As someone who can be hot and cold about drinking wine, I’ve been skeptical about wine investments.
That said, I’ve been hearing more chatter about the topic in recent weeks. Far be it from me to potentially leave money on the table because I prefer bourbon to wine.
Today, I’ll do a little primer on wine investing, discussing the pros and cons of this alternative asset and providing several platforms that cater to wine investments.
What Are the Risks of Investing in Wine?
Wine investing, just like investing in stocks, is all about buyers and sellers coming together to make a deal. As a result, prices can fluctuate. That $200 bottle of fine wine you recently bought because it was supposedly created on Napolean’s former estate? Turns out it was actually made in a back alley in Paris, and that might affect the bottle’s intrinsic value.
There are no guarantees when it comes to investing in wine. Berry Bros. & Rudd, one of the oldest wine and spirit merchants in the U.K., believes that you’ve got to be careful from whom you’re buying fine wine.:
“Many unscrupulous merchants/wine investment houses will have few qualms about selling the wrong wines or the right wines at the wrong prices for investment. Only buy from established merchants and ensure you get the expertise needed.”
The company goes on to state that generally only the most expensive of wines tend to grow in value, so you do have to know what you’re doing. It’s not as if you can look up a wine producer’s 10-K to get a better understanding of its business model and financial picture.
Lastly, successful wine investing requires patience. If you aren’t prepared to hold an asset for 5-10 years, possibly longer, you’re unlikely to strike it rich.
To reduce your risk, Berry Bros. recommends you buy only wines from the Bordeaux and Burgundy regions of France.
Wine as an Asset Class
If you’re used to the old-school asset allocation of 60% equities and 40% fixed income, you’re unlikely to be sold on investing in alternative assets such as wine or art. However, for those investors willing to broaden their horizons, wine is a legitimate and growing category within alternative investments.
Vinfolio, a California-based online provider of fine wines, absolutely believes in wine as an asset class.
“Did you know that collecting fine wine offers a higher return on investment, on average, than investing in the stock market? Treating your wine as an asset class can pay off significantly,” the company’s website states.
“Stock market returns average about 10 percent year after year; however, the value of a bottle of Domaine de la Romanée-Conti La Tâche can increase by 50 percent or more within just the first couple years of investment.”
Vinfolio points out that not only does fine wine gain value over time, bottles of these wines are more resistant to inflation, which means by investing in wine, you’re also protecting your downside.
Thirdly, the U.S. dollar doesn’t rule the price of wines, which means 10 years down the line, the value of your bottle of wine won’t have deteriorated based on the strength or weakness of the dollar.
Last and most importantly, wine can be enjoyed with friends and family. The same cannot be said about gold or stock certificates.
Three Potential Wine Investments
Because this is a primer for wine investing, I’m not going to provide you with a laundry list of investment ideas. I’m just giving you a starting point for researching this exciting alternative asset.
Vinovest looks interesting. For a minimum of $1,000, the online platform helps you put together a wine portfolio geared to your personal risk appetite and investment time horizon. The platform’s portfolios are all globally diversified. It also takes care of sourcing and authenticating wines, portfolio rebalancing, storage and insurance.
The fee for all these services? 2.85% annually, falling to 2.5% on portfolios of $50,000 or more. If you’re not sure about the fees, try doing everything it provides on your own time. It will cost you far more than 2.85%.
According to its frequently asked questions section, if you invest $5,000, you’ll get between 24 and 36 bottles. At the midpoint, that’s an average of $167 per bottle. Worst case scenario, you end up drinking it all.
Here’s Vinovest’s Q2 2020 quarterly report. I recommend you read it as part of your due diligence. From where I sit, Vinovest’s a winner.
Suppose you want to buy on your own behalf. I mentioned Vinfolio earlier. It provides a far more in-depth selection of fines intended for the more serious wine investor.
Now, I personally wouldn’t know where to begin on its site, but for investors with a more developed wine palette, this could be an appealing way to invest. With that being said, even an amateur like myself can find good picks.
For example, I found a white Bordeaux blend on its site from 2010 that sells for $839 per bottle. Made by Chateau La Mission Haut-Brion, it’s a combination of Semillon (81%) and Sauvignon Blanc (19%). Wine Advocate gives it a rating of 96.
The wine is grown on a property in France that dates back to the 1600s. That alone makes it more valuable than the typical bottle of fine wine.
If you’ve got the money, Vinfolio looks to be an excellent source for high-quality wines.
Several of the liquor conglomerates would be another option. Of those, I would go with Constellation Brands (NYSE:STZ), because in addition to owning Kim Crawford and Robert Mondavi wines, it also owns Corona beer, Casa Noble tequila, and Svedka vodka. Also, it owns 38.6% of Canopy Growth (NYSE:CGC), a major Canadian cannabis company, with an option to exercise warrants to raise its stake to 55.8% in the future.
It might not be quite as hands-on, but over time, you ought to do okay.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
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