Why Investing in Wine is Safer than Investing in Stocks?

As an investor, you’ve most likely filled your portfolio with all sorts of stocks that have steadily made you wealthy over the years. Stocks have always been one of the more favored ways for people to invest their money. However, recent events have caused people to become overly concerned about their stocks. In 2020, COVID-19 managed to enter our lives abruptly and caused all sorts of havoc on society.

Tons of places had to close their doors to prevent the spread of the virus. Businesses were vastly affected, with many of them closing down due to challenges introduced by the pandemic. Many jobs were lost, and it caused the economy to be impacted negatively throughout the globe. As you’d imagine, the stock market also was affected by the outbreak of COVID-19.

Throughout the entirety of 2020, the stock market started to go in freefall in share prices, leading to many people panicking. With the world suffering through the worst economic disaster since the Great Depression, the stock market caused many people to become concerned. Since the beginning of the pandemic, stock prices seem to be running all over the place.

Chances are, you're one of the many people who are concerned about the way the stock market has been reacting over the past year. Looking for other alternatives that can ensure your portfolio remains in good health and investing in a much safer manner is the only way to have some form of security in case things worsen.

Wine investment is one of the many safer alternatives available for investors who wish to dip into something with a securement behind it. With how uncertain things have been lately, it makes sense to look to other places to invest your money into. Let us go over why investing in wine is safer than in stocks.

Why Invest in Wine?

Wine is known for being one of the oldest and most demanded luxuries in the world. It’s been around since the time of ancient Greece and the Roman empire. Many people in the upper class would seek out the best possible wines for them to sample and add to their growing treasure trove of riches.

Some of the finest and exclusive luxury wines make up less than 0.1% of the world’s total wine production. These expensive wines serve not only as a form of investment but as a status symbol as well. With the rising number of rich and influential people growing worldwide, that means the demand and prices continue to rise each passing year.

Wine can be an excellent way to help diversify your portfolio. With the current stock market being volatile, relying on your stocks isn’t ideal for anyone who wishes to have a healthy portfolio. Wine is one of the many options you can choose to improve your portfolio. It centers around purchasing a physical asset that you can see and touch. The value behind the bottle is expected to grow over time. In the case of wine, you’ll be purchasing and storing the bottles in a secure location, in hopes of selling them for a higher price at a later date.

To some, investing in wine may seem like a loft goal, but anyone can do it if they have the appropriate knowledge and a sizable amount of finances to invest. If you are looking for alternatives outside of stocks or other usual fares, you should consider investing in wine.

Furthermore, investing in wine, whether it's a rare bottle of wine or a highly-regarded case, or even an entire cellar, consistently yields a reasonable low-risk return. As a matter of fact, over the past 50 years, the wine market has remained stable, despite the global economic crisis that occurred throughout time. Wine can be purchased from several sources, such as merchants, traders, or at wine auctions.

For many connoisseurs, the idea of acquiring a highly sought-after bottle of wine and building a collection is not only enjoyable but gives several financial benefits from investing in them. Wine is labeled as a wasting asset, so it is considered tax-free. While it’s not entirely risk-free, it does provide a reasonable risk to return correlation. It’s an investment method that accommodates higher or medium risk and would yield better returns.

Wine vs Stocks

As someone who’s most likely placed a sizable amount of funds into stocks, you may wonder how wine can compare to it. Stocks tend to come with a high-risk, high reward idea behind them, but wine offers you more security. That’s especially important when you want to ensure your portfolio remains in good health.

Wine is an excellent investment since its risk behind it is far lower than for investments in the stock market. The stock market tends to fluctuate each passing day, with it either increasing on some days while decreasing on other days. Situations like the pandemic can also cause it to go on a freefall and lead to financial ruin for many investors, who didn’t have a backup plan, in case the worse did happen. Wine, on the other hand, can continue to yield returns yearly and rarely lowers in value.

Over the years, the number of investors turning to wine has increased as the stock market becomes shaky. According to Credit Suisse, over the last 100 years, wine investment has successfully outperformed not only stocks. Wine has managed to outperform other collectives as well, such as precious metals and art, yielding a significant value dating back as far as 1900.

The performance wine has had compared to stocks over the years is certainly engrossing. If you managed to invest $200 in the wine market in 1960, your investment could be worth $480,000. On the other hand,  if you invested that $100 into the stock market, it could only be worth a more modest $130,000. The usual hold on the fine wine market varies in the long-term, usually somewhere around five to ten years, but even over a shorter time frame, healthy returns are possible.

For instance, a wine produced by Domaine de la Romanee-Conti is arguably one of the most prestigious brands of wines around. The bottles released by them are known for rising in valuation between 150% to 200% in five years alone.

