What You Need to Know About Wine Investments
A well-diversified portfolio is essential for managing risk and countering periods of volatility in the market. A traditional portfolio includes a mix of stocks and bonds, but there are a host of alternative investment possibilities to choose from.
Wine investment is one of them. Similar to investing in fine art or antique cars, wine investments center on the acquisition of a tangible asset whose value is expected to appreciate over time. In this case, you're purchasing and storing bottles of wine, in anticipation of selling them at a higher price point later.
Investing in wine may seem a bit sophisticated, but it's something virtually any investor can do if they have the right knowledge and a minimum 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 investments.
Start With Research
Before you can make a wine investment, you need to have a certain of understanding about what it is you're investing in. That begins with knowing how a wine's vintage influences its appeal as a collector's item for investors. As a general rule, rarer vintage wines are more preferable than more common vintages because they're more sought after.
The region the wine comes from is also important. Regions that have a reputation for consistently producing high-quality vintages will result in wine investments that carry a higher price point. Trends in wine investment can influence which regions are "hot" at any given time, but generally, 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. Including wines of different vintages, from different regions, ensures that your portfolio is well-rounded. As newer wines are introduced to your holdings, older wines may be approaching peak maturity. If you plan to eventually sell your wine investments to a wine connoisseur, it's important to pay attention to the variety and selection of wines you've invested in so you can time the sale for maximum profit.
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. Reviewing recent trading trends as well as more long-term data on buying and selling can give you a better idea of how the wine market tends to move.
Liv-ex is available to professional wine traders. As a private wine investor, you'll need to buy your wine from a wholesaler, distributor or retailer who's able to trade in the marketplace. That same individual could help you to sell your wine investments once you're ready to do so. Additionally, wines can also be purchased from fine wine merchants, or through vetted wine auctions. Before purchasing wine, check with your state regulatory agency to determine if there are any limits or restrictions on what you can add to your collection, based on where you live.
In terms of buying individual wines, versus wine by the case, a full case in its original packaging is more likely to bring in a higher profit in most instances. The exception is if you have an opportunity to buy a wine of which there are only a few bottles in circulation. In 2017, for example, a single, specially-created bottle of California cabernet sauvignon sold at auction for $350,000.
Consider How Much You're Willing (and Able) to Invest
Investing in wine isn't the same as investing in ETFs or individual stocks. While these investments may have low buy-in points, wine is a different animal. As a good rule of thumb, you should have at least $10,000 in available funds just for wine investment. Depending on the type of wine and its vintage, that amount could buy you a single bottle or an entire case.
Determining how much you're comfortable investing in wine is particularly important because of the risk factor involved. Wine is a risky investment; there are numerous things that can jeopardize your returns. A poor harvest, for example, could drive prices up. That's good news if you already have a stable of wine investments in your portfolio, but bad news if you're poised to buy for the first time.
Natural disasters can also threaten grape crops, while mishandling of wine bottles could wipe out your investment in one swoop. It's possible to purchase wine insurance or add a rider to your homeowner's insurance to insulate your investment against these types of scenarios, but this is another cost you'll have to factor in before making your initial investment.
Proper Storage Is Critical
Last but not least, you need to consider how you'll store your investment. Improper storage can dramatically alter the flavor of the wine and over time, it could eventually cause your investment to spoil.
While you could store the wine in a climate-controlled area of your home, it may be wiser to consider professional wine storage as a way to protect your investment. There are numerous companies that offer these services to investors and wine aficionados, and 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.