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But you may also be able to turn a profit on a nice bottle of Cabernet or Sauvignon Blanc, if you know how to pick them. Here’s everything you need to know to invest in wine, even if you don’t have a wine cellar—yet.
Is Wine a Good Investment?
Like any other alternative investment, buying wine can provide your portfolio with an excellent source of diversification. Stocks and bonds go through familiar cycles of boom and bust, but collectables like fine wine deliver investment returns with little to no correlation to traditional assets—they may even be negatively correlated with the stock market.
You’ve probably heard the experts repeatedly stress the importance of diversification. Wine offers a unique source of diversification because its value is based on factors that have little relation to the performance of the economy, interest rates, corporate earnings or conventional investor sentiment.
The value of wine responds to factors such as weather patterns, harvest yields, vintage and consumer trends, all of which together intersect with supply and demand. Because these factors are unrelated to the overall stock market, wine investments can complement a traditional portfolio.
Wine vs Stock: Which Is a Better Investment?
Much like the NSE Nifty or the S&P 500 are benchmark indices for the Indian stock performance and the U.S. stock performance, the London International Vintners Exchange—commonly known as the Liv-ex—is the benchmark for the fine wine market. The Liv-ex Fine Wine 100 has risen by 270.7% over the two decades spanning July 2001 to July 2021, outperforming the S&P 500 by 8 percentage points over the same period, though only when you consider the index’s performance without dividends reinvested. When dividends were reinvested, the S&P 500 outperformed Liv-ex by 60% over the same period.
In short, wine can be a very lucrative investment. But an important buyer beware: You should bear in mind that indexes like Liv-ex and Sotheby’s track tens, if not hundreds, of wines, and any individual wine in the index may not exactly replicate the performance of the index itself.
This means that just like you choose a variety of stocks to diversify an investment portfolio, you’ll want to buy a variety of individual wines to avoid placing too much weight on the performance of one vintage or producer. You’ll also be targeting invest-grade wine rather than the less expensive bottles you might buy from your local wine shop.
When choosing wines as an investment, Alfonso de Gaetano, founder of Crurated, a recently launched membership-based wine community in the U.S., says, “Quality of the product is key. Quality also guarantees longevity, and this is key because the owner of the bottle can be comfortable that there is no time pressure in case they decide not to enjoy a great bottle but to sell it. Rarity is also a key element of the equation.”
How to Evaluate Investment-Grade Wine
A wide range of factors influence a wine’s potential to appreciate in value. Some are fundamental while others are more market driven and related to supply and demand.
“For wines limited in supply by the size of the vineyards and appellations, such as the great wines of Burgundy or Bordeaux, it’s logical that the price will continue to increase over time,” says Jamie Ritchie, Global Head of Wine at Sotheby’s.
No matter the vineyard or appellation, there are a number of factors that have a significant influence on the investment potential of every wine. Follow these simple steps to make sure you’re buying investment-grade wine:
Pay Attention to Vintage
Vintage is the year in which grapes are harvested and wine is produced in a particular region. The quality of a harvest varies from year to year, with weather having the most significant impact on the grapes. A well-informed investor should be aware of the vintages that yield the best production of the wine under consideration.
Weigh the Wine Producer’s Reputation
The reputation of a wine producer has a big impact on a wine’s potential for appreciation. Many of the most investable wines come from leading producers, for example Domaine de la Romanée-Conti (DRC), Pétrus, Château Mouton Rothschild and Château Lafite Rothschild, as well as from regions such as Burgundy and Bordeaux.
Understand a Wine’s Aging Potential & Longevity
Aging potential is critical for fine wine because some wines age better than others. Factors that can influence the potential to age well include the type of grape and level of acid and tannins. You can also look at a producer’s track record of creating wines that age well.
Longevity varies among wines. Investment-grade wines tend to mature around 10 years after bottling, but some wines can age for extended periods, appreciating in value and quality all the while. Others will only be drinkable for a shorter period after fully mature.
