Investing In Wine: Everything You Need To Know
Want to learn how to invest in wine?
Investing in wine has its intricacies. And you might not have a nose for good wine like well-known wine critic Robert Parker.
But you don’t need to.
Today, wine investing is no longer an elite pastime!
There are wine stock exchanges, wine-specific investment funds, professional storage solutions to store your bottles as they age, and plenty of avenues to easily buy and sell your assets.
In this article, we’ll show you everything you need to know about investing in wine, what you should expect, and three ways to invest in wines.
(If you’d like to know how to build a wine collection, read all about it in this article.)
This article covers:
What Is A Wine Investment?
The quality and scarcity of fine wine appreciates over time - and so does its value. This is the underlying principle of investing in wine.
You buy bottles of wine, and store them to sell them at a higher price later on.
In some cases, you may not even physically possess the bottle of wine you bought. You can have them stored professionally in specialized facilities for years, This way your valuable French wines are safe and in perfect condition until you turn a profit!
If wine collecting and storing is not for you, you could try investing in blue-chip wine stocks and funds.
But if you want a simpler solution, you could rely on a wine investment company to buy and store your wines for you, without you having to take on any of the headaches of having to build your own wine cellar.
Why Invest In Wines?
Investing in wine is a profitable alternative investment option for investors and wine drinkers to diversify their portfolio.
Additionally, fine wine has a low correlation with the sluggish global stock market.
The fine wine market has outperformed most global equities and exchange-traded funds (ETFs), and is less volatile than real estate or gold. More importantly, it has delivered 13.6% annualized returns over the past 15 years.
You can bank on fine wine investments to
- Diversify your investment portfolio or asset class.
- Manage portfolio risk.
- Counter any market volatility.
What Is Investment-Grade Wine?
Fine wine that has a chance of increasing in value after around five years is known as investment-grade wine.
Characteristics of Investment-Grade Wines
A 12-bottle case of Domaine de la Romanée-Conti 1988 fetched around US $305,000 last year.
(Visit this link to know how to value your wines before selling them. You never know - you could be clutching a valuable Cabernet Sauvignon unknowing of its market value!)
But how do you go about identifying great investment opportunities like these?
You would know if the wine is worth your money based on these factors:
- Age-worthiness: Do the finest wines really get better with age?
To be investment-worthy, you need to know whether a wine is age-worthy or not. It should have the right mix of acidity, alcohol, flavor and tannins to increase in quality as it ages.
- Scarcity: An investment-grade wine - like the Dom Perignon 2002 - is finite and decreases in quantity over time. Limited edition wines are usually (expensive, and) more valuable.
Futures (wines that are still in the barrel) are cheaper, and give you the first chance to buy a new vintage wine. While en primeur investing (buying wine while it is still in the barrel) is riskier, you could increase your margins if the price goes up after they’re bottled and stored.
- Critics ratings: High quality wines that are rated as “classic” or equivalent (a rating of 95 on a scale of 100) by wine critics are investment worthy.
- Pedigree: Investment wines are made by winemakers of high reputation. Wines made in the Bordeaux region, Burgundy, Rhone Valley, Tuscany in Italy and in other areas designated as “viticultural areas” tend to be more valuable over time.
- Longevity: Investment-grade wines reach peak maturity at least 10 years after bottling, and can even age for over 25 years.
- Price appreciation: The wine price must have appreciated over a 10-year period, or longer.
But what if you’re investing in a new wine with no history at auctions? How would you know if it’s a good investment or not?
Check the price appreciation track record of previous vintages from the same winery. If it comes from an exceptional vintage year and Is produced in a famous region like Bordeaux or Burgundy, it stands a good chance of future appreciation.
The 3 Key Ways to Invest in Wines
Buying and selling great wines and champagnes may seem like a complex proposition - like investing in whiskey.
But as long as you understand the market, you’ll be fine!
Here are 3 practical ways to invest in wine.
