Invest in Wine | Smart Options for Growth
There was a time when investing in fine wine was reserved for the wealthy. However, technology has opened up the industry, and more people now realize the potential of wine as an alternative asset. Wine has delivered 13.6% annual returns in the last decade and a half and has plenty of potential for long-term growth. It has proven to be a great investment vehicle for diversifying a portfolio from stocks and bonds.
Here’s what you need to know about investing in fine wine.
What Makes Wine a Worthy Investment?
Over time, fine wine becomes rare and therefore more valuable. Time also makes a vintage more enjoyable its astringent qualities soften the longer it is stored. Hence, its quality improves as the years go by.
In the past, people often had to store wine in their homes which proved to be an expensive venture as a home-based cellar can cost up to $180,000. However, things have changed, and investors no longer have to stow away the wine bottles themselves. They can instead have them placed in specialized facilities until the vintage matures. Wine investment companies provide these storage facilities at a fraction of the cost of building your cellar. These funds have made it easier to enter the world of wine investing.
Buying and storing bottles of wine isn’t the only way to invest in the product. You could also acquire blue-chip wine stocks or futures to create your wine investment portfolio with companies that aggregate wine assets and then sell you shares of those assets.
You can read our review of Vinovest. They were one of the first to popularize this option for wine investing.
Why You Should Invest in Wine
According to market research, fine wine has performed exceptionally over the past decade, exceeding other alternative investments such as gold and art. It has appreciated by 127% in the last 10 years.
Wine also offers a variety of benefits beyond just eye-catching returns, including the fact that it has little to do with the traditional stock market. While the stock market fluctuates on various factors, such as corporate earnings and interest rates, wine prices are influenced by seasonal harvests and consumer tastes. Therefore, a dip in the stock market is not likely to affect your wine investment portfolio, making wine a good diversity vehicle.
What Is Investment-Grade Wine?
An investment-grade wine is a fine vintage that increases in value over five years. A good example of wine's appreciation potential is the 1988 case of Domaine de la Romanée-Conti which sold for $305,000 in 2019.
The factors mentioned below can help you determine what wines make for a worthy investment.
Age-Worthiness
It’s important to know if a wine is an age-worthy investment. It should have the right balance of acidity, alcohol, and tannins to ensure that its quality improves with age.
Scarcity
Wine is made to be consumed, which means that over time, there will be fewer bottles of a particular vintage available. An investment-grade wine is finite and increases in value over time. Limited edition wines may be more expensive to procure, but they are also likely to get scarcer over the years.
Critics Ratings
A wine is considered investment-worthy if it rates as “classic.” This means that it has attained a score of 95 and above on a scale that goes up to 100.
Pedigree
Most of the investment wines sold in the U.S. are made by winemakers who have earned a reputation for being very good. These wines often come from regions like California, Burgundy, and Tuscany, known to be viticulture locations.
Longevity
A good investment-grade wine will reach peak maturity about 10 years after being bottled. It can continue to age for another 25 years, improving its quality over that period.
Price Appreciation
The price of a bottle of wine you want to invest in should appreciate in 10 years. If you are acquiring a new vintage, you can track the performance of previous wines produced by the same vineyard. These records should give you a good indication of how your wine will perform.
It’s essential to note that investing in wine comes with some risks. Wine can spoil if it’s not stored correctly. To maintain its quality, you should keep fine wine under the proper light, temperature, and humidity conditions.
Unlike stocks and bonds, fine wine is a physical product, which can take a few weeks to trade. This is a factor that can be frustrating for investors with an extensive wine investment portfolio. The introduction of wine NFTs could help speed up transactions.
What Does Wine Investing Entail?
Aside from knowing what makes an investment-grade wine, it’s also essential to understand how the market works. To be successful in the wine market, you need to buy bottles that will increase in value over time.
In the past, places like Burgundy and Bordeaux were the regions investors flocked to for fine wine. Today, it’s possible to find investment-worthy wines worldwide, including in Australia, the U.S., and South Africa.
Wine is becoming more attractive to investors as the demographic changes and the demand for fine wines increases. With more people wanting to drink wine, the market is expected to grow in various regions.
You could also buy wine futures, which means purchasing the beverage while still in the barrel. It may be riskier than buying a bottled vintage, but it could pay off if the cost of the wine increases once it has been bottled and stored.
Wine investing can be an attractive alternative asset for people who love wine and want to add it to their portfolio. However, it is essential to note that wine is a long-term investment and that it can take a while to get your returns. You should hold your wine assets for at least three years.
How to Invest in Wine
There are various ways to invest in wine, so it’s good to have a plan in place to ensure that you’re getting the most out of your collection. Let’s look at some of the different avenues you can use to build wine investment portfolios.
