Perhaps you are passionate about wine, or maybe you simply want to diversify your investments. Regardless of your reasoning, experts say that, when done well, wine can be a very lucrative investment.
Wine can be challenging to understand. There are many resources available to help you invest in wine and make it a profitable venture. Read on to discover what you need to know before investing in wine.
Should You Invest in Wine?
To invest in wine on your own, you should have a strong understanding of the wine market. To truly understand wine, you may need to do a lot of research on types of wine, regions, pricing, and the market. Here are a few things to consider:
Understand Why You Want to Invest
There are several reasons to invest in wine. Some people are passionate and want to put their extra money into a commodity that they enjoy. Others see it as a method of avoiding taxes on their gains. Regardless of your reasoning, wine can be a great way to diversify your investments.
If your choice to invest in wine is because you are passionate about the market, you may want to take time to visit wineries and speak with other wine investors. There are several online and in-person communities that you can join to explore further investing in wine. This can help you to gain a more robust understanding of where your investment will go, and you can have some fun while doing your research.
If you are looking for ways to invest on the side, wine can still be a great avenue to explore. The dynamics of the market are continually changing. Most wine investors will recommend starting with no less than a $10,000 investment and growing from there.
If you are simply looking to diversify but do not want to be heavily involved in wine trading, you may want to use a portfolio manager. Several wine investment organizations such as Cult Wines have portfolio managers that can do most of the heavy lifting for you. These individuals can help you to understand and profit from your wine investment and alleviate you having to put in a lot of time for research.
Get a Pulse on Wine Pricing
Only a small percentage of wines that are produced make suitable investments, and those that do can vary greatly in pricing. The pricing of wine depends on a few things.
The first thing that affects the price is how it was made. This includes the cost of barrels and bottles, the cost of production of the grapes, and the labor that went into making it. Some wines are sold direct to consumers, and others may have an elevated price due to the supply chain of distributors and retailers.
Additionally, some vintages have higher yields than others, which affects the supply of wine. This can largely depend on nature; if a region had a poor weather year, there would be less wine produced.
Another factor in the price of wine is due to its perceived value. This is especially true when it comes to ‘luxury’ wines. Brands with high perceived value often have a high price tag and sell out every year. These may not fluctuate much in price. Value is objective, so some investors may not want to purchase an expensive wine just because of the brand and instead look more for wines that they enjoy tasting.
Store it Well
You should be sure that you treat your investment with great care. You may want to consider what the cost of storing your wine is and if you will hire a third party to hold your investment while it hopefully increases in value.
Investors and enthusiasts know that wine should be stored at a specific temperature, not have direct sunlight, and adhere to several other environmental factors. If your wine is not stored in the proper environment, it damages the quality of the wine. This ultimately affects the resale value. Take the time to understand how each of the wines you are considering investing in needs to be stored so that you can plan and budget accordingly.
In 2012, the wine storage company WineCare was affected by Hurricane Sandy. The company had about 380 customers who were storing tens of millions of dollars’ worth of high-end wines in their storage facility in New York City. The storage facility flooded, and over 27,000 cases of wine were damaged.
Due to this substantial loss, the company ultimately declared Chapter 7 bankruptcy. While the wine and storage facility was insured, and most customers received either their wine or money back, it is an essential lesson in storing your wine investment well.
Does Wine Appreciate in Value?
Not all wines are equal, and prices in wine can vary greatly. When shopping for investment-grade wine, be sure to do your homework. You can leverage websites such as wine-searcher.com or Liv-Ex.com to get a feel for wine prices and how they are trending. The most significant factors affecting the price of wines are the supply and demand of particular vintages.
Just as with other investments, diversification matters when investing in wine. You may want to start by finding a few vintages, regions, or types of wine that you are particularly interested in. Then, you can learn about the histories of each market to get a feel for the trends in each.
After you understand the trends and have an idea of what you would like to purchase, you can figure out what a reasonable price point is and where to purchase it. Finally, ensure that there are no restrictions on your purchase. Some states or countries restrict the amount that you can buy at one time.
Additionally, how you purchase wine can affect its appreciation. For example, some wines are offered by the bottle, and others are best to purchase by the case. If a wine is available by the case, buying wine by the bottle may be less attractive to future buyers, so you would be wise to purchase a case.
However, if you are purchasing a rare wine with only a few bottles available globally, you could see a high rate of return in the future and should purchase those bottles individually. This is especially true if cases were never distributed.
