With the stock market a mystery to many, buying wine for future appreciation may be an option
To say wine is popular is a huge understatement, with an estimated $339 billion spent worldwide on fermented beverages in 2020, according to WineDeals.com.
The United States and France lead the way in terms of consumption, with many indicators suggesting that global consumption will continue to increase significantly. But if it’s a popular drink, the vast majority of which is consumed very soon after purchase, could that also be a viable investment? What constitutes an investment varies depending on who you ask, with antique toys, artwork and even vehicles rivaling traditional stock and bond options.
Continuing stock market fluctuations, runaway inflation and trade wars have some investors looking for alternative safe havens for cash, and many are seriously considering wine. Even if the market turns completely off and you use stock certificates as napkins, you can at least drink some wine. Which raises the question: which wine can be considered an investment? The short answer is nothing you can buy at the local grocery store.
As you might expect, rare wines and those with historical significance tend to fetch high prices; as an example, a 1787 Château Lafite said to have belonged to Thomas Jefferson (it has his initials engraved on the bottle), sold for $156,450 in 1985. More recently, a 1945 Romanée-Conti sold for 558 $000 at a Sotheby’s auction. As you might expect, these are the exception rather than the norm; FinanceBuzz.com reports that wine has posted annualized returns of 13.6% over the past 15 years, outperforming many traditional investments.
However, investing in wine requires in-depth product knowledge, and buying requires proper storage, a topic we covered several issues ago. To be considered an investment-grade wine, it must first taste great, which rules out mass-produced wines. Taste can be shaped by the region in which it was produced, the skill of the winemakers, and certain weather events that may have shaped the resulting vintage. Some investors choose to select wines from certain regions, such as Bordeaux, the Rhone Valley or even California.
By limiting the choices to one or a few specific areas, it is theoretically easier to keep track of the factors affecting the quantity and quality of the wines produced. Scarcity is always a good thing, but investors can do well by adhering to the basics of supply and demand, looking for vintages that are currently in high demand and expected to remain in high demand..
When it comes to actually buying wine, to simplify things, some investors use a service like Vint where, rather than an individual buying, hosting and reselling cases of wine, shares of a specific wine collection can be purchased. Other options include CultX, a London-based digital platform operating its own warehouse to accept, distribute and store wines, or Liv-ex, the London International Vintners Exchange, a marketplace bringing together buyers and sellers.
Collectors tend to fall into several groups: those who buy and store their wines in their own facilities, those who store their wines in a commercial facility, and those who buy strictly to invest, never taking possession of the wines, but rather working with a company that handles all the details involved from buying to selling. An example is Vinovest, where an individual can create a portfolio of wines with as little as $1,000 investment.
While this method certainly works for those with a broad knowledge of wines and their acquisition and sale, it also presents a unique opportunity to invest in wines without needing to have an encyclopedic knowledge base or even having to store or insure the wines. Newbie wine investors may choose to rely on the company’s expertise in selecting, purchasing, and possibly reselling fine wines. Just as a real estate investment trust allows an investor to share ownership and hopefully make a profit without having to do all the work or take all the risk, these wine investment companies allow enthusiasts of wine to invest while learning.
Rapid appreciation in investment wine can certainly happen, but typically many investors hold wine for at least three years, which clearly affects the issue of liquidity. While wine has clearly become a recognized investment vehicle, as is the case with all investments, there are serious considerations to take into account, starting with never investing more capital than you can afford. to lose. There are also tax implications to consider, so it is prudent to discuss any potential investment plan with a competent financial adviser and tax adviser.