If you’ve ever thought about investing in fine wine, you’ve likely wondered whether you’ll get a high return on your investment. It’s true that wine investment returns can be a boon, especially when you buy blue-chip wine futures that consistently increase in value over time. However, as with any investment, there’s no guarantee you’ll get a high return. The fine wine market is less volatile than most, but to see a return on your investment (ROI), you must buy early, protect the wine’s provenance, store the wine securely, exercise patience, and know precisely when to sell, to whom, and at what price.
The good news is that you don’t need to be an expert in wine–or even drink wine–to invest in it. Some of the most trusted wine retailers now provide fully managed investment portfolios that are designed to offer a stable ROI over a long period of time. These portfolios are ideal for investors who have already maxed out their retirement account contributions and have leftover savings they can still put toward an investment. If you’re looking to retire in luxury someday, investing your money wisely today is absolutely crucial. In this guide, you’ll learn how a wine portfolio might help you achieve this goal.
Why You Should Invest in Wine
If you’re unfamiliar with the wine investment world, it’s difficult to imagine why an investor would spend more than $20,000 at auction to own a single bottle of wine from a producer like Domaine De La Romanée-Conti (DRC). Since wine is a consumable asset, many people undervalue its investment potential. The reality is that fine wine investors rarely, if ever, drink the most valuable wines in their collections. While someone could theoretically drink an aged bottle of DRC, in almost all cases, the most rare and sought-after vintages are passed around from investor to investor over the decades, like trading fine art. Demand for these top-tier wines is high and has shown no sign of slowing down. In fact, over the past 20 years we’ve seen even more reliable returns on investment due to the high demand for luxury wine in South East Asia. Modern wine investments are a definitively global market.
Why do blue-chip wines garner such high prices over time? This is because the fine wine market is subject to a structural market shortage, meaning that wine is a naturally rare asset with a demand greater than the supply. Only about 5 percent of wines around the world are considered “investment-grade;” the rest are just meant for casual consumption. The reason these investment-grade wines are in high demand is because supply is limited due to factors like:
- Controlled Regions: Wine is heavily regulated in countries such as France, and only a handful of wineries are allowed to make certain wines (e.g. Champagne can only be produced in the Champagne region and must follow strict winemaking rules).
- Weather: High-quality wine is extremely difficult to make and largely dependent on the weather conditions from year to year. In some years, very little investment-grade wine is produced. Some labels, like Louis Roederer Cristal, won’t be made for years until the weather is ideal.
- Age: Over time, fewer and fewer bottles from specific vintages remain on the market. Bottles are naturally consumed, broken, lost, or otherwise damaged as the years go by. So every year, that vintage becomes rarer–and thus more expensive.
In general, you should consider investing in wine if you have excess capital and are willing to wait a decade to make a return on investment. This is an especially good choice for young investors between the ages of 20 and 40 because they can earn a slow and steady ROI year after year, which could contribute to a luxurious retirement decades down the line. Wine investment returns typically aren’t fast, but with a wisely-managed portfolio, they provide security and complement other investments.
What to Expect from Wine Investment Returns
Wine investment returns are characterized as attractive, stable, and having low volatility. In the parable of the tortoise and the hare, wine investments are very much the tortoise. You’ll see the greatest results when you invest early and keep your wines for as long as possible. Wine prices over time often look like a staircase. It may take a few years for a young vintage to suddenly jump up in price, followed by a few years of a plateau, then another increase in price, followed by another plateau. The main thing to remember is that blue-chip wines typically trend upward, even if there are plateaus in between.
Since 1988, investment-grade wines have seen a compound annual growth rate between 10 and 11 percent. This is a higher return on investment than many other stocks; the S&P 500 has an average return of about 10 percent per year. The reason why some investors prefer investing in wine over investing in stocks is that, while wine doesn’t offer a considerably higher ROI, it’s less volatile. Even during recessions, the fine wine market generally experiences less of a downturn compared to the stock market.
Moreover, some years are especially profitable for wine, and it’s not unheard of for a few outlier years to see a high ROI. This sometimes happens when younger vintages enter their ideal drinking window and pop in price. Another example is when Champagne producers release a new vintage of exceptional quality (vintages are usually released at least ten years after harvest). The influx of top-rated Champagne on the market increases demand for it, so if you own blue-chip Champagne, you might sell it for significantly more than what you paid for it. For example, the release of 2008 Champagne (a top-tier vintage) over the past few years has made many Champagne assets even more valuable than usual.
On top of this, young investors are frequently looking for alternative assets to add to their portfolios and to hedge against inflation. The popularity of cryptocurrency and non-fungible tokens (NFTs) proves that young investors have extra capital to put toward their futures. An investor could even cash out some of their cryptocurrency and invest the funds in fine wine. It’s a great way to diversify your alternative investments by including a low-volatility tangible good. However, to make the most out of this type of investment, you need a few resources to get started.
How to Become a Wine Investor This Year
The quickest entry into the world of wine investment is to hire experts to manage your portfolio for you. Even if you’re a fan of fine wine, these experts have more resources than the average do-it-yourself investor. For example, wine retailers that offer managed portfolios sometimes have exclusive allocations with blue-chip wineries. They are able to purchase wines at the lowest possible price for their clients, often in the form of wine futures that have yet to be released on the market and older, storied vintages (like 1996 Bordeaux). They’re also able to buy wine that other investors don’t yet have access to, which means your portfolio will contain investment-grade wines that haven’t made it to a broader market.
It’s especially important to hire experts if you know little about wine. Going into this process without the proper knowledge of the market trends, blue-chip producers, and resources to