Every investment opportunity is pursued for a similar purpose; to build and preserve wealth.
Without the ability to appreciate over time, an investment is not very desirable.
People choose investments for a few key reasons, such as building wealth, providing diversification and hedging against inflation.
With wine investments, individuals can achieve all three of these goals much to the surprise of many.
Historically, wine as investment has been a well-kept secret by the ultra wealthy.
With nearly zero correlation to the stock market and strong historical performance, wine can actually be quite the lucrative investment.
In this article, we take a closer look at wine as an investment and its historical performance in terms of investment returns.
Why Invest In Wine?
Most investors are surprised to learn that wine can actually be a great investment option.
The value of wine is dictated by the laws of supply and demand. This is good for investors!
- The asset itself is created with a simple purpose – to be consumed.
- This means that rare bottles of a particular vintage simply increase in rarity every time someone opens a bottle.
Experts estimate that just 1% of all wines are actually investment grade.
This is because vintage wines are typically made in extremely small quantities by a select few vineyards around the world. This scarcity helps drive values up.
Unlike most financial investments, wine is a physical asset that has intrinsic value.
Asset-backed investments typically have reduced risk of significant declines in value overnight.
Additionally, asset-based investments typically perform well throughout times of high inflation.
As an asset class, wine also shares nearly zero correlation to the stock market. While market uncertainty can drive stock prices down, it does virtually nothing to wine.
- For example, during the 2008 financial collapse, the total stock market fell a drastic 38.5%!
- On the other hand, wine, as shown by the Liv-Ex Fine Wine Index, remained flat at -0.6%.
Wine Investing Returns
To understand the returns of an asset, it is helpful to use an index.
For example, with the stock market, the S&P 500 is perhaps the most commonly used index.
The S&P 500 is a market capitalization weighted index of the 500 leading publicly traded companies in the US. Watching the S&P 500 can be useful in determining the overall trend of the stock market.
Similarly, to better understand the wine market, investors often rely on an index.
There are a few leading indices that are commonly used. Depending on the index viewed, wine has historically achieved between 9% and 11% annual growth rates.
Let’s take a closer look at two commonly used wine indices; Liv-Ex Fine Wine 1000 and Sotheby’s Fine Wine.
1. Liv-Ex Fine Wine 1000
Liv-ex (The London International Vintners Exchange) is a global marketplace for fine wines.
Since 2004, they have been tracking the wine market with a few key indices.
The Liv-ex Fine Wine 1000 tracks 1,000 wines from around the globe. It is their broadest measure of the wine market.
According to the Liv-Ex Fine Wine 1000, wine has experienced roughly a 9% annual growth rate since 2004.
Let’s take a closer look at its performance vs other major assets.
1 Year Performance
As of December 2022, fine wine as tracked by the Liv-Ex 1000, has appreciated 16.1% in the last year.
Compare this 1 year performance with a few other assets:
- S&P 500: -19.75%
- Gold (SPDR Gold Trust): -1.75%
- Real Estate (DJUSRE): -24.94%
5 Year Performance
As of December 2022, fine wine as tracked by the Liv-Ex 1000, has appreciated 44.6%.
Compare this 5 year performance with a few other assets:
- S&P 500: +43.81%
- Gold (SPDR Gold Trust): +35.27%
- Real Estate (Fidelity Real Estate Investment ETF): +0.71%
Since December 2003
The Liv-Ex Fine Wine 1000 has been tracking wine prices since December of 2003. Since that period of time, wine has appreciated 384%.
Compare this performance with a few other assets:
- S&P 500: +359%
- Gold (Bloomberg Commodity Index): +311%
- Real Estate (Historical Median Home Prices): +131%
2. Sotheby’s Fine Wine
Sotheby’s is the largest auction house in the world.
In addition to wine, the company also works with art, jewelry, hand bags, and more.
The company has numerous resources to help individuals understand the prices of their assets. For wine, they have a number of indices that are commonly used.
The Sotheby’s Fine Wine index tracks up to 157 fine wines sold through Sotheby’s auctions.
The prices therefore highlight true market prices. To see which wines are included in their index, check out their FAQ page here.
Sotheby’s began tracking wine prices in 2005. Since then, wine has appreciated 286%.
Conversely, the S&P 500 has appreciated 225% in the same timeframe.
Final Thoughts On Wine Investment Returns
Because wine is a consumable product, most investors do not think of it as an investment opportunity.
But the truth is, it can actually be a highly lucrative investment.
Using a wine index, such as the Liv-Ex Fine Wine 1000 or Sotheby’s Fine Wine, an investor can see that fine wine has produced strong returns historically.
Depending on the wine index you view, wine has historically proven annual returns between 9-11%.
Of course, past performance is not an indicator of future performance. Thus every investor should conduct their own research before investing in any asset.
If you want to learn more about wine investing, be sure to check out our complete wine investing guide here.