It is important to note that wine is not likely to increase in value quickly. The rule of thumb is to have at least a five-year waiting period before trying to sell. Consider that some wines take longer than others to mature, so a particular vintage may take more time before becoming attractive to buyers. Avoid short-term fluctuations by investing with a medium-to-long-term horizon. This may mean waiting for more than ten years to see significant returns.
Is Wine a Good Investment?
As with any investment, there is risk in investing in wine. Wine is difficult to price and insure, so most experts will tell you only to invest what you are willing to lose. It is not recommended to invest any money that you will need in the short-term.
In fact, many experts will tell you that you should only spend money that you will not miss. Wine is not only volatile in pricing but is also difficult to store. This makes it a risky investment, so you should only invest in wine if you have the additional money to spare.
Many wine investors choose to start buying and selling wine as a fun way to invest. Returns are not guaranteed, and investors may be wise to see the worst-case scenario as the opportunity to enjoy it themselves.
Wine is exempt from capital gains tax and is often seen as a tax-free investment. Wines typically have a shelf life of 50 years or less and are therefore considered to be a ‘wasting asset.’ In other words, it is seen as something that decreases in value over time. This means that wine is not considered to be an income-generating asset and is free of capital gains tax.
However, it is essential to realize that if wines are held for less than one year, they are subject to an income tax. The tax-free and low-tax implications of investing in wine can make it an attractive prospect for some investors.
What Options Exist if I Am Not a DIYer?
Vinovest is a company offering a unique way to invest in fine wine. They have put together a team of the best minds in the wine industry. They have four Sommelier’s that oversee the wine selection. A Sommelier is, in the simplest of terms, a wine expert.
There are four stages of training to become a Master Sommelier. Like many designations these days, there are several choices in Sommelier training. The premier organization is the Court of Master Sommeliers. The Vinovest wine advisory team includes three Master Sommeliers. And one Advanced Sommelier.
Vinvest Checks All the Boxes
One of the best parts of investing in fine wine with Vinovest is its simplicity. Before they purchase any cases or bottles of wine, they certify its authenticity. That means you know the wine you purchase is real, and of the highest quality.
Your wine is stored in state of the art facilities around the globe. These facilities offer optimal temperature and humidity-controlled conditions around the clock. These conditions allow the wine to age, improve in quality, and provide the best opportunity for the value to increase.
The Vinovest team sources wines from vineyards and wineries around the world. They go directly to the wineries, merchants, and the global wine exchanges. You can rest assured that they get only legitimate, high-quality wines. It also offers more transparent pricing.
Many data points go into determining whether a wine is investment-worthy or not. Their team of Sommeliers and their advanced analytical technologies work together to provide the best wines with the best growth potential.
What Does It Cost?
Vinovest charges a fee of 2.85% that covers all of its services, including buying and selling the wine, storage, insurance, certification against fraud, and managing the wine portfolios.
Compared to the traditional ways of acquiring fine wines, the 2.85% fee is quite low. Typically, you would pay 10% to a broker or auction house. These higher fees don’t offer guarantees on whether the wines are authentic. Plus, you would have to arrange for the storage of your wine. When you decide to sell the wine, you will pay another 10% to 20%.
How Much Do Fine Wines Appreciate?
Fine wine has provided year on year returns of 11.6% on average since the mid-80s. That means they have outperformed the S&P 500. Because the wines don’t show prices daily like stocks, they are much less volatile.
Look at your wine investment as another type of alternative investment. Though not officially recognized as an asset class, fine wines potentially offer more stable returns that are not correlated with stocks. In other words, if stocks go up or down, it doesn’t follow that your wine investment will do the same.
The Bottom Line
The wine industry is continually changing. When it comes to investing in wine, every investor is different. By examining your goals, budget, and passion for wine, you can then decide which wines are the best for you to purchase. Fine wine can be a fun way to grow your money without paying a lot in taxes. Who knows, you may just find a bottle or vintage that becomes a lucrative, tax-free investment.
If you’re interested in investing in fine wine but don’t want the hassle of doing it yourself, consider Vinovest. They have the experts, technology, and storage to take some of the risks out of this type of investment. They guarantee their selections are authentic.
And one last thing. Since you own the bottles of wine, you can have any or all of them shipped to you if you decide you want to drink a bottle or two. What other investment offers that option?