Examine Scarcity and Price History
Wine scarcity drives up the value of the vintages you invest in. Take Domaine de la Romanée-Conti, for example. This vineyard is known for some of the world’s most sought-after Burgundy, yet because of its small size produces only around 450 cases annually. However, when producers are ranked by the value of aggregate sales, DRC tops the list.
Meanwhile, a wine’s price history demonstrates the trend in value, with investable wines showing a steady progression upwards.
CJ Follini, Managing Principal of Noyack Capital, an alternative asset platform that’s planning to launch a wine investing option, stresses that it’s vital to spend at least six months to a year watching auctions to learn about market trends, pricing and how different types of wines are selling before entering the marketplace yourself.
“There are many sources of market and pricing data available online, and every beginning investor should study this data intensively,” says Follini.
Don’t Forget the Wine Critics
The recommendations of wine critics are taken very seriously, and critic ratings can have a strong impact on a wine’s potential to appreciate. Robert Parker, James Suckling and Jancis Robinson are among the most influential wine critics, so be sure to assess their published opinions on wines you’re considering.
Arm Yourself with as Much Subject Matter Expertise as You Can
Wine is an extremely complex asset, and it takes knowledge and preparation to become a successful investor. It’s critical to “educate yourself about the market, define your tastes and the style of wine that interests you as well as your aspirations, time horizon and return objectives,” Ritchie emphasizes.
For the neophyte investor, Ritchie recommends several books as valuable references. He considers “The New Sotheby’s Wine Encyclopedia,” written by Tom Stevenson and published by National Geographic, to be the best overall source on wine. “Inside Burgundy” by Jasper Morris, and “Inside Bordeaux: The Châteaux, Their Wines and the Terroir” by Jane Anson delve deeply into these two regions, which yield the greatest supply of investment-grade wines.
Leading publications include “Robert Parker’s Wine Advocate” and “Wine Spectator.” These are a few of the most notable to get you started, but as you continue your research, you’ll find that there are countless websites, blogs, books and other publications dedicated to the study and understanding of wine.
Advantages of Investing in Wine
For many wine investors, putting money into this asset class stems from a long-standing interest in wine. The greatest pleasure of investing in wine can be having the wine in their possession.
“Most who are serious about investing in wine tend to be at the high-net-worth end of the spectrum,” says Kimberly Foss, president of Empyrion Wealth Management. “They’re passionate about wine and they’ve taken the time to educate themselves thoroughly in the finer points of the assets and are likely to know what constitutes a good investment. The pleasure in the investment is actually having the wine in their possession.”
But even for the non-oenophile, an investment in fine wine has several compelling advantages, such as:
Portfolio diversification with low or no correlation with traditional asset classes
Wine experiences lower market volatility
Fine wine can help you manage portfolio risk
Wine can provide enhanced potential for returns
Investing in wine may preserve value during market contractions or recessions
Disadvantages of Investing in Wine
Investing in wine can entail higher costs than investing in traditional assets. Many investors don’t stop to consider the full range of costs associated with holding the physical asset, which include:
High initial investment. It can take at least INR 1 crore to begin building a portfolio of fine wines. Fixed costs are high, so a substantial investment is necessary to achieve economies of scale.
Buyer’s premium. If you buy wine through a commercial auction house, you’ll pay a buyer’s premium, which can be anywhere from 15% to 25%. Christie’s, for example, charges 25% on top of a winning bid.
Shipping costs. Since wine is a tangible asset, the investor who takes physical possession will have to pay shipping costs. Depending upon weight and distance, shipping can become expensive.
Storage costs. Wine is delicate and must be stored in a carefully controlled environment. Depending on the size of the collection and the investor’s wallet, storage options range from a home wine refrigerator or purpose-built cellar to a professional storage facility. If you store wine at home, the cost of electricity is a consideration. Professional storage facilities charge both storage and maintenance fees.
Insurance. Valuable physical assets must be insured against loss or damage. Depending on the value of the collection, premiums could be high.
Holding period. A fine wine could take seven to 10 years (or even longer) to reach its maximum value. Wine isn’t a suitable investment if you have a shorter time horizon. You should also keep in mind that you’ll be responsible for locking in any appreciation in your investment by reselling or auctioning it when its value has peaked.