1. Use Vinovest
Vinovest is a wine investment company that lets you invest in sought-after wines that historically outperform the market.
How Does It Work?
You need to follow a simple four-step process:
- Sign up on the Vinovest website to become a wine investor.
- Complete a questionnaire to assess your risk tolerance and investment horizon.
- See your customized wine investment portfolio including manufacturing details and origin of each bottle.
- Fund your investor account.
- Watch your investment over time.
How Vinovest Buys, Stores, and Sells Wines
While you watch your wine investments grow online, Vinovest researches, authenticates, buys, stores, and insures your wine.
Apart from your risk appetite and budget, Vinovest analyzes the following historical data before buying wine:
- Secondary market pricing.
- Producer brand equity.
- Critics scores.
- Regional vintage strength.
- Risk to return ratio of different vintages.
They source wines directly from wineries, global wine exchanges, and merchants at the best possible wholesale prices.
The cases of wine are then stored in optimal conditions of humidity, temperature, air-quality, light, and vibration with experienced storage providers. Their bonded warehouse facilities charge no excise duty and VAT - allowing Vinovest to pass on significant tax advantages to you.
Vinovest also offers a full insurance policy at market value!
You can even sell your portfolio at any time to a counterparty buyer and get the wines delivered to them.
What Are The Fees Involved
Vinovest charges a 2.85% annual fee (2.5% for an investment portfolio over $50,000). This fee includes handling wine buying, wine fraud detection, storage, insurance, portfolio management, and wine selling.
2. Buy Wine Stocks
You can also put your money into well-performing individual wine funds or wine stocks such as Truett-Hurst, Constellation Brands or Diageo.
3. Buy Bottles yourself
Another option is to buy wine bottles yourself and store them until their valuation increases.
But, is it as simple as it sounds?
Let’s take a look.
Buying Bottles Yourself: How To Invest In Wine In Five Steps
Here are all the steps involved in DIY wine investing.
Step 1 – Research About Wines
Do thorough research on which vintages and wine makers have done well in the past and look at predictive trends by wine experts and analysts.
Watch auction results, and track market data on online wine exchanges like London International Vintners Exchange (Liv-Ex). Scrutinize reviews by wine critics, and the manufacturer’s details on websites like Wine Searcher and Wine Spectator.
Step 2 – Determine How Much You Can Invest
A common recommendation is that you need a minimum of 10,000 USD to start investing in fine wine.
Just like dividend-paying stocks and bonds, it makes sense to invest in a diverse portfolio from different wine regions and vintages.
Plan a good mix of established names and upcoming collectibles like:
- Bordeaux Grand Crus, and first growth Bordeaux wines like Leoville Las Cases, Mouton Rothschild, Haut-Brion, Chateau Lafite Rothschild, Chateau Margaux, Cabernet Sauvignon, and Chateau Latour.
- Burgundy wines like vintage Domaines and wine futures.
- SuperTuscans and Barolos from Italy, and the best wines from Napa Valley in the United States.
- Wines from emerging countries like Chile.
Step 3 – Decide Where You Want To Buy Wines From
You can physically buy wine through several channels.
Some of them are:
- Auctions: Bid in-person at auction houses like Sotheby’s Wine, Christie’s, and Acker Merrall. You can also opt for online auctions through platforms like WineCommune, VinFolio, and Spectrum Wine Auctions.
For lower prices and taxes, you can also leverage arbitrage opportunities between the three large markets - New York, London and Hong Kong.
- Through a broker: Wine brokers offer personalized advisory services, and transact and trade on your behalf.
- Wine Stock Exchanges: Wine stock exchanges like Cavex, Liv-Ex, and Berrys’ Broking Exchange have a good collection of fine wines that can be shipped internationally.
- Wineries: Buy wines directly from a prestigious chateau or local vineyard, and get them shipped to your address. However with international wineries, there are several regulations that may not allow you to buy wines directly.
