We often hear about the importance of a diverse portfolio.
Oftentimes, as an attempt to achieve this diversification, investors look to purchase shares of companies across a wide variety of sectors.
While this is an example of diversifying a stock portfolio, it’s actually not a very diverse portfolio overall.
In addition to diversifying stocks, investors ought to diversify across multiple asset classes.
When thinking about investments outside of traditional stocks and bonds, investors actually have a lot to choose from.
These non-traditional assets are referred to as Alternative Investments, which is actually quite a large bucket of investments.
Real estate, art, farmland, and collectibles are all examples of alternative investments. In fact, there are many more!
Even wine can be a lucrative investment. But not all wines are created equal!
In this comprehensive guide, we are going to explore all that wine investing entails.
For example, what even qualifies as investment grade wine?
How would someone get started?
What are the risks of a wine investment?
We answer these questions and more. Let’s dive in!
What Is Wine Investing?
Wine investing is just what it sounds like – it’s investing in wine.
However, it is a little more complicated than going to your local grocer and picking up a bottle that is a bit higher priced than your usual bottle.
With wine investing, it’s important that you understand the market it plays in.
For instance, what makes a bottle worth more than another bottle?
You should also educate yourself about methods of storing it properly, insurance and transportation. And perhaps most importantly, you should be patient!
Wine investing is certainly not a get rich quick scheme. In fact, when investing in wine, you should be willing to hold your investment for many years – as it is a long term investment.
Many wine investing experts also recommend that you have a passion for fine wines before investing.
Investing in wine solely for a profit and not also as a hobby may not be as enjoyable.
Of course, you do not have to be an expert aficionado, but it should be something you enjoy learning about if you’re going to invest.
Now, a wine investment is possible through a few methods.
- Of course, you can buy a bottle of wine that you think will appreciate over time.
- However, you can also get started by investing in a publicly traded company that focuses on wine production, distribution, or storage.
- In today’s modern era of investing, you can even purchase shares of a particular wine investment that a company, such as Vinovest, securitizes with the SEC and opens to investors.
Invest-Grade Wine Explained
There’s a big difference between an average bottle in your wine cabinet compared to an investment grade wine.
So, what makes a particular bottle an investment?
Investment grade wine refers to high-quality wine that is considered to be a good investment due to its rarity, demand, and potential for appreciation in value over time.
These wines are typically made from premium grape varieties and are produced by well-respected winemakers or wineries.
They may also come from renowned wine-growing regions and have received positive critical acclaim.
Investment grade wines are often collected and stored in optimal conditions in order to maintain their quality and maximize their value.
They are also frequently traded on the secondary market, which is a market for buying and selling wines that have already been purchased and released for sale.
Some examples of investment grade wines include top Bordeaux wines, such as Château Lafite Rothschild and Château Mouton Rothschild.
Other examples include top-rated Napa Valley Cabernet Sauvignons and vintage Champagnes.
What Determines The Value Of Wine?
A bottle’s ability to appreciate can be determined by a number of factors such as vintage, weather, consumer trends, and even the opinions of critics!
While the list below is not a comprehensive list, it is a great start:
- Vintage refers to the year in which the grapes are harvested. It also refers to the geographic region in which they were harvested. Additionally, some years had a much better quality of crop than others. For example, 2016 has a better quality than 2012.
- Weather is also a significant factor that has an impact on vintage. Bad weather results in poor grape harvests.
- The actual producer of the wine is also important to consider.
- A wine’s ability to age is also critically important. Most wines are best after 1 year since the time of bottling, but that is not investment grade wine. Investment grade wine ought to be able to age for at least 10 years and still be pleasurable to drink. Not all wines actually improve with time. Some experts say that as little as 1% of all wines actually get better with time.
- Like any commodity item, the value of an item rises with scarcity. For example, Romanée-Conti, is an iconic vineyard located in Burgundy, France. Despite its notoriety, it is a fairly small vineyard that produces less than 500 bottles of wine each year. And for a particular vintage, the value only rises more as people drink the bottles.
