You’re likely familiar with the usual range of traditional investments like stocks, bonds and fixed-income securities. While these options suffice for many investors, many investors also add alternative investments to their portfolios. As a result, combined alternative assets under management hit an all-time high in 2020 – $7.4 trillion. Faced with the unpredictable stock market, you may also want to consider an alternative asset as well. Commodities like a wine investment are one potential way you can protect yourself against that volatility. Here’s what you need to know to start to invest in “liquid assets.”
The range of alternative investments is massive. Work with a financial advisor to find ones that fit your goals, risk profile and time line.
Reasons to Invest in Wine
One of the main reasons investors turn to alternative investments is for diversification, which provides financial protection. According to research from Vanguard, commodities are a way to hedge against inflation. That’s because they typically have a low or negative correlation with equities performance. So, even if traditional assets drop, something physical like wine may still do well. This lack of correlation between the two reduces risk in the investor’s portfolio.
In fact, the Liv-ex Fine Wine 100 outperformed exchange-traded funds (ETFs) and global equities in recent years. In only two decades since its launch, it rose 270.7%.
Some of the most expensive wines have sold for hundreds of thousands of dollars, like the 1945 Domaine de la Romanée-Conti, which changed hands for $558,000. But you don’t even need to spring for luxury wines immediately. Actually, it’s vital that you stick within an affordable budget to start. Most sources recommend a $10,000 minimum at the beginning. But you don’t need to spend it all. A relatively lower-cost wine can still gain value over its lifespan and result in a profit.
How to Invest in Wine Funds and Stocks
Wine can do more than compliment a meal or liven up a party. It’s a physical commodity that can appreciate.
One option is to invest indirectly, which means no worries about maintenance or storage. For example, investors can put their money into hedge funds, like Anpero Capital, or other types of funds, like Vineyard & Terroir Fund or the Wine Investment Fund. They also can invest with groups like Cult Wine Investment and VinoVest.
Then there are wine stocks, such as such as Constellation Brands, Diageo or Truett-Hurst. Note: the funds and stocks mentioned here are only intended as examples of what types of opportunities are available; they are not recommendations.
How to Invest in Wine Itself
Investors who choose to go it alone need to track down investment-grade wine. There are a few factors they look at when they purchase:
- Age-worthiness: Not all wines get better with age. But looking at the producer, fruit, tannins and acidity level can tell you if a wine will age well. Some of the most age-worthy wines include Pinot Noir, Cabernet Sauvignon, Riesling, Sauvignon Blanc and Syrah.
- Critic ratings: A highly rated wine by critics is more likely to be worth an investment. For example, Wine Spectator magazine and Robert Parker’s Wine Advocate newsletter popularized a 100-point wine-scoring scale. Anything rated “Classic” on the scale (or equivalent on another) might be worthy.
- Longevity: Wines designated as investment-grade tend to reach maturity 10 years after bottling. They can also age for upwards of 25 years.
- Price appreciation: The wine should have appreciated in price for at least 10 years, if not longer.
- Rarity: The less there is of something, the more value it holds. The same applies to wine. Each vintage comes with unique properties that can’t be exactly replicated, so they rise in status. Likewise, wine involved in a significant event (like bottles of 1907 Heidsieck Champagne salvaged from a World War I submarine) also has a higher return.
- Reputation: Only winemakers with an upstanding reputation make investment-grade wines. As a result, they often come from specific areas, such as the Bordeaux region in France or Tuscany in Italy.
Then, when it comes time to sell, you can choose the platform. Such as:
- In-person auction
- Online listings or digital marketplaces
- Through an expert or portfolio manager
You don’t always have to purchase older wines, though. Instead, you can invest in futures, or wines that are still in the barrel, which are generally cheaper. This practice, also called en primeur investing, is usually riskier, but it still can result in increased margins after bottling and storage. If this is the right method for you, research the winery it comes from. The previous vintages, the year you intend to buy and its place of origin can all contribute to later appreciation.
Is Investing in Wine Right for You?
Like any other investment, wine comes with its pros and cons. That may make it more or less suitable for you as an investor. For instance, consider the work necessary if you want to buy bottles yourself. That puts all the responsibility of research on your shoulders. To get all the information you need, you should analyze auction results, market data, wine critic reviews and details of manufacturing. A global marketplace such as Liv-ex is one possible way to begin.
Furthermore, you need enough money. The most common recommendation is a minimum of $10,000 to start this type of investment.
And that’s not just for the wine itself. In most cases where you buy through a channel, such as an auction, brokerage, winery or specialty store, you also pay a buyer’s premium or commission. For example, Sotheby’s, a multinational auction house, charges 24% for wine auctioned in New York.
In addition, there is also the cost of storage, which is necessary for long-term investments, aging and preservation. You have two options for the method: storing on your own or with a professional storage facility. Doing it individually means either purchasing a wine fridge (or cooling unit) or converting a space in your home into a wine cellar. According to Fixr, the average cost to build a wine cellar comes out to $33,750. From there, you have to monitor temperature, humidity, light and vibration. You also bear the brunt of maintenance and insurance expenses.
Alternatively, investors have the option of a wine storage facility. Prices and services vary between facilities, so research is important. Depending on the company, they may offer appraisals, transportation, insurance, rush handling, shipping and more. They also usually charge an annual fixed rate that fluctuates based on your needs. For example – and not as a recommendation – a company in St. Helena, California, called 55° offers three membership plans featuring monthly rental fees from $25 to $85.
Overall, investing in wine can double as a passion project for many and comes with potential benefits. Namely, it has the potential to protect against volatility and drops in traditional assets. It also comes with possibly high returns. However, investing in fine wine takes significant research and requires additional costs to safeguard any real products. When doing this indirectly, pay close attention to the fees, commissions and expenses. Also, investors may need to wait several years before they see returns.
Tips for Investing
- Wine can earn you high returns. But, the associated costs and wait time make it harder to incorporate into your strategy. Consulting a financial advisor before you start investing will help ensure it fits into your financial plan. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor, get started now.
- Like any investment, wine comes with its risks, even if you invest indirectly. Before you can add it to your portfolio, you should check if it suits your strategy. Revisit your risk tolerance and financial goals before investing. You can also use an investment calculator to help you project your future ideals.
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