Your significant other purchases a $40 cabernet that he believes will be worth $400 in the future and wishes to begin collecting other vintages as well. But should you invest in a product that vanishes with a broken bottle or can be spilled into glasses on the spur of the moment during a party? How can you know how much a bottle is now and how much it will be worth in the future? Also, what are the costs and space needed for storing wine? Continue reading to learn more about investing in wine.
Investing in Wine for Love or Profit
When you decide to invest in wine collecting, the first decision you must make is whether you are investing for the love of specific wines, for financial gain, or for a combination of the two.
If you are investing just because you are a connoisseur of fine wines, choose wines that you appreciate in the expectation that they will improve in value. Then, if you happen to consume a few bottles along the way, that’s fine because the pursuit is a pastime, like collecting baseball cards or stamps. On the other hand, even those who do not drink wine may be interested in assembling a collection for investment purposes. Wine can diversify a portfolio as an alternate investment to typical vehicles such as stocks and bonds. This is especially true for wine, whose value is unrelated to economic conditions, interest rates, or other standard criteria.
Alternative investments have risen in recent years, owing to uncertainties over how the COVID-19 epidemic may affect the economy and established asset classes. According to a recent Goldman Sachs investor study, 60% of respondents wanted to increase their allocation of private assets, which can include nontraditional investments such as wine.
Wine Investing Options
It may surprise you to learn that there are other methods to invest in wine other than purchasing bottles (although that is a common approach and a potentially lucrative one). You can also get a taste of wine by investing in beverage firms that create or sell wine, such as Constellation Brands Inc. (STZ). Though there are presently no exchange-traded funds or mutual funds dedicated to wine, funds targeting “sin stocks,” luxury products, or even the larger consumer staples sector may all provide exposure to wine-related companies.
It may also be beneficial to become acquainted with the most popular wine industry benchmarks, such as the London International Vintners Exchange, or Liv-ex, and its family of indices. As of May 25, 2022, the benchmark Liv-ex Fine Wine 100 index, which measures 100 of the world’s most sought-after fine wines, had a 1-year trailing total return of 22.2%. This is significantly better than the broader market’s performance during this time; the S&P 500 has achieved 1-year trailing total returns of -5% during the same timeframe.
Furthermore, firms like Vint and Vinovest offer securitized wine investing solutions for investors wishing to diversify into this industry but without the large amount required up front to begin a bottle investment. These companies significantly simplify the procedure for the investor and often provide storage, insurance, and other services as well; nevertheless, investors should anticipate paying a charge to the company as well.
Using Storage to Prevent Breakage and Spoilage
If you prefer to invest in individual bottles rather than wine stocks or funds (as stated above), make sure to secure your investment. When storing wine that will be used within a few weeks, place it in a wine rack for display in your home. Keeping your wine in optimal salable and flavor condition for long periods of time, on the other hand, necessitates more careful storage. Wine will generate small, flaky crystals if exposed to very cold temperatures, according to Wine Spectator writer Bruce Sanderson in “The ABCs Of Storage,” however this is less likely with cold-stabilized wines.
A room that is too hot, on the other hand, may produce a significant rise in the time it takes wine to attain its premium flavor and scalability. If your wine matures too quickly, you’ll have to sell it sooner, lowering your chances of making large profits in the future.
A dark room with ideal temperature and humidity levels is required for proper wine storage. If you reside in a temperate area, you can do this in your basement or a dark closet. Speak with wine cellar managers in your area to see whether your environment is suited for storing wine. If you don’t have ideal circumstances, you’ll need a wine chiller, which might cost thousands of dollars for a large collection. You’ll also require a lot of space.
Include the electricity expenditures for running your wine coolers in your budget. The easiest way to estimate the cost of electricity use is to look at the energy ratings of the wine coolers you’re thinking of buying, and then transmit this information to your electric company to see what it would average per month.
If you don’t have the space to store your wine collection, you should inquire about pricing, storage capacities, and the level of insurance included.
Wine Insurance
Expensive wines, like jewels, are considered valuable things. You’ll need to talk to your house insurance company about how to cover your collection for its full value, which will almost certainly require adding valuables coverage. You could also compare prices for wine insurance from different carriers. Remember to evaluate the deductible amount, the coverage amounts in proportion to the worth of your collection, and the cost of the insurance policy.
If you reside in an area prone to natural catastrophes like earthquakes, floods, or tornadoes, ensure sure your insurance coverage covers damage or contamination caused by these weather events.
Collecting in accordance with Your Budget
After you’ve calculated your storage and insurance prices, decide how much you want to pay. To calculate a total budget, consider the following factors:
- Insurance and storage facility maintenance fees; and
- How much money you are willing to risk on wine after deducting insurance and storage charges, as well as alternative safer investments, from your total investment budget?
The Impact of State Regulations
If you live in a state that doesn’t allow purchasing wine over the internet, directly through a winery or through a retailer who isn’t required to purchase wine through a wholesaler, you are limited in the selections of wines you can purchase for your collection based on what your region’s wholesalers choose to carry. Before you decide to start a collection, find out what restrictions in availability exist in your state.
How to Research Current and Future Wine Values
The best indications of a wine’s current and future values are ratings and scarcity. Wine writers score wines on a scale of 1 to 100. Before you purchase wine based on ratings, also study evaluations from different critics. Wines that grade around 95 are considered high quality.
Scarcity is harder to forecast. A wine that is currently in limited production is a helpful predictor, but which wines will be scarce later is more difficult to figure out. Research vineyards you are interested in for the past performance of prices. You can keep track of wine pricing for approximately 5,000 different wines at Vinfolio.com.
Commission
If you graduate to selling a valuable wine in the future, most of this is done through auction houses. The commission paid varies quite a little between an online auction house, such as winebid.com, Sotheby’s or Christie’s. However, before you decide to go with a cheaper online alternative, be sure the retail prices of the wines you plan to sell are identical. If you have a wine now fetching for $10,000 a case at Sotheby’s and $5,000 at an online auction, the difference in commission expenses is worthwhile. You can get bid prices for online auction companies on their websites, but brick-and-mortar auction businesses will require a phone contact to acquire more specifics.
Why Consider an Investment in Wine?
Wine is an alternative investment that is not directly related to many of the economic conditions, interest rates, or other elements which affect vehicles like equities and bonds. Although it can be expensive to begin to build a collection of bottles for investing purposes, they add diversification to a portfolio.
How Do You Invest in Wine?
There are various ways to invest in wine, including:
- Buy, store, and sell individual bottles
- Invest in stocks of companies involved in the wine sector (such as beverage distributors and makers) 3. Invest more broadly in mutual or exchange-traded funds targeting “sin stocks,” the consumer staples market, or other themes which may include wine
- Work with a firm that manages, stores, and ensures a wine collection for you, such as Vint or Vinovest.
What Are the Risks of Investing in Wine?
Wine investments tend to be medium-to-long term. One of the largest concerns is breaking, destroying, or incorrectly storing the bottles, which might invalidate their worth. As with all investments, there is no guarantee that the value of any individual bottle of wine will increase, either.