Investing in Wine: Your Guide on Investing in Wine in 2022
Fine wine investments are rising in popularity for several reasons. For one, wine consumption is at a record high globally, which means investors find buyers rather quickly. But wine is also an alternative asset that can yield excellent returns with a low level of risk. Plus, many consider it a fun and interesting method of building wealth.
Over the last 120 years, wine has given investors a 8.5% historical annual return. And since the returns are not tied to stock or bond markets, wine investments are less volatile than many conventional assets.
If you don't know much about fine wine investments, a fully transparent platform like Vint can simplify the process. But first, we need to fill you in on all the details. Here is everything you need to know about investing in wine:
What Does It Mean to Invest in Wine?
No matter what market you consider investing in, it's essential to understand how it works. While there are intricacies involved, investing in wine typically means that you buy bottles of wine that appreciate in worth.
Many high-quality wines make up the fine wine market; these wines are in demand, scarce, and thought to be long-lasting. If you try to become a wine investor by stocking up on mass-produced $12 bottles of wine, you are not likely to succeed.
The fine wine investment market is much different today. Burgundy and Bordeaux (fine wine regions in France) controlled the fine wine market for a long time. You can now find collectible wines from around the world, including Italy, the Rhône Valley in France, Australia, Spain, and California.
Italy and the U.S. have become two of the most significant investment wine producing countries. While other regions are known for investment-grade wine, the areas mentioned above tend to produce the best wine for value appreciation.
The Appeal of Investing in Wine
Fine wine investments are on the rise primarily because of people who think the future of the wine market is bright. And demographics are drastically shifting; right now, the average buyer at a wine auction is in their 40s, as opposed to 60, the average age for many years previously.
The wine investment market is blooming in North and South America, Russia, and Asia. If you are interested in promising signals from a flourishing market, you can bank on the fact that more people are drinking and purchasing wine than ever before.
Furthermore, if you simply love wine and would like to diversify your portfolio with an alternative asset, wine investing could be an ideal option. Just know that wine does not provide the liquidity of other investments that you can quickly convert to cash. You will need to look at it as a long-term investment. It is recommended to hold your wine investments for no less than three years.
That's not to say that wine offers no potential returns. On the contrary, the drink has produced a 13.6% annualized return over the last 15 years. Wine investing is also considered much less volatile than real estate investing, and it frequently trumps global equities.
What Makes for a Good Investment Wine?
For a wine to be considered investment-grade, it must have the potential to develop and increase in value. For example, a 12-bottle case of vintage wine from the 1980s could be worth many times what it was originally purchased for.
The key is to learn how to identify the best investment opportunities. While this can be a challenging task, here are some factors to consider when determining whether to invest in a specific wine:
1. Age-Worthiness and Longevity
The finest wines develop and improve with age. And if a wine you are interested in is to be investment-worthy, you must determine whether or not it is age-worthy. For the wine to get better as it ages, it must contain an excellent balance of alcohol, acidity, flavor, and tannins.
Most investment-grade wines take at least ten years to reach peak maturity. However, some wines can age for more than 25 years after bottling. That's some serious longevity.
With any type of investing, scarcity plays a critical role in determining value and potential. And that applies to fine wine investments. For instance, a finite number of the investment-grade 1983 Petrus decreases each year. Such limited-production wines are rarer and, therefore, more expensive.
Investing in wine futures allows you to purchase new vintage wine at a lower price. Buying wine still in the barrel, also known as "en primeur" investing, comes with risks. If the cost of your futures does not include the cost of bottling and storage, you will need to increase your margins to maximize your potential return.
Wines are generally rated on a scale of 100. If critics give a specific wine a rating of 94-96 or higher, it is considered "outstanding" (or it receives an equivalent designation). Such wine is deemed high-quality and, therefore, worthy of investment.
Certain regions and winemakers tend to produce a higher proportion of the world's fine wines than others. History has shown that wines from "historically viticultural" areas like Rhône Valley, Burgundy, Bordeaux, and Tuscany hold more value over time.
If a wine is considered worthy of investment, previous vintages of the same wine or similar wines should have increased in value over time.
What Are the Different Ways to Invest in Wine?
You have options for finding a wine investment situation that fits your lifestyle, budget, and financial goals. There are several ways to invest in wine, and here are some of the most prevalent ones:
You can buy individual bottles of wine to resell on your own. Typically, this would entail going through wine auctions or retail secondary markets. However, you can also purchase directly from producers in some cases.
There are many websites for buying and selling wine. But it's essential to consider that if you choose to buy wine through an auction house, you may need to account for paying a sizeable buyer's commission.
A lot of work is required when investing in individual wine bottles. First of all, you will need to properly store your bottles, which means you will need a wine cellar that keeps the bottles under the appropriate climate and away from sunlight. You also may need to expand your homeowner's insurance.
Succeeding at DIY wine investments will require you to know a lot about wine and investing, and you will need substantial capital to get going. Sure, you can buy single bottles of investment-grade wine for $40, but you will need to build a collection of bottles that have more potential to grow in demand over time. That could mean investing thousands of dollars upfront.
Furthermore, consider the time and energy involved in researching which winemakers and varietals can yield the highest returns. We will talk more about DIY wine investing below.
Another way to invest in wine is to purchase stocks of wine merchants or producers. This means that you don't buy wine bottles but invest in the wine industry itself.
Investing in wine stocks essentially means that you are confident that more and more people are buying alcoholic beverages. In other words, you don't have to concern yourself with determining which bottle of wine can turn the highest profit.
Many wine stocks give investors opportunities. For example, Constellation Brands (STZ) distributes a range of alcoholic beverages. The Duckhorn Portfolio (NAPA) produces wines under many different brands, including:
- Duckhorn Vineyards
- Kosta Browne
NAPA sells to domestic and international agents, restaurants, and retailers.