- Consumer preferences and trends also play a major role in the value of a bottle of wine. Simply put, what’s valuable today could change tomorrow. Suppose a famous wine critic makes a statement about a particular bottle of wine.
Be sure to check out our full article on how the value of wine is determined here!
Do All Wines Improve With Time?
Despite what many people might think, not all wine improves over time.
In general, wine can be divided into two categories:
- Wine that is meant to be consumed young
- Wine that is meant to be aged.
Wines that are meant to be consumed young, such as many white wines and some red wines, are typically made to be enjoyed soon after they are released for sale. These wines are not intended to be aged and may not improve with time.
On the other hand, certain red wines and some white wines are made to be aged. These wines are typically made from grape varieties that have the potential to develop and improve over time, and are made in a way that allows them to benefit from aging.
These wines are often referred to as “cellar-worthy” or “age-worthy” and can improve in flavor, complexity, and overall quality as they age.
Why Invest In Wine?
The decision to invest in wine requires patience, as this is a long term investment.
For those that do decide to invest in wine, there are a number of reasons:
- The first is typically because of a passion for wine. It’s common to hear a phrase something like “invest in what you know.” You shouldn’t invest in a random stock because someone tells you to. Instead, you should conduct your own research to determine if the investment is in line with your goals and strategies. Similarly, with wine, you ought to enjoy learning about wine and what makes it appreciate. An interest in wine will allow you to simultaneously enjoy your investments.
- The second driver of a decision to invest in wine is to provide diversity to a portfolio. Wine is an alternative investment. When the economy is facing a downturn, you can expect your total portfolio to fare a little better when you have alternative investments outside of traditional stocks and bonds alone.
- This brings us to the third reason; low correlation to the stock market. Wine is an asset with value that does not follow the stock market. Like art, farmland, and certain other alternative investments, wine rises and falls based on numerous factors as outlined above as opposed to stock market trends.
- Finally, as a physical asset, it is unlikely that a bottle of wine will lose its value overnight. Many physical assets in this way provide investors with a natural hedge against inflation.
All in all, investing in wine can be enjoyable, provide diversification and a hedge against the market, and bring consistency to a portfolio.
Check out our article on how much money to invest in wine here to learn more about portfolio allocation for alternative assets.
How To Earn Money With Wine Investments
Making money with wine is a fairly straightforward idea – purchase wine below market value and sell at a future date for more than you paid.
Unlike many stocks, wine does not pay dividends or accrue monthly cash flow.
Instead, investors make money with wine after the sale of an asset only. You earn nothing while you own it.
For example, a bottle could cost you $500. Suppose 10 years later you sell the bottle for $1,000.
That would be a gain of $500. However, you may have also spent money for transportation, storage and insurance.
This would all factor in to your cost basis when you pay taxes on your wine investment gains.
To learn more, check out our full article on how to make money investing in wine!
How To Invest In Wine
As mentioned before, there are a number of ways to get involved in wine investing.
Of course, the most obvious would be to purchase a bottle of invest-grade wine. Let’s dive into each method now!
1. Purchase A Bottle Directly
The first way to invest in wine is to actually go out and buy a bottle! This is easier said than done.
When purchasing a bottle of investment grade wine, be sure to consider the storage and transportation of the bottle.
The first way to buy a bottle of wine would be to buy directly from the source. In other words, to purchase directly from the producer of the wine or a distributor.
However, it is most common for wine investors to get started through an auction, either in person or online.
Sotheby’s and Christie’s are two of the most popular auction houses for fine wines.
Liv Ex is an online marketplace that supports the buying and selling of fine wine. However, they also do much more than simply facilitate wine transactions.
They also provide investors with a database of information about wine prices. Investors can use their indices to track wine prices and better understand wine returns.
How Much Does A Bottle Of Investment Grade Wine Cost?
Wine prices can vary dramatically.
And the same bottle of wine may have a very different price tag depending on how close it is to peak maturity.
A bottle of invest grade wine can be as low at $30 and as high as $558,000!
A bottle of French Burgundy sold for a record $558,000 at a Sotheby’s auction in 2018. The bottle’s original estimate was worth just $32,000.