- Specialty Stores: Some smaller boutique stores and wine merchants like Berry Bros. & Rudd stock a hand-picked selection of fine wines, including investment-grade wines.
There will be a commission or buyer’s premium in most of these cases. For instance, Cavex takes a 3% commission from the buyer and seller. Christie’s New York charges a 25% buyer's premium on the hammer price of each lot. Wineries also charge a huge buyer’s premium.
Transportation prices and taxes are also applicable across all these options.
Step 4 – Determine How You Want To Store Wines
Storage is key in long-term wine investments.
Store fine wine carelessly, and you lose its flavor over time, or it may mature too early, thereby ruining your investment.
You have two options:
- Storing wine on your own: Store wine in a customized, climate-controlled storage area in your home. Convert your basement into a wine cellar, or buy a wine cooling unit. It has to have a consistent temperature (around 55° F), humidity control (60% relative humidity), and should be kept away from light and vibration. Apart from the storage costs, you have to bear the costs of insurance and maintenance of your facility.
- Storing wine in a professional storage facility: The other option is to cellar your wine with a reputed storage facility. Use facilities offered by auction houses and exchanges, or dedicated wine storage facilities such as those used by Vinovest. You pay a fee for their services, and for insurance, but it guarantees optimal and secure storage conditions for the long term.
Step 5 – Decide Where You Want To Sell It
There are several ways to sell your wine:
- Auctions: In-person and online auctions are the most popular way to sell wines. The commission charges in an online auction house would be lower than that of a physical auction house like Sotheby’s.
- Wine Stock Exchanges: Wine exchanges like Cavex and Liv-Ex facilitate person-to-person selling. You have to pay a selling commission (usually less than 10%) to the exchange.
- To another private collector: You can also sell your fine wine collection to private wine collectors or wine enthusiasts.
Four Tips To Help You Out
Here are four expert tips to remember before you get started with wine investments.
A. Understand Market Risks
Fine wines are known to be less volatile than most other alternative investment opportunities.
But there are some risks involved.
- Your expensive wines could get mishandled or damaged in storage or in transit, or due to a natural disaster..
- The value of wine does not increase indefinitely. After a certain age, it becomes less desirable as a beverage, and its value goes down. It is also tough to predict the right time to sell it.
- Scams that involve fake versions of investment-grade wines is also something to be wary of.
B. Keep a Check on Taxes and Shipping Costs
Wine has a limited lifespan (predictable useful life of less than 50 years), and irreversibly declines in value over time. So it is considered a “wasting asset” in countries like Austria, Germany, France, the UK, and Hong Kong. Here, wine investments are free of capital gains tax - but with a caveat - investment grade wines with a life of over 50 years are not tax free.
Apart from these places, and tax havens like Bermuda, Panama etc. where wine investing is tax free, most other countries have their own wine tax laws.
Transportation charges will also be applicable when your wines are shipped by specialized wine shipping companies.
C. Trace the Wine’s Provenance
The history, source, authenticity, life cycle and storage of a wine is known as its provenance. This information will help you pay the right price for fine wine, and sell it at the right valuation.
You should trace the wine’s provenance as far back as possible by
- Getting a certificate of authenticity.
- Checking its ownership history.
- Reviewing its storage conditions and locations.
D. Use A Portfolio Manager
A DIY approach to wine investing could become time consuming and too risky. You will need a good deal of specialized knowledge to pick out the best investment opportunities from the rest.
But why waste time and resources on that, when you can use specialized wine portfolio managers instead?
Leave it to fine wine investment experts like Vinovest to take care of wine research and selection, inventory management, and to guarantee authenticity.
Wine exchanges and technology companies like Vinovest have brought new levels of efficiency and transparency to a traditionally opaque market like wine investing.
Ready to invest in fine wine?
Create the best investment plan for your needs with Vinovest and get a head-start into the growing fine wine investing market today!