On the surface, buying wine wine as an investment—as one would with real estate or a mutual fund—seems odd to many people. After all, wine is made for consumption, it has a limited shelflife, and it’s so fragile that it needs to be stored correctly at all times or it can quickly become worthless. How could this be an investable asset?
Despite all this, wine can be a very profitable investment when you use the correct approach, especially if you’re working with an experienced broker or expert. In fact, wine as an asset class has been one of the best-performing assets of the past twenty years.
In recent years, people in the broader financial industry have discovered the immense investment potential of rare wine. They’ve noticed that the value of a bottle of, say, Domaine Leflaive Montrachet Grand Cru, stored in excellent condition, has generally outperformed the Dow Jones and FTSE 100 over time. Wine, after all, is a product with very high demand yet a limited supply that only shrinks as time passes and corks pop open.
As a result, some investment firms are creating wine funds. In Asia, there’s the Bordeaux Wine Bank, and in London you’ll find the Fine Wine Investment Fund and Watermark Fine Wine, to name a few. With these investments, you’re never actually taking possession of a bottle of wine. Instead, the funds themselves buy, store, and sell the assets on your behalf. For you, the fund is just a way to diversify your portfolio and potentially profit from the wine market. It won’t improve what’s in your wine cellar.
Before we go any further, we should clarify something. When we refer to fine wine, we usually mean bottles that sell for anywhere from $200 to the tens of thousands of dollars. Bottles in this price range are generally called rare or collectible wines, and they’re the most worthy ones for investment purposes. Meanwhile, bottles that sell between $50 and $200 are generally considered quality wines and can also be investable. Bottles that sell for prices below that category are often referred to as consumer wines, and are not investable assets (you just drink these wines, and usually quickly upon release).
What sets a rare wine apart from quality wine or consumer wine are the prestige of the producer, the quality of the vintage year, and the scarcity of the product. Considerations are made about what region of the world it’s produced in, how many cases are produced, whether it’s made on the estate, where the grapes were grown, and how the wine was vinified and aged. The more of these criteria a particular wine meets, the more desirable and valuable it is. Specific rare wine vintages get significantly pricier over time as people start drinking them and the supply around the world shrinks. Consumer wines, by contrast, are generally more mass-produced and meant to be consumed within a three-to-five year window, so they generally don’t appreciate in value over time. Quality wines fall somewhere in the middle.
What sets wine apart from other collectibles that are bought and sold as investments—, like baseball cards, stamps, and coins—is its history of price stability. If you buy a pack of baseball cards, the contents are practically worthless once you take them out of the packaging. Their value stays that way for many years, until they grow scarcer or the card of a particular player becomes more desirable according to his history and fame—and then you can finally recoup the original cost. Then, some day— decades and decades later—some of those cards might be worth some real money. Their price is also more erratic because they rely on highly volatile collecting trends and emotions like nostalgia. For instance, some baseball cards from the 1960s are worth less today than during the collecting craze that took hold in the United States during the 1980s and 1990s.
The market for postage stamps has experienced the same fluctuations as well. There are a prized few that have a value of $50,000 to $100,000 apiece. One, the Inverted Jenny, is worth close to a million dollars. Issued in the United States in 1918, it displayed a biplane upside down as a result of a printing error. Only one hundred were accidentally released, and the rest were recalled and destroyed. Coins are subject to similar variations. They do rise in value, but they don’t experience tremendous growth in value unless the metal they’re made of—like gold or silver—jumps dramatically.One of the benefits investors find in collecting rare wine is the liquidity of it, so to speak. Converting a bottle to cash is relatively easy if you have a skilled broker. An investor might say, “It’s time for me to write that check for my kid’s college tuition,” and it’s simpler to sell some wine than to take a second mortgage on the house or unload larger assets. And in the past two decades, the value of rare wine has been on a rocket climb—with a few bumps along the way. The rise of the market for fine wine appeals to a more conservative investor looking for a steady return and an expected, manageable growth rate.
As with any investment, you need to know when to sell. Sometimes investors should hold on to a product because it’s not at peak value due to, say, a temporary shift in taste preferences or popularity. Alternatively, a wine’s window of drinkability may lie too far ahead into the future. At other times, investors hoping for top dollar might have the urge to hang on to a product too long, only to find that the opportunity to sell at a high price has passed. For many investors, owning a bottle of wine is as much an emotional investment as it is a financial one, so the decision to sell a wine collection needs to be well thought out and often involves a very candid conversation about your motivations.