This particular bottle was a 1945 Romanee-Conti. It broke the previous record for the most expensive bottle of wine ever sold, which was a 3-liter (known as “large format”) bottle of 1945 Mouton-Rothschild that sold at Sotheby’s in 2007 for $310,000.
For an investment grade wine, you could reasonably expect to spend under $100 to over $15,000.
Like many other investments, the higher the risk, the higher the reward.
A $40 bottle of wine can certainly appreciate over time. But you wouldn’t expect it to earn you thousands of dollars.
2. Invest in A Public Wine Company
Another way to get started, a little less hands on, would be to invest in a publicly traded company that focuses on the production or distribution of wine.
There are a number of companies that provide investors with exposure to wine as an investment.
However, because these investments are done through the stock market, they are still susceptible to market volatility.
- LVMH Moet Hennessy Louis Vuitoon (LVMUY)
- Constellation Brands (STZ)
- SVB Financial Group (SIVB)
- Treasury Wine Estates (TSRYY)
These are all potential wine stocks that you could get started with.
3. Wine Investing Platforms
Over the last few years, more and more platforms have come into existence making investing far easier. And it’s not just for stocks!
For instance, Masterworks is a platform dedicated to artwork investing.
Investors can actually buy shares of a piece of artwork as an investment. Such platforms exist today for wine as well!
Top Wine Investing Platforms
Here are the top 4 wine investment platforms today:
Vinovest came onto the scene in 2019.
The company strives to make investing in wine much easier. In fact, you do not have to know much about wine at all.
Instead, you simply create an account and answer a few questions about your goals.
The company will then assign you bottles of wine that match your profile. Their team of expert sommeliers helps you sift through the hundreds of thousands of vintages to find wines that will actually appreciate in value.
The minimum investment is $1,000. Depending on your account level, you can gain access to new perks.
Vinovest handles the storage and insurance of the wine, but you own it 100%. You can sell it at any time or even have it shipped to your house to drink.
Be sure to read our full review Vinovest of here!
Vint is another platform that makes investing in wine easier. The company was also founded in 2019.
Unlike Vinovest, Vint allows investors the opportunity to buy shares of a collection of wines.
Their team identifies wines and vintages that are most likely to appreciate.
Then, they purchase this wine and securitize it with the SEC. From there, investors can purchase shares of a particular collection.
After a number of years, Vint will sell the collection and profits will be shared out with investors.
The company makes money by aligning their interests with investors. They actually purchase 0.5% to 10% of each collection themselves.
Be sure to read our full review of Vint here!
3. Cult Wine Investment
Cult Wine got started back in 2007.
This platform has 4 different plans that start at $10,000. Depending on your risk tolerance and goals, the company will put together a portfolio on your behalf.
They also handle all of the storage and insurance.
Since inception, the company has had quite the performance with over 200% gains since 2009.
Be sure to read our full review of Cult Wine Investment here!
Wine Cap is a London based company that was founded in 2013.
The company strives to make investing in wine easier by handling the storage and research of wine investments.
This platform is great for beginners as they provide investors with extensive learning materials on the wine market.
Additionally, you can schedule a free 30 minute consultation with an expert of their team.
Based on your goals and risk tolerance, the company will help you build a bespoke portfolio of wines.
Their company uses proprietary technology to analyze hundreds of thousands of wines each and every day. A key benefit of investing with WineCap is that investors gain access to this data.
WineCap does require a minimum investment of 5,000 Euros.
While they charge zero management fees, they do charge a storage fee based on the size of your total portfolio.
Be sure to read our full review of WineCap here!
Wine Investment Returns
So, is wine actually a good investment? Or is it just a hobby?
It turns out that wine as an asset class performs very well.
Over the last year, fine wine has gained about 19.6% in value while the S&P 500 has returned roughly -14.6%. (Data as of November 2022)
The Liv Ex is an online marketplace and database for fine wine.
In addition to facilitating transactions of wine between buyers and sellers, they also lead the industry in data.