If you are interested in investing in ETFs, understand that there are no ETFs available specifically for wine investments. However, you can invest in alcohol or food and beverage ETFs, including wine stocks.
It is easy to purchase individual shares and a wine stock or wine ETF by using any investment mobile app. You have to click the ticker symbol to search for and purchase shares. Some apps will even let you buy fractional shares of wine stocks for a dollar.
Moreover, you could always invest in wine funds. But know that these funds can hold your money for several years and require you to make redemption requests, which can be laborious. And because capital management firms manage many wine funds, they could require you to meet minimums.
Investing in wine stocks and ETFs can be an excellent option if you have a small amount of capital or cannot store your wine. However, going this route does not leave you with a tangible asset, and you likely will not yield the same return as you would in a bottle of wine.
If you are convinced to invest in bottles of wine, consider going with wine futures. Essentially, purchasing futures means that you buy wine before it goes through the bottling process. That is, the wine it's still maturing in the barrel when you make your purchase.
This is one of the best strategies to access new vintage wines, particularly the Classified Growth Bordeaux wines. That said, you will have many more choices than those if you purchase wine futures.
When buying wine futures, don't expect the wine to ship for a few years after the purchase. Typically, a new vintage wine doesn't ship until the third year. For example, if a vintage wine is laid down in 2022, it will ship to you in 2025.
The good news is that you can get low-cost access to exceptional wines before they're bottled. In some cases, you may even be able to purchase futures for $200 or less through various websites. This allows you to skip the secondary market and own the wine from its first release. Remember that you will need a wine cellar to store your wine cases after receiving them.
Dedicated Wine Investment Platforms
Finally, you could always use a dedicated platform for investing in wine. A platform like Vint, for example, lets you invest in collections of wine while we do the legwork for you.
Our platform specializes in wine investments. We allow you to purchase and sell SEC-qualified shares of the best wines in the world. We create curated collections from regions and producers around the world, allowing you to diversify your wine investments. Plus, you don't have to worry about storing the wine yourself.
You can quickly begin building your wine portfolio through Vint and never have to keep a physical inventory of wine bottles or spend time researching the top vintage wines.
How to Invest in Wine DIY
If you are intrigued to invest in bottles of wine yourself, here are a few tips to keep in mind that can help you succeed:
Do Your Research
Your first task as a DIY wine investor will be to thoroughly research fine wines and winemakers. Along with evaluating the past performance of vintages and producers, look into predictive trends by analysts and wine experts.
Keep up with auction results, and use online wine exchanges to monitor market data. Also, scour manufacturers' details on popular wine publications, and scrutinize reviews by renowned wine critics.
Set a Budget
While there are exceptions, most experts suggest investing at least $10,000 upfront in fine wine. You will also want to consider that you could benefit by investing in fine wines from various regions. This will increase your portfolio's diversification, similar to dividend-paying stocks and bonds.
Once you conduct research and figure out how much you want to invest, create a budget and a plan that you can adhere to. Remember that it could be several years before you see a return.
Choose Your Source
You have many channels to choose from for physically purchasing wine. For example, you can go to auction houses to bid in person or attend online auctions. Leveraging arbitrage opportunities between New York, London, and Hong Kong is another option with lower prices and taxes.
You could also work with a wine broker that provides personalized advisory services. A good broker will trade, buy, and sell on your behalf. Another option is to use a fully transparent wine investment platform like Vint, which allows you to own SEC-qualified shares in world-renowned wines for less than $100.
Moreover, you could always go through a wine stock exchange that provides a wide selection of fine wines and shipping internationally. Or, you could purchase your wine directly from a local or prestigious venue and have them shipped to your home.
Just know that regulations can prevent you from buying wine directly from some international wineries.
Figure Out Storage
You can ruin your fine wine investment if you don't store your bottles properly, either by the wine aging too early or losing its flavor. If you choose to store your wine, make sure you have (or create) a climate-controlled storage area.
Many people turn their basements into wine cellars or purchase a wine cooling unit. It's essential to consistently keep the temperature around 55°F and the humidity at 60%. Also, you must shield your bottles from vibration and light, and you may need to pay for additional insurance and maintenance.
Another option is to store your wine in a reputable storage facility. Many auction houses and exchanges provide cellars, not to mention some companies specialize in dedicated wine storage. Though you will pay for services and insurance, you will rest assured that your wine is stored securely and in optimal conditions for the long haul.
Essential Investment Tips
Finally, certain strategies and habits can set you up for long-term success in fine wine investments. For instance, understand the market risks of fine wines. While they are generally less volatile than most other alternative investments, there's a chance your wines could be damaged or mishandled in transit or storage.
Also, it can be challenging to determine the ideal time for selling a specific wine, and all wines reach a point where they start losing value.
Another thing to keep in mind is that you could be subject to high taxes and shipping costs, depending on the origin of your wine. Speaking of origin, you will also want to trace the provenance of any fine wine you consider purchasing. And if you don't have the time (or energy) to research and select wines, manage your inventory, or confirm authenticity, you can use a platform like Vint that handles all of this work for you
High returns, low volatility, and increasing global wine consumption are all excellent reasons to get into fine wine investing. However, to set yourself up for success, you must either know how to determine which wines can bring a solid return or use a wine investment platform.
If you can conduct thorough research and store your bottles properly, then investing in wine could be the ideal method of diversifying your portfolio. Keep learning about wine bottles, stock, and futures to determine the most promising path for your lifestyle, budget, and goals. Before you know it, you'll have tangible assets growing your wealth.
Get started with Vint today to get in on the future of wine investing.
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