How to Buy Wine as an Investment
Wine is sold both in the primary and secondary market. In the primary market, wine typically moves from producer to consumer through wholesale distributors who sell the wine to retailers.
The secondary market is where most collectors and investors purchase wine. In this market, collectors, oenophiles and investors sell wine through auction houses, exchanges and wine brokers.
Buy Wine at Auctions
As the most reliable and trustworthy source for fine wine in the secondary market, auction houses offer a broad selection of producers and vintages. The top auction houses have prestigious reputations to maintain, and they sell wines of only the highest quality.
Auctions may be held live at auction houses, and bidders can attend the auction in person or bid online or by phone. The top auction houses include Sotheby’s, Christie’s, Acker Merrall & Condit and Zachys.
Buy Wine at Online Auctions
Certain highly reputable houses specialize in online auctions, which are becoming increasingly popular.
By conducting auctions online, these firms can attract a broad audience and increase the number of buyers and sellers participating. They can also offer a much greater variety in terms of type, price and quantity. Plus, collectors and investors can participate more conveniently when geographic location isn’t a limiting factor.
Top online auction houses include:
Brentwood Auctions. Brentwood has held weekly online auctions since 1998.
Crurated. Founded in 2021 in Burgundy, France, this company specializes in selling young vintages you may not find in a traditional auction house.
Heritage Auctions. Founded in 1976, Heritage describes itself as the largest collectables auction house in the U.S.
Winebid.This firm launched online wine auctions in 1996, and today it holds 52 auctions a year.
Zachys. Originally founded in 1944, this family business provides consultation services for collectors as well as online auctions.
Spectrum Wine. This California-based firm holds weekly wine auctions.
Buy Using a Wine Exchange
Wine exchanges bring buyers and sellers together much like a stock exchange does. Buyers and sellers can strike a deal and pay a commission to the exchange. The two most important exchanges are:
The London International Vintners Exchange. As noted above, Liv-ex is a leading global marketplace for the wine trade.
Cavex. Another UK-based wine exchange, Cavex is a wine trading and portfolio management platform.
Ways Anyone Can Invest in Wine
While the idea of investing in wine can be intimidating, you don’t have to be wealthy to get started. There are wine investment platforms that allow even everyday investors to get involved in this asset class in addition to programs that can work with larger investors who want to build diversified wine portfolios.
Vinovest. This online service offers managed portfolios and a trading platform. Investors can open an account, fund it and start investing in minutes.
Vint. Vint is accessible to any investor and offers SEC-qualified shares in some of the world’s best wines. There are no minimums and no monthly fee.
Cult Wine Investment. Starting at a minimum of around INR 8 lakh, Cult Investment’s Cru Classe option offers a portfolio based on the investor’s appetite for risk, return objectives and investment horizon. From about INR 27 lakh investment upwards, investors benefit from full customization through a dedicated relationship manager.
Wine Funds and Wine Futures
If you’d prefer to get exposure to wine from your existing brokerage account, you may also want to check out funds, stocks and derivatives that provide exposure to fine wine. Fund options in the United States include Anpero Capital, Sommelier Capital and the Wine Investment Fund, though some of these are available only to accredited investors.
Wine industry stocks include Constellation Brands Inc. (STZ), Diageo PLC (DEO) and Truelt-Hurst Inc (THST), to name just a few. Luxury brand LVMH (LVMUY)—one of the biggest consumer discretionary stocks—also offers exposure to prestigious Champagne producers Veuve Cliquot and Moët.
Finally, wine futures, or en primeur in French, refers to the practice of buying wine from the producer while it’s still in the barrel. Burgundy and Bordeaux are the wines most commonly sold en primeur and buying wine before it’s bottled offers several advantages.
For one thing, it’s less expensive, thus offering the potential for greater returns. It’s also a way to obtain wines that may be more difficult to access once bottled. However, before considering wine futures, it’s even more important to research the producer’s history, vintages and other fundamentals. And remember, as with all forms of derivatives, futures are investment types best left to experienced traders.