They have a number of indices used to track wine prices to give investors a benchmark for returns. The Liv-Ex Fine Wine 1000 is often used to examine the wine market.
“The Liv-ex Fine Wine 1000 tracks 1,000 wines from across the world and is our broadest measure of the market. It comprises seven sub-indices which represent the most traded wines from regions around the world: the Bordeaux 500, the Bordeaux Legends 40, the Burgundy 150, the Champagne 50, the Rhone 100, the Italy 100 and the Rest of the World 60.” – Liv Ex Site
According to the Liv-Ex 1000 index, fine wine has appreciated 49.5% over the last 5 years.
Moreover, over the last 30 years, fine wine has averaged a 10% compound annual growth rate.
This is right in line with the S&P 500. The difference is that wine has less volatility!
Since it is a physical asset with growing demand, wine is less likely to crash over a short period of time.
Be sure to check out our full article on wine investment returns here to learn more!
Taxes and Wine Investing
Before investing in something new, individuals should be aware of tax implications. With wine investments, taxes vary significantly depending on where you live.
In the United States, wine is classified as a collectible and is therefore taxed as a collectible.
However, in many countries around the world, wine can be considered a ‘wasting asset,’ which means a product with a lifespan of less than 50 years from the transaction. If a particular bottle of wine is eligible for this classification, then investors in some countries can avoid capital gains tax entirely. However, it is important to note that many vintages do in fact have a lifespan of more than 50 years. This is why it is important to take into account the transaction date. A bottle of wine may be able to age for 70 years. If you bought the bottle 40 years after it was created, then it can classify as a wasting asset as it has 30 years left.
With wine investments, investors also have to pay VAT taxes and import charges. However, these taxes can actually be avoided by storing your wine in a bonded warehouse. This is one of the benefits of investing through a platform such as Vinovest or Cult Wine Investments.
If you want to learn more, check out our wine investing and taxes article.
Cons Of Fine Wine Investing
Every investment out there has ups and downs. As such, there is no perfect investment out there.
Instead, it makes sense to own a portfolio of different assets.
So what are some of the downsides to owning fine wine as an investment?
- Storage, insurance, and shipping can all be significant costs that raise the already high investment cost. But when dealing with a physical asset that is actually quite fragile, you need to ensure the asset is well kept.
- Investors also typically have to pay a premium when purchasing wine from an auction. For example, famous auction houses like Sotheby’s and Christie’s often charge 15-25% on top of a winning bid.
- Another major downside is the lack of liquidity and long holding period. With a bottle of wine as an investment, you are not able to quickly pull cash out. Additionally, most wine investments are best held for 10+ years.
- Finally, the only way to make money with wine is to sell it for more money than you paid at a later date. As such, wine either appreciates in value or it doesn’t. And if your bottle doesn’t, there’s no other way to make money from it.
Risk Of Investing In Wine
There are also a few risk factors that are unique to wine as an investment:
- One of the main risks with a wine investment is preserving quality. There are numerous factors that can impact a particular bottle of wine’s quality over time. For example, if not stored properly, the quality, and therefore value, can diminish. Did you know that the type of cork used can even impact the wine over time? Or the humidity level or the lighting where a bottle is stored?
- With this in mind, the storage alone can be a major risk when creating a wine portfolio.
- Many wine investors pay for insurance should something happen that damages their asset. Wine insurance can be pricey, so you ought to consider the cost of insurance vs professional storage.
- Another risk to investing in wine is dealing with fraud. Whenever you purchase investment grade wine, be sure to verify its quality with proof of authenticity.
- And finally, another risk of investing in wine, is well, you yourself. The fastest way to lose your investment is to drink the bottle!
Wine Investing Guide: Final Thoughts
Wine is an alternative investment that many investors think of as a hidden gem.
With consistent long term returns and low correlation to the stock market, wine provides investors with a great way to diversify their portfolio.
However, choosing the right bottle of wine is easier said than done.
A bottle of wine can appreciate over time based on a number of factors, such as vintage, ability to age, and consumer demands and trends.
An investment in wine is a long term investment that requires patience and a real passion for wine.