Co-founder & CEO ofVinovest
Once upon a time, wine investing was reserved for the ultra-wealthy. That paradigm is changing. As the co-founder and CEO of a wine investment platform, I’ve seen how technology has democratized fine wine investing. More investors are investing in the asset that has delivered 10.6% annualized returns over the past 15 years, according to Liv-ex. In this article, I’ll explain what financial advisors need to know about investing in fine wine.
What Makes Wine Investment-Worthy?
Fine wine becomes rarer and potentially more valuable with time. Why? First, some people drink their wine, which drives down the supply and drives up the price. Second, aged wine generally tastes better. The astringent qualities mellow over several years, helping improve the wine with each turn of the calendar.
In the past, people had to store their wine at home. The problem is residential wine cellars can cost between $15,000 and $180,000, according to wine cellar design company Heritage Vine. Today, investors no longer need to hold their bottles physically. Instead, they can have them stored in specialized facilities until their wine reaches maturity, which costs a fraction of the price of building and maintaining a wine cellar.
Of course, investing and storing wine isn’t the only option. Investors can add wine exposure to their portfolio through blue-chip wine stocks and funds. They can also have a wine investment company buy and store wines on their behalf. (More on these options in a moment.)
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Why Invest In Wine?
According to the investment consultancy Knight Frank, fine wine has appreciated 127% over the past decade, outperforming other alternative investment options, such as luxury handbags, colored diamonds, blue-chip art and rare furniture. Fine wine isn’t a one-trick pony, though. It can offer myriad benefits beyond potentially eye-catching returns, including:
• A low correlation with traditional markets.
• Recession resistance.
• Inflation resistance.
• Low volatility.
• Physical custody of the asset.
So, what makes fine wine a unique investment? It doesn’t play by the same rules as the stocks and bonds in the typical 60/40 portfolio. While the stock market fluctuates based on company earnings, corporate management and interest rates, among other factors, fine wine prices are subject to a different set of influences. Wine prices move based on annual harvest yields, consumer tastes and weather. As a result, wine has a low correlation with traditional markets.
These characteristics make fine wine a good choice for portfolio diversification, helping financial advisors protect their clients’ bottom lines during periods of inflation and economic downturn. For instance, in the first quarter of 2020, the S&P 500 fell more than 23%. Meanwhile, the Liv-ex Fine Wine 1000 index barely budged. It dropped about 4% during the same span.
Barring a natural disaster or dramatic shift in consumer tastes, I believe fine wine will likely remain a reliable investment. It’s why investors are increasingly using it as a tool to diversify their portfolios.
What Is Investment-Grade Wine?
Not all wine is investment-grade. A majority of the wine at the grocery doesn’t merit investment consideration because it lacks certain characteristics. Understanding these characteristics can enable financial advisors to pick high-quality wines for investors’ portfolios:
• Strong critic score: As a rule of thumb, investment-grade wines tend to earn an average score of 95% or higher from wine critics.
• Age-worthy: Investment-grade wines have the proper acid, sugar, tannin and alcohol levels to develop secondary and tertiary flavors over several decades in the bottle.
• Scarcity:Highly coveted wines become more investment-worthy as the supply diminishes.
• Robust brand equity: A prestigious reputation can persuade investors into paying a premium for investment-grade wines.
• Favorable vintage: Great wine is impossible without great terroir. The weather, soil and environment need to cooperate during the growing season to produce high-quality wine.
Note that these criteria aren’t set in stone. There are always exceptions. The subjective nature of wine investing introduces risk and uncertainty.
Take 2013 Carruades de Lafite, for example.This second wine from Château Lafite Rothschild uses the leftover grapes that don’t make the estate’s flagship wine. It also received relatively low ratings, including a 77-79 from legendary wine critic Robert Parker. On paper, 2013 Carruades de Lafite does not appear investment-worthy. In reality, it has tripled in value in the six years since its release, according to Liv-ex.
Wine investing comes with other risks. Fine wine can spoil without the proper storage conditions. The aging process requires minimal light and vibration while the wine remains at a constant temperature and humidity. If one of these elements is not in place, it can compromise the bottle.
Also, while wine is 100% liquid, the market lacks liquidity. It takes weeks to buy and sell wines, while stocks and bonds take seconds. This lack of liquidity benefits fine wine during bear markets but can be frustrating to investors who have come to expect immediate access to their funds. People who invest in fine wine should prepare to leave their funds untouched for several years.
Three Ways To Invest In Wine
1. Use a wine investing platform. Wine investing platforms handle the buying and selling of wine, storage, authentication, insurance and fraud detection in exchange for a fee. Such platforms allow newcomers and master sommeliers alike to build a diversified portfolio of blue-chip wines.
2. Buy wine stocks. Investors can put their money into individual wine funds or wine stocks. These companies provide exposure to the wine and beverage industry as a whole rather than individual bottles.
3. Buy bottles yourself. Investors can handle the buying, shipping, storage, authentication and insurance processes themselves. While going solo requires a significant amount of time and effort, some investors may prefer this route.
Wine exchanges and technology companies have brought new levels of efficiency and transparency to a traditionally opaque market. As a result, more people are taking advantage of this asset to diversify their portfolios.
The information provided here is not investment, tax, or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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As someone deeply immersed in the world of wine investment, I can attest to the transformative impact of technology on this once exclusive domain. My experience as the co-founder and CEO of a wine investment platform has given me valuable insights into the evolving landscape of fine wine investing. Allow me to shed light on the key concepts covered in the article you shared.
1. Wine Investment Dynamics:
- Fine wine's value increases with time due to rarity and improved taste with aging.
- Traditional home wine cellars are costly, but technology enables cost-effective storage in specialized facilities.
2. Investment Options:
- Beyond physical storage, investors can explore blue-chip wine stocks, funds, or engage wine investment companies.
- Wine's historical annualized returns of 10.6% over 15 years make it an appealing investment.
3. Advantages of Wine Investment:
- Fine wine offers diverse benefits, including low correlation with traditional markets, recession resistance, inflation resistance, low volatility, and physical custody of the asset.
- During market downturns, fine wine has shown resilience compared to traditional stocks.
4. Investment-Grade Wine Criteria:
- High critic scores (95% or higher), age-worthiness, scarcity, robust brand equity, and favorable vintage are key criteria for identifying investment-grade wines.
- The subjective nature of wine investing introduces risk and exceptions.
5. Risks and Considerations:
- Wine requires specific storage conditions to prevent spoilage.
- Lack of market liquidity means buying and selling wine takes weeks, unlike stocks and bonds.
6. Three Ways to Invest in Wine:
- Utilizing wine investing platforms for buying, selling, storage, authentication, insurance, and fraud detection.
- Investing in wine stocks or funds for exposure to the industry.
- Directly buying and managing wine bottles, requiring significant time and effort.
- Wine exchanges and technology have brought efficiency and transparency to the once-opaque wine market.
- More individuals are leveraging wine as an asset to diversify their investment portfolios.
It's crucial to note that the information provided in the article is not financial advice, and individuals should consult with licensed professionals for personalized guidance. As the wine investment landscape evolves, staying informed and adapting investment strategies accordingly is key.