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Invest in good wine

by SuperiorInvest

Your partner orders a certain cabernet for $40 that he thinks will be worth $400 in the future and wants to start collecting other vintages as well. But should she invest in a product that disappears with a broken bottle or that can be poured into glasses at a party on a whim?

How do you really know what a bottle is worth now and what it will be worth in the future? Also, what expenses and space needs do wine storage involve?

Read on to learn more about investing in wine.

Key takeaways

  • Fine wine is an alternative investment that can help diversify a portfolio.
  • Investors can access the wine industry by purchasing bottles directly, holding shares in companies involved in wine production and distribution, or working with a company that offers securitized wine investment options.
  • Like fine arts, wine investments typically have a medium to long-term horizon.
  • Investors interested in purchasing bottles of wine for investment purposes should familiarize themselves with proper storage and handling techniques, insurance, and other considerations.

Invest in wine for love or money

When you decide to invest in wine collecting, the first decision you should make is whether you are investing for the love of certain wines, to make money, or a combination of both.

If you are investing solely because you are a connoisseur of fine wines, choose wines you like in the hope that they will increase in value. Then, if you drink a few bottles along the way, that’s okay, because the effort is a hobby, like collecting baseball cards or stamps. On the other hand, even investors who don’t drink wine at all may be interested in putting together a collection for investment purposes.

As an alternative investment to traditional vehicles like stocks and bonds, wine can diversify a portfolio. This is particularly true of wine, because its value is generally not tied to economic factors, interest rates, or other traditional metrics.

Alternative investments have surged in recent years, driven by uncertainty over how the COVID-19 pandemic affected the broader economy and traditional asset classes. A recent Goldman Sachs investor survey showed that 60% of respondents planned to increase their private asset allocation, which may include alternative investments such as wine.

Ways to invest in wine

You may be surprised to learn that there are a number of ways to invest in wine that go beyond purchasing bottles (although that is a common and potentially lucrative approach). Additionally, you can gain exposure to wine by investing in beverage companies that make or sell wine, such as Constellation Brands Inc. (STZ). Although there are currently no exchange-traded funds or mutual funds dedicated specifically to wine, funds that target so-called sin stocks, luxury goods or even the broader consumer staples sector can provide exposure to companies involved in the industry. Of the wine.

It may also be helpful to know the wine industry’s most popular benchmarks, including the London International Vintners Exchange, or Liv-ex, and its family of indices. The Liv-ex Fine Wine 100 benchmark index, which tracks 100 of the most sought-after fine wines globally, has provided a five-year total return of 15.5% as of January 19, 2024. This is better than the performance of the broader market over the same time period; The S&P 500 has generated five-year total returns of 12.63% over the same period.

Additionally, services like Vint or Vinovest offer securitized wine investment options for investors looking to diversify into this area but without the significant capital typically required upfront to launch a bottle investment. These companies greatly simplify the process for the investor and typically offer storage, insurance, and other services, but investors can also expect to pay a fee to the company.

Overcome breakage and deterioration with storage

If you decide to invest in bottles (rather than through stocks or wine funds as described above), you’ll need to make sure you protect your investment. When storing wine that you will drink in a few weeks, you can store it in a wine rack to display in your home. However, keeping your wine in optimal flavor and salability condition for long periods requires more careful storage.

According wine spectator Writer Bruce Sanderson, in “The ABCs of Storage,” wine will produce small, flaky crystals if exposed to excessively cold temperatures, although this is less likely to happen in cold-stabilized wines. On the other end of the spectrum, a room that is too hot could cause a rapid increase in the time it takes for wine to reach its superior flavor and salability. If your wine matures too quickly, you will have to sell it faster, which will reduce the likelihood of making big profits in the future.

To properly store wine, you need a dark area with optimal temperature and humidity levels. This can be accomplished in the basement or a dark closet if you live in a moderate climate. To decide if your area of ​​the country is suitable for storing wine, talk to the winery managers in your area. If you don’t have optimal conditions, you’ll need a wine cellar, which for a large collection could cost thousands of dollars. You will also need considerable space.

Be sure to include the electricity costs to run your wine cellars in your budget. The best way to calculate the estimated cost of electricity use is to check the energy ratings of the wine cellars you are considering purchasing and then relay this information to your electric company to see what the monthly average would be.

If you do not have space to store your wine collection, you will need to contact local wine storage facilities for pricing, storage capacities, and the amount of insurance included.

wine insurance

Expensive wines are considered valuable items, similar to jewelry. You’ll need to talk to your home insurance company about covering your collection for its full value, which will likely include adding coverage for valuables. You’ll also want to compare wine insurance prices from other companies. Remember to consider the amount of the deductible, the amount of coverage in relation to the value of your collection, and the cost of the insurance policy.

If you live in a climate prone to natural disasters such as earthquakes, floods, or tornadoes, make sure your insurance policy covers breakages or contamination due to these weather emergencies.

Get paid according to your budget

Once you’ve added up storage and insurance costs, you need to budget how much you’d like to spend. Use the following factors to calculate a total budget:

  • Insurance and maintenance costs for storage facilities.
  • How much money are you willing to risk on wine after deducting insurance and storage costs, plus other safer investments, from your total investment budget?

The impact of state regulations

If you live in a state that does not allow you to purchase wine over the Internet, directly through a winery, or through a retailer who is not required to purchase wine through a wholesaler, then you are limited in the selection of wines you can purchase. for your collection based on what wholesalers in your region choose to sell.

Before you decide to start a collection, find out what availability restrictions exist in your state.

How to Research Current and Future Wine Values

The best indicators of a wine’s current and future values ​​are ratings and scarcity. Wine critics rate wines on a scale of 1 to 100. Before purchasing wine based on ratings, read reviews from several critics. Wines with a score of around 95 are considered high quality.

Shortages are harder to predict. A wine that is currently in limited production is a good indicator, but it is harder to know which wines will be in short supply later. Search for wineries that interest you to learn about past price behavior. You can track prices for nearly 5,000 different wines at Vinfolio.com.

Commission

If you manage to sell valuable wine in the future, most of it will be done through auction houses. The commission charged varies greatly depending on the physical or online auction house, such as WineBid, Sotheby’s or Christie’s. However, before you decide on a cheaper online alternative, make sure the retail prices of the wines you want to sell are similar.

If you currently have a wine that costs $10,000 a case at Sotheby’s and $5,000 at an online auction, the difference in commission costs is worth it. You can find bidding prices for online auction houses on their websites, but physical auction houses will require a phone call for more details.

Why consider an investment in wine?

Wine is an alternative investment that is not directly linked to many of the economic factors, interest rates or other elements that impact vehicles such as stocks and bonds. Although it can be expensive to start accumulating a collection of bottles for investment purposes, they add diversification to a portfolio.

How do you invest in wine?

There are several ways to invest in wine, including:

  1. Buy, store and sell individual bottles.
  2. Invest in stocks of companies involved in the wine industry (such as beverage distributors and manufacturers).
  3. Invest more broadly in mutual or exchange-traded funds targeting sin stocks, the consumer staples industry or other themes that may include wine.
  4. Work with a service that manages, stores and insures a wine collection for you, like Vint or Vinovest.

What are the risks of investing in wine?

Wine investments tend to be medium to long term. One of the biggest risks is breaking, damaging, or improperly storing bottles, which can void their value. As with all investments, there is also no guarantee that the value of a specific bottle of wine will increase.

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