Is It Worth Investing in Fine Wines? Beginner’s Guide

In the vast landscape of investing, where stocks, bonds, and funds hog the limelight, there exists an asset often unnoticed by retail investors: wine. That’s right, the same grapey goodness that elevates social soirees and completes dinner parties can also line your pockets if you play your cards right. 

This guide serves as your express route into fine wine investing. We’ll explain how to invest in this liquid luxury, dissect the risks and rewards involved, and give you a glimpse of the potential returns that might await you. So, uncork your curiosity, and let’s embark on this vinous adventure together.

What is wine investing?

What makes wine investment grade?

Not every wine qualifies as investment-grade. Indeed, most wines adorning the shelves of your local supermarket aren’t suitable for investment purposes, as they lack specific attributes, including:

1. Aging potential: To determine if wine is investment-worthy, assessing its aging potential is crucial. Elements affecting aging potential include grape variety, acidity, and tannin levels. Examining a producer’s history of crafting wines that age well can also be informative;
2. Vintage quality: Wine vintage is the year the grapes were harvested and can provide crucial insights into the growing season. Quality fluctuates from year to year, with weather conditions having the most significant effect on the grapes and, subsequently, the wine’s taste, aroma, and overall quality. Therefore, having a comprehensive understanding of vintage conditions can assist in selecting the appropriate wine for investment; 
3. Scarcity: The innately finite nature of the supply differentiates investing in wine from most other commodities. In contrast to gold or silver, wines are made unique by their location and vintage, and once consumed, they cannot be reproduced;
4. Strong critics’ ratings: Because wine quality cannot be determined before tasting, buyers often depend on expert opinions. Over the last couple of decades, Robert Parker’s 50–100 scale has become the most commonly used way for evaluating wine, with investment-worthy wines typically receiving “classic” or equivalent ratings (95 out of 100);
5. Prestigious provenance: A wine producer’s reputation greatly influences a wine’s appreciation potential. Highly investable wines often come from renowned producers such as Domaine de la Romanée-Conti (DRC), Pétrus, Château Mouton Rothschild, Château Lafite Rothschild, or regions such as Burgundy, Bordeaux, Rioja, Rhone Valley, and Tuscany;
6. Longevity: Wines differ in longevity. Investment-grade wines typically mature around ten years post-bottling, with select premium labels even aging for over 25 years;
7. Solid price history: A wine’s price history can reveal the trend in value, with investable wines generally displaying consistent upward progress.

How to start investing in wine?

There are several options for investing in wine, including:

• Buy bottles on your own: Since trading on the London Vintners Exchange (Liv-ex), a global wine trading and indexing platform, is limited to professional wine merchants, most private investors acquire wines directly from distributors, auction houses, or fine wine retailers in the secondary market. However, investing in single bottles demands considerable specialized knowledge and an expensive storage setup; 
• Use a wine investment service: Alternatively, you can have the entire investment process taken care of by a wine investment platform such as Vinovest, which will select, authenticate, manage, store, and insure your wine, enabling you to build a diversified portfolio of high-quality wines. For more information, refer to our Vinovest review; 
• Invest in wine futures: Buying wine futures (en primeur in French) is the practice of purchasing wine from the producer while it is still in the barrel, up to 18 months prior to a vintage’s official release. Although buying wine before bottling is more affordable and allows access to wines that might be harder to obtain once bottled, the wine’s value is not guaranteed and may decrease between purchase and sale. Therefore, researching the producer’s history, vintages, and other fundamentals is crucial before considering wine futures. Keep in mind that derivative products like futures are best suited for experienced traders; 
• Invest in wine stocks: Gain exposure to wine by investing in beverage companies that produce or sell wine, such as Constellation Brands Inc. (NYSE: STZ) and The Duckhorn Portfolio (NYSE: NAPA).

Why invest in wine?