Buy Wine Bottles
You can buy individual bottles of wine on your own through secondary markets or auctions. You can then resell this wine through various websites like Winebid, Sotheby’s, or Christie’s. Selling your wine on these platforms may attract a commission, so it’s important to set a selling price that ensures you make a profit.
If you choose to buy and resell bottles of wine, you will need to store them yourself. When it comes to keeping these bottles, you should ensure that a proper storage facility is available. This means having a wine cellar that you can use to store the bottles under suitable conditions.
It can be very challenging to invest in individual bottles of wine, especially since there are many different factors to consider. While it is possible to buy investment-grade wine for as little as $35, you will probably need more capital than that to grow a lucrative collection.
The advantages of acquiring your own cases of wine include having control of your collection and the ability to source the best deals. However, it can be a challenging venture as you will require proper wine storage facilities and expansive knowledge of the wine industry.
It’s important to note that the value of wine does not increase indefinitely. After a certain point, the vintage becomes less desirable as it gets older. Predicting the right time to sell your collection is crucial when investing in wine.
Invest in Wine Futures
Wine futures are another way to invest in wine. It involves buying the wine before it’s bottled and while it’s still maturing in the barrel. This method is usually preferred by those who want to access new vintages. Those investing in wine futures will have more wine options available to them.
The wine bought in this way does not leave the vineyard until the third year of the vintage. The great thing about wine futures is that you can find an excellent wine for less than $200. You can purchase futures from sites that we list here.
The vineyard will deliver your wine once it’s bottled, so you should have an appropriate storage facility available.
Buying wine futures means you get access to a large variety of wines before they are bottled. It means purchasing them at a lower price than what they will sell once they go on the market. This also means that you get to be the wine’s first buyer before entering the secondary market. These factors increase your chances of making a tidy profit once the vintage is available for sale.
On the downside, you will have to wait three years to receive your asset. Once the wine is in your possession, you will also have to store it correctly to avoid compromising its quality.
Invest in Wine Stocks
Instead of buying a bottle of wine, you can invest in stocks of companies that produce and sell alcoholic drinks. This way, you can benefit from the increasing popularity of wine consumption. Companies that allow you to invest in wine stocks include The Duckhorn Portfolio, Constellation Brands, and Treasury Wine Estates, as they are publicly traded corporations.
Although there are no wine-specific exchange-traded funds (EFTs), you can still invest in stocks of companies that sell the beverage. When investing in wine stocks or exchange-traded funds, you can easily buy and sell individual shares through an investment app. Apps like Robinhood and Stash allow users to buy and sell shares for as little as $1.
There are also wine funds like Cult Wine Investment and Sommelier Capital Advisors that you can use to acquire wine stocks. However, you should note that these funds are designated to keep your money for years as they are long-term investment vehicles. A withdrawal request can take weeks to complete. There are also minimum capital requirements to consider when using these funds.
Stocks and EFTs can be accessed with a small amount of money, so they make an easy entry point into the world of wine investing. There will be no need to handle physical wine bottles with this investment option, so factors like storage will not be a concern. However, wine stocks do not have the same level of appreciation that you will see with a wine bottle.
Invest Through a Dedicated Platform
Another avenue to use for investments is using a dedicated platform that lets you invest in bottles of wine. Many platforms like Vinovest allow users to buy and sell wine. The main advantage of platforms like these is that they have experts on hand to offer advice on the best wines to purchase.
Specialized wine investment platforms allow you to acquire decent wine investment portfolios in one place for an affordable sum of money. There is also no need to store the wine yourself.
With these sites, you will probably be charged a commission, and you will not have the freedom to select your vintage. If you would rather have a wine expert make the investment selections for you, you should consider joining a wine investment platform.
Investing through NFTs
Some wine-investing sites are now using NFTs in combination with physical bottles that they will store for you. The NFT is tied to the physical bottle and will allow buyers and sellers to track the chain of ownership. You can learn more about how wine NFTs work here.
Is Wine Investing for You?
The choice to invest in wine will depend on your goals. Wine investing is a great way to boost your portfolio’s growth and limit overall risk. It’s also an excellent option to consider when diversifying your portfolio, as it can help minimize volatility.
Wine investing could make sense for people who love wine and are interested in adding it to their portfolio. However, it’s also a risky investment if you haven’t yet established a plan to meet your retirement goals.
Generally, experts suggest that investors limit their exposure by ensuring non-core assets make up less than 20% of their total portfolio.
Build Your Wine Portfolio
The rise of digital platforms and wine exchanges has democratized the wine market and made it more transparent. This has increased the number of investors interested in investing in wine.
Wine can be an alternative asset class that can add value to your portfolio. However, before you start, make sure that you have a long-term investment strategy in place. When deciding to invest in a good vintage, bear in mind that it is a long-term commitment.
