Investors know that it’s wise to diversify their portfolios, and many now seek to diversify beyond the standard stocks and bonds. One possibility which has gotten a lot of attention recently is investing in fine wines. If you’re willing to learn about the wine market, this asset class can definitely make a tempting investment.
Over the past 20 years, the demand for fine wine has escalated to a global degree. This aromatic beverage is no longer a mere object of enjoyment, and many see it as a viable investment commodity. Nonetheless, as a potential investor, you must know that not all wines are investable. Only the best of the best will eventually bring extraordinary returns. Here are some things to consider about investing in fine wine:
Tangible assets
The stock market has shown a lot of volatility, and that has made some investors seek tangible assets as an alternative. Investing in wine gives you a tangible asset with a finite supply that often does not move in sync with the stock market.
Strong returns
Fine wine can deliver some remarkable returns. During the years 2009 to 2011, prices of fine wine, as tracked in the Liv-ex 100, the most popular industry benchmark index, skyrocketed. Of course, that performance was exceptional, and like any investment class, prices can slump sometimes too. Nevertheless, these high returns showed what is possible.
Enjoying wine
Fine wine makes an ideal investment for people who enjoy good wine. If you like drinking wine, then you will enjoy the process of learning more about the industry and the wines you invest in. You may even choose to do some tasting of your investments, which can be a nice side benefit.
How to invest in fine wine
Now that you’ve decided to invest in fine wine and give up shares, you must first adhere to some rules. Making money with wine is not that easy; always remember that any type of investment comes with risks. Here are some guidelines to help you make the decisions.
- Use a wine merchant
Find a reputable wine merchant, who can sell you wines for investment. Be certain to use a well-established merchant with a stellar reputation. Otherwise, you may get someone who overcharges you for the wine you buy, or who steers you into making some bad investments because they make more profit on those. Wine merchants do not charge a fee or commission, because they already have a margin built into the prices of wine they sell. A good merchant will be able to give you some advice on what wines to purchase or avoid, but you should always do your own research and due diligence.
- Wine funds
If you don’t want to do all the work to research, buy, store and sell your own wines, then you can invest via a wine fund. This is like a mutual fund for wines. A management team buys and sells the wines, making all of the decisions about what to purchase, and when to buy and sell different holdings. You buy shares in the wine fund, rather than owning the wine yourself directly. One advantage is that this diversifies your wine holdings more than buying wine yourself. It is easier for you than handling research and transactions yourself. You also have wine experts making your decisions. On the downside, the fund management takes various fees for their services.
- Wine trading platforms
There are websites where you can buy and sell fine wines, such as Wine Owners and Caves. You can see pictures and videos of the wine before you buy, check your price history, and monitor your portfolio. The pros are that it’s very flexible, and fees are low. The cons are that you need to do a lot of work yourself.
Wine investors should first and foremost buy wines with a track record. Just because you really liked a type it doesn’t mean its variety is good for business. First-growth Bordeaux like Latour, Chateaux Lafite, and others, have been offering great returns for decades. Start with those and move on with some other varieties as you gain experience. Don’t take unnecessary risks, and in time you will see that investment in wine can be more profitable than shares.
