A well-diversified portfolio is vital to manage risk and offset volatile periods in the market. A normal portfolio includes a mix of stocks and bonds, but there are many other options out there.
Wine is one of the options. Like fine art or antique cars, wine centers on buying an asset you can touch and see, one whose value you expect to grow over time. In this case, you buy and store bottles of wine in the hopes of selling them at a higher price point later.
Investing in wine may seem a bit lofty, but anyone can do it if they have the right knowledge and a large amount of funds to invest. If you're searching for other options beyond the usual fare of stocks, mutual funds, and exchange-traded funds, here's what you need to know about wine investing.
- Diversification matters when building a wine portfolio. You should hold wines of different vintages from different regions to ensure that your portfolio is well-rounded.
- It's vital to figure out how much money you can safely invest in wine because of the high-risk factor.
- You'll need to learn how to store your wine, as improper storage can alter the flavor and cause your investment to spoil.
Start With Research
Before you can begin buying wine, you need to have a certain grasp of it as an investable product. It begins with knowing how a wine's vintage affects its appeal as a collector's item. As a general rule, rarer vintage wines are preferred over common vintages. They're more sought after, and fewer bottles exist.
The region the wine comes from is also important. Regions with a reputation for always producing a high-quality vintage will result in a wine that carries a higher price point. Trends in wine investing can affect which regions are "hot" at any given time. Wines from Bordeaux, Burgundy, Tuscany, and Napa Valley are among the cream of the crop for investors.
Just as with stocks and bonds, diversification also matters when building a wine portfolio. Buying wines of different vintages and from varied regions ensures that your portfolio is well-rounded. As you bring in newer wines, your older wines may be nearing their peak maturity.
It's also helpful to have a historical perspective on the wine market. The London International Vintners Exchange, or Liv-ex, is the global marketplace where wines are traded. Make sure you stay on top of recent trading trends; the long-term data on buying and selling can give you a better idea of how the wine market tends to move.
If you plan to sell your wine investments to a wine connoisseur at some point, it's important to pay attention to the variety and selection of wines you've bought so you can time the sale for the most profit.
Only professional wine traders can use Liv-ex. As a private wine trader, you'll need to buy your wine from a wholesaler, distributor, or retailer who can trade in the marketplace. That same person could help you to sell your wine once you're ready to do so. Wines can also be bought from fine wine merchants or through vetted wine auctions. Before buying wines, make sure you check with your state regulatory agency to find out whether there are limits or restrictions on what you can add to your collection, based on where you live.
In terms of buying single wines vs. wine by the case, a full case in the original package is more likely to bring a higher profit in most cases. The only instance where a bottle is cheaper than a case is if you can buy a wine where there are only a few bottles in circulation. For example, in 2017, a single, specially created bottle of California cabernet sauvignon was sold at auction for $350,000.
Consider How Much You're Willing (and Able) to Invest
Investing in wine isn't the same as an ETF or stock. While these investments may have low buy-in points, wine is a special kind of animal. As a rule of thumb, you should have at least $10,000 in funds just for wine. Of course, the type of wine and its vintage will dictate what you can buy; $10,000 could buy you a single bottle or an entire case.
You should be able to forecast how much you can invest in wine because of the risk factor involved. Wine is risky because many things can jeopardize your returns. A poor harvest, for example, could drive prices up. That's good news if you already have a cellar of wine in your portfolio. If you're just starting out, it is bad news indeed.
Natural disasters can also threaten grape crops, and mishandling wine bottles could wipe out your investment in one fell swoop.
It's possible to purchase wine insurance or add a rider to your homeowner's insurance to protect your investment against this, but that is another cost you'll have to factor in before making your initial purchase.
Proper Storage Is Critical
Last but not least, you need to plan how you'll store your wine. Improper storage can dramatically alter the flavor of the wine, and over time it could cause it to spoil.
You could store the wine in a controlled climate inside your home. It might be wiser to consider professional wine storage to protect it. Many companies offer this service to wine investors and aficionados. While you will pay a fee to have professionals oversee the storage of your wine collection, it may be a small trade-off compared to the returns you may realize when you sell your investment.