MENTIONED IN THIS POST:
-1970 Biondi-Santi Brunello di Montalcino Riserva
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. 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. Even the 2007 La Tâche vintage, which was middle of the road in terms of overall quality, doubled in price from 2004 to 2007. For higher quality vintages, the increase in value over time is often much greater.
Considering wine as an asset class can be an attractive option for collectors because trends in the wine market are generally more stable and predictable than they are in many other industries. Domaine de la Romanée-Conti (DRC), for instance, has held a strong share of the secondary market for decades, and this trend isn’t expected to reverse anytime soon. However, in order to maximize your returns, you need to consider what makes wine a great investment, how to identify wines that are worth keeping, and what to do with your bottles once you have them in your cellar.
The Benefits of Treating Wine as an Asset Class
Financial advisor Suze Orman says that when she first invested in wine futures, she saw a return on investment much earlier than she expected. Orman says, “I pinched myself and asked, ‘Did I just make more money on wine barrel futures than I did on the stock market?’” However, while these results sound promising, as with all investments, there’s no guarantee of success. Your return on investment will depend on the types of bottles you buy, how you store them, and whether you can find an appropriate auction house, online seller, or buyer for the product.
Still, if you’re able to find the most profitable wines at reasonable prices, you can see a number of benefits from your investment.
Benefit #1: Wine Gains Value over Time
First, wine is a high capital growth asset, meaning that it typically becomes more valuable the longer you wait to sell your bottles. According to the Liv-ex 100 Index, the top-selling wines in the world offered an average 11 percent return on investment annually. The only assets that offer a higher annual return are the Dow Jones-UBS Commodities Index and gold.
Benefit #2: Wine Is Inflation-Resistant
Wine investments are also more stable overall compared to other assets you may have in your portfolio. Not only do top wines like Pétrus, Screaming Eagle, Margaux, Lafite, and Penfolds hold their value year after year, these investments are also more resistant to inflation compared to other assets. If a wine is held long past its drinking window, this may negatively impact its value; however, legendary, age-worthy bottles can usually be kept for decades before this happens.
Benefit #3: Wine Prices Aren’t Swayed by the Value of the Dollar
Furthermore, wine isn’t heavily impacted by the value of the U.S. dollar–while you may buy wine directly from France for a higher price than usual due to a decline in the value of the dollar, this doesn’t impact the sale of your wine decades later. Your wine has intrinsic value that won’t decrease or increase based on how well the euro or the dollar are performing.
Benefit #4: Wine Has Tangible Value
One final reason why you should consider investing in wine as an asset class is because it has value that goes beyond its monetary worth. Wine is a consumable luxury product that you can enjoy even if you choose not to resell it. Some of the longest-lived bottles are treasures that can be passed down through the generations. Or, if you decide to drink your wine yourself, you’ll still find value in the experience. I know a collector who kept a bottle of 1970 Biondi-Santi Brunello di Montalcino Riserva for decades. Originally, he’d planned to sell the wine, but on his 60th birthday, he decided to drink it instead. When I asked him whether he thought the experience was worth it, he said, “It was one of the best wine tasting experiences I’ve ever had, and that was worth every penny.” So, while wine is a great alternative to common asset classes like equities and real estate, it also offers more options: to enjoy your bottles or put them on the auction block.
What Makes a Great Investment Wine?
Before you buy your local wine shop’s entire stock of Bordeaux, consider which wines are actually investment-grade. Ask the following questions when you shop for wine as an investment:
- What is the average critic score? Every critic will rate wine differently depending on personal preference and even mood; however, investment-grade wines will generally receive a score of 95 or above out of 100 points (or, if the critic uses a different scoring system, 18 and above out of a possible 20 points). It’s also worth noting that wines that receive perfect scores from top critics can increase in value as a result.
- Is the wine sought-after? Some wines are high in quality but relatively low in value. An investment-worthy wine is one that other collectors frequently purchase or talk about. To determine whether your wine is valuable to other collectors, check popular wine forums like Wine Berserkers or research average global sales rates for the label on the Liv-ex website. You can also check the prices that other collectors are charging for their bottles on a trustworthy online marketplace.
- Does the wine have aging potential? A wine may gain in value over a short period of time, but if it doesn’t cellar well past the age of five, then it won’t be particularly valuable on the secondary market. Make sure your wine has the essential qualities that help wine age well, like structured tannins and high acidity.
- How much has the wine gained in value since its release? One of the biggest mistakes that beginning collectors make when they treat wine as an asset class is assuming they will receive a sizeable return on every bottle they own. Some wines gain in value much more slowly than others, depending on market trends and collector demand. For instance, DRC’s 2009 flagship label was worth about $14,000 per bottle in 2016, and today, this wine is worth an average of $20,500 (a $6,500 increase in just two years). Yet a bottle of Beaucastel Chateauneuf du Pape, while also high in quality, grows in value at a much slower rate than DRC–the 2009 Chateauneuf du Pape vintage sold for an average of around $80 per bottle in 2016, and today, the wine is worth about $90 per bottle. Just because a wine is from a high-quality producer and historically excellent wine region doesn’t necessarily mean that it will add value quickly.
If you intend to treat your wine as an asset class but also enjoy drinking it, make sure you’re not tempted to open bottles that you’ve purchased for resale. Plenty of early-drinking wines are delicious and high in quality, yet not truly investment-grade, and these wines make good “cellar defenders” for times when you’re looking for a great wine but don’t want to touch your investments. Another strategy is to keep your wines aging over the long-term in a professional storage warehouse, which may remove some of the temptation to drink them, while more everyday wines stay in a wine fridge or home cellar.
Buying Wine As an Asset Class: The Best Strategy
Along with ensuring that your wine fits into the categories above, it’s also a good idea to pay close attention to market statistics, especially the findings of the Liv-ex 100 report. This annual report lists the top wines in a number of categories based on rankings like value and sales rates on the secondary market. In general, you should aim for the top three to five wines on the list, as these are most likely to increase in value over the next few years. However, you don’t have to stick with these wines alone; if you love wine from a particular producer or terroir and the wine meets all of the investment requirements outlined above, then you might decide to create a niche collection based on this producer or terroir. One of my colleagues has an expansive collection of Sine Qua Non and has found buying and selling these wines to be highly successful because of collector interest in this producer, as well as the difficulty of obtaining these mailing-list-only wines upon release.
However, just because a wine has a high market value doesn’t mean that it’s the right fit for your collection. If you don’t like Australian Shiraz, it’s not a good idea to invest in Chris Ringland no matter how much the wines might appreciate over time. Investing only in wines you enjoy drinking means you’re not stuck with wines you hate if they suddenly lose value or you aren’t able to find the right buyer. As long as you purchase bottles that appeal to you and that other collectors recognize the value in as well, you’ll be able to build a versatile collection of investment-grade wines.
Whether you are starting your high-end wine collection or adding to an established portfolio, Vinfolio is your partner in buying, selling, and professional storage. Contact us today to get access to the world’s finest wine.