. However, even for the average investor, an investment has some compelling benefits:

• Wine has no correlation to the traditional markets and asset classes, making it a perfect way of diversifying your investment.
• Investing in fine wine can help you to manage your investment.
• Wine experience can lower market volatility.
• Wine investment can preserve value during recessions and market contracts.
• Wine investors realize enhanced returns on investments.

Disadvantages of Wine Investing

Holding a physical asset comes with a full range of costs, which most investors do not consider. Investing in wines is more expensive than investing in traditional asset classes. Some of the costs associated with holding physical wines include:

• Higher Initial Investment – Building a wine portfolio could require between $15,000 and $25,000. You require making a substantial investment to achieve economies of scale.
• Shipping Costs – Wine is a tangible asset. Therefore, you will incur shipping costs if you take physical possession of the wine. Shipping costs will vary depending on distance and weight.
• Buyer’s Premium – You will pay a buyer’s premium if you buy wine through a commercial auction house. The premium could range between $15% and 25%.
• Storage Costs –You must store wines in a well-controlled environment, given that wine is a delicate asset. The storage could range from a wine cellar to carefully controlled state-of-the-art environments depending on the size of your wine collection. You must consider electricity costs if you choose to store wine at home. If you go for a professional storage facility, you will incur storage and maintenance costs.
• Insurance Costs – You must have wine insurance to safeguard your investment against damage or loss. The insurance premium will depend on the value of your investment.
• Holding Period – Usually, it takes seven to ten years or even longer for wine to reach its maximum value. You should lock any appreciation in value by auctioning or selling the wine when its value has peaked.

Where To Get Wine

Wines are available in both primary and secondary markets. In a primary market, the wine moves from the producer to the consumer. Investors and wine collectors obtain wine from auction houses, exchanges, and brokers in a secondary market.

• Buying at Auctions

You will find a wide selection of vintages and producers at auction houses. Ensure you only work with reputable auction houses that sell the highest quality wines.

• Online Wine Auctions

Online auctions are becoming extremely popular. At online auctions, you will have access to a wider variety in terms of quantity and price. In addition, geographical location is not a factor when buying wine online.

Is Wine Investing Right For You?

Whether you should invest in wine depends on your financial situation and your portfolio goals. Investing in wine makes sense if you have a solid portfolio of bonds and stocks and still have extra money to invest.

Exploring different assets is a great way to diversify your portfolio. Investing in wine could also make sense if you love it and want to include it as an alternative asset class. You should not place all your money in a wine investment fund. Experts advise allocating around 20% of your investment to alternative assets.

The Bottom Line

Wine is one of the alternative assets you can add to your investment portfolio. However, you should define your investment goal and long-term investment strategy before you get started. Since wine investment is a long-term commitment, you should carefully evaluate whether it suits you.

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