Furthermore, unlike stocks, the wine you purchase has the unique advantage of being a tangible asset that was created to be drunk and enjoyed. Some of the most well-known producers of wine are known for generating small quantities of their best wine each year.

Over time the number of bottles from a given vintage reduces as they are consumed by those not interested in keeping them for investment purposes. That leads to the pricing to be determined by a simple economic model, supply and demand.

With how the pandemic shook up the foundation of the economic world, particularly the stock market, wines have increased dramatically. Not only has an interest in wine grown in established markets like Europe and the United States, but younger wine-consuming markets such as China.

Stocks

Stocks can be lucrative when done correctly but can be far more volatile than wine investments, as shown with the recent pandemic. Of course, this hasn’t been the only case of the stock market suffering in some manner. Not too long ago, we had a financial crisis in 2008 that impacted the global economy. Stocks plummeted, and many people suffered through some severe financial strife.

According to S&P global, wine was one of the several luxury items that managed to survive the severe impact on assets that was caused by the COVID-19. The consequence of the pandemic caused the recent interest in investors seeking out alternative forms of investments, with wine being the number one choice.

The S&P Global Luxury Index tracks over 80 of the largest publicly traded good companies in the world. During the beginning of the pandemic, it fell by 24% as the COVID-19 crisis caused a freefall in sales. However, throughout this entire situation, trading prices for some of the most significant investment wines were able to maintain a steady hold. They revealed that by January 1st and March 31st, 2020, the S&P 500 diminished by more than 23%, the Liv-ex Fine Wine 1000, an index that measures the price of performance for more than 1,000 traded wines, went down by 4%.

This trend can also be witnessed from the financial crisis that occurred back in 2008. The S&P started to decline by 38%, while the Liv-ex Fine 1000 index only went down by a minimal amount of 0.6%. Investing in fine wine can offer you similar returns, but with less unstableness to concern yourself over.

What are some cons to wine investment?

As excellent as wine investing can be, it does have some disadvantages you should consider before investing in it. First off, most people tend to generally choose the wins that have a relatively small range.

That is especially true if you're relying on fund managers to invest in wine for you. They will choose more popular wines that come out from places like Bordeaux, Burgundy, and California. The wines selected by them tend to be well known by most people and have a lesser chance of transitioning over into rare wine statues.

If you are interested in investing in wine, it’s best to do some research yourself instead of relying on someone else to do it for you. There are tons of resources out there that are easily digestible and can provide you with the information you need to make a smart investment deal. An excellent place to start is with the guide we created to help investors know the different types of wine out there. It’s also challenging for wine investors to get an idea of the real value behind their portfolios. In comparison to stocks, traders purchase and sell wine less often, and there is no standardized international market. Unfortunately, that can make it hard to receive the correct price for any of your bottles of collected wines. Plus, wine funds are also terribly regulated by financial authorities, which heightens the risk for investors. Additionally, wine funds are only for those who have the patients for longer-term investments. It can take a long while for investors to sell off a bottle of wine in their portfolio, making it more challenging to access any fund if you require them immediately.

Plus, investors purchasing wine in larger numbers of a limited range of wine is a strategy that can cause a bubble, which in turn could lead to a crash.

Things to consider

If you are deciding to invest in a fine, there are several things to consider. First off, wine investment takes patience. If you want to earn a massive profit from investing in wine, you need to store it for a couple of years. Not only do you need to patiently wait, but you must also have a proper plan for how you are going to keep it stored and how long it will remain there to age.

Since it’s likely your first time investing in wine, you should start with an investment of at least $10,000. That way, you’ll be able to learn the ins and outs of investing in wine while learning to enjoy some of the best wine around. The rarer a vintage is, the more likely you’ll earn a more substantial profit. However, purchasing inexpensive winnings and holding them to try and earn a profit in a few years isn’t the best strategy, so don’t rely on this.

Do keep in mind that a wine’s region and vintage are two of the most significant factors when it comes to predicting your returns. If you are starting on wine investing, consider purchasing from established French wineries from Bordeaux or other wines that come from regions that have a reputation for creating some of the highest quality wines.

Lastly, make sure you diversify your wine collection. Similar to how you would with stocks, you should attempt to diversify your portfolio. While vintage wines from reputable growers can provide you with predictable gains, rare wines from lesser-known growers hold high risks, high returns.

Conclusion

Wine is something that has the potential to outlast even the stock market itself. It’s a commodity that has existed since ancient times and will continue to exist as long as people enjoy the taste of fine wine.

The idea of having a safer investment is appealing to many investors who wish to have something more stable than stocks alone. Even if something were to go wrong with the wine market, at least you have something tangible that can still be used. The wine you’ve collected can be opened and enjoyed, even if you did lose profit from it.