As an alternative investment to traditional asset classes such as stocks and bonds, wine can provide portfolio diversification and a range of advantages beyond the potential for impressive returns, including:

• Low correlation to traditional markets: Fine wine prices are influenced by factors like annual harvest yields, consumer tastes, and weather, which differ from those impacting the stock market, such as company earnings, corporate management, and interest rates. Consequently, wine markets exhibit a low correlation with equity markets;
• Resilience during recessions: For example, in the first quarter of 2020, as the COVID-19 outbreak plunged the global economy into a crisis, the S&P 500 experienced a decline of over 23%. In contrast, the Liv-ex Fine Wine 1000 index, representing the broadest measure of the wine market, experienced only a minor drop of about 4% during the same period. A comparable trend was observed during the 2007-2008 recession: while the S&P 500 plummeted 38.5%, the Liv-ex Fine Wine 1000 index dipped by a mere 0.6%;
• Reduced volatility: Fine wine, as a diminishing asset, promotes long holding periods, leading to a more stable and predictable pricing trajectory; 
• Resistance to inflation: Over the past five years, the Liv-ex Fine Wine 1000 has generated a 41.4% return, with an annualized average return of 8.28%; 
• A tangible asset with inherent value: Investors have direct ownership of the wine, allowing them to manage and utilize it as they see fit.

Pros and cons of investing in wine

You may be tempted by the allure of stashing away bottles of this coveted liquid, hoping they’ll appreciate like a fine Château Lafite Rothschild. But before you go turning your basement into a makeshift wine cellar, make sure you consider both the pros and perils that come with investing in this unique asset class.

Pros

• Diversification: Fine wine investments can help diversify a portfolio, as they exhibit a low correlation with traditional financial markets, helping to cushion against market fluctuations and economic downturns;
• Long-term appreciation: Fine wines are like the Benjamin Buttons of investments, getting better (and more valuable) with age as they mature and enhance in quality – making them a potentially tasty investment for those seeking capital gains on a longer time horizon;
• Tangible asset: Fine wine is a physical possession with intrinsic value, offering a sense of security and satisfaction;
• Inflation resistance: Fine wine investments have historically outperformed inflation, helping to preserve the investor’s purchasing power;
• Enjoyment and prestige: Owning fine wines can be a source of pleasure and pride for collectors and enthusiasts, who can enjoy the wines during special occasions or share them with friends and family.

Cons

• Time-consuming: Investing in fine wine requires a deep understanding of quality, provenance, and market trends. It can be challenging for novice investors to navigate this specialized market without expert guidance;
• High commission fees: Purchasing wine from a commercial auction house incurs a buyer’s premium, ranging between 15% and 25% of the sale price;
• Storage and maintenance: Climate-controlled storage and maintenance of fine wine are crucial for preserving its quality and value, incurring additional costs and requiring ongoing attention;
• Counterfeit risks: The fine wine market has its share of fraud and forgery, which may result in the purchase of misrepresented or counterfeit products that hold little to no value;
• Shipping and insurance costs: Shipping the wine to you and insuring it for damage will incur additional charges;
• Long holding period: High-quality wine may require 5-10 years, or potentially more, to attain its peak worth. Furthermore, investors are responsible for monitoring the wine during its maturation process and determining the optimal moment to sell it;
• Market volatility: Although fine wine is generally considered a low-volatility asset, it can still be subject to fluctuations due to factors such as changing market conditions, shifting consumer tastes, regulatory changes, or adverse weather conditions;
• Illiquidity: Fine wine investments can be relatively illiquid compared to other assets like stocks or bonds, as it may take time to find a suitable buyer at the desired price.

Conclusion 

Wine, steeped in history and cultural adulation, can seem like a daunting investment option, particularly compared to more conventional assets like stocks, gold, or real estate. Yet, there’s no denying the mystique is somewhat justified. Indeed, the learning curve for wine investors can be notably sharp, entailing an array of seemingly arcane details such as the value of specific wineries and vintages, as well as the most optimal methods for storing those delicate bottles. 

Nevertheless, wine investing has gained momentum in recent years, thanks partly to platforms like Vinovest, which enable you to invest directly in wine without the hassle of procuring and storing the wine yourself, finally making fine wine an asset class accessible to the average investor. And in recent years, wine has proved itself a worthy investment, providing investors with better risk-adjusted returns than many traditional portfolio diversification strategies.

And let’s not forget, as many oenophiles would likely attest, that there’s a satisfaction in wine investment that transcends mere financial gain. After all, you can’t savor a gold bar or a Jackson Pollock, but you can always indulge in a glass of velvety Cabernet Sauvignon.

Disclaimer: The content on this site should not be considered investment advice. Investing is speculative. When investing, your capital is at risk. 

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