As an object, fine wine is up there with the greats. It’s the Taj Mahal of assets – sexy, enviable, always in fashion, and constantly gaining in value. As the world begins to realise that fine wine is one of the most risk free assets, we thought it was time to introduce you to the finer points of investing in wine.
Not All Wines Are an Asset
Is wine considered an asset? Well, yes and no … The first thing you need to know is that not every wine is collectable, and not every wine will make you a millionaire. Not only are five different types of wine (red, white, rose, sparkling and dessert), within each of those categories there exists a plethora of subcategories. Then, there are the appellations, the growths for Bordeaux, whether it’s a Grand Cru (and if yes, for how long has it held its status), the terroir, the harvesting, the team, the weather … in short, with so many variables, it’s amazing that investing in wine has become as popular today as it has!
Basically, if you want your wine as an asset class in your portfolio and not on your table, there are a few things to consider. For example, what is the yield? If you have done your research, the stars have aligned and you’ve found your perfect vintage at the perfect price, do not forget to check the quantity of cases produced and the predicted drinking window. Low production plus long ageability? You’ve struck fine wine gold.
Some wines are meant for drinking straight away, some wines can keep for a little while but if you really want your bottle of plonk to pay for your children’s studies, then you’re going to need a bottle where the yield was low, and it is an age worthy wine. Because that my friends is where the money lies. As the wine gets older not only does it increase in quality, thereby attracting a further layer of serious fine wine buffs, but it decreases in quantity. Thus, supply begins to outstrip demand, prices begin to soar and you find yourself in possession of a very covetable item indeed …
What Makes Fine Wine an Asset?
So, let’s circle back to that famous supply and demand curve. Imagine the scene: it’s mid-October and somehow you have managed to get hold of the latest must-have, it-toy. Now, you know that with Christmas coming up, you have an approximate six-week window where you can sell your PS5, Furby, whatever. You know that come January, no one will be interested in this amazing toy that you have in your hands. You have two choices – either sell now at a lower price but at least you know that you have made a sale, or hang onto it for another five weeks and hope a desperate parent with more cash than sense materialises.
Not only is this the economic curve for fine wine: as bottles become scarcer through drinking, the remaining vintages become more desirable, as the very nature of wine – the good stuff – is that the quality increases over time. However, you do not want to miss that all important cut off point (which can be upwards of 50 years in some cases) – once the wine is undrinkable, it’s also unsellable.
Fine Wine vs. Other Assets
So what are the benefits of investing in wine? I mean, why choose Pinot over Picasso, Chablis over Chevrolet, Dom Perignon over diamonds or Sauvignon overstocks?
Well, as referenced in the excellent Wine Economics by Philippe Masset and Jean-Philippe Weisskopf “wine seems to cover the characteristics of a good investment opportunity, with a minimum market depth, good returns and low risk”. The authors go on to mention how after the stock market crash of 2008, investors turned to real physical products that did not vanish – Champagne and fine wine being one of these “hard” assets. In 2010, two years after the stock market spiralled downwards, The Financial Times looked at the best-performing investments over the preceding decade. It turned out that a 1982 Château Lafite took first place, with a total return of 857% over the 10 year period (equalling an annual compound return of 26%). Had you invested $500 (the approximate release price for a bottle of Château Lafite) on Wall Street for that same period of time, you would have seen returns of just 142% or an annual compound gain of 9.24%.
The scenario is similar for gold: while “the yellow metal” is considered one of the safest forms of investment, gold does not attract vast increases in value unless you’re buying bars of bullion. In fact, gold actually decreases in value once it has been made into jewellery. Additionally, its performance can be unstable – as any visit to the S&P500 will prove.
Other passion assets include art, cars and gemstones but the pitfalls are numerous. Reuters magazine details that while these other collectables are indeed superb additions to a diverse portfolio, they do come at an entry-level cost that is far higher than even one of the best fine wines on the market. They also require a certain level of knowledge and expertise in the field and the market is rife with counterfeits. And, unless you actually do buy a Picasso, art depends largely on public tastes, making reselling works a fairly speculative investment.
The problem with classic cars, the final passion asset, is that it is very much a buyer’s market. Not only is the initial investment far superior than for any of the others, but maintenance and insurance are a non-negligible additional cost.
Contrary to all the above, investing in wine is relatively straightforward. New wine investment apps such as Vindome (available for free download from both Google Play and the App Store) channel 21st century technology with market research and expertise, meaning you don’t have to do any hard work . Not only does the app have up-to-the-minute Live Market stats, allowing you to compare your fine wine prices at the click of a button, but their extensive wine guides allow you to educate yourself on any future purchases. And unlike art or the stock market, apps such as Vindome allow you to be completely autonomous, so no need for the expensive, and sometimes ill-informed, brokers or third parties. Simply download, create an account and hey presto – you’re on your way to being able to invest in wine.
Thus, there is really only one clear winner when it comes to alternative investments. “Is wine a good investment”, I hear you ask – yes, yes, a thousand times, yes.
Interested? Continue reading more about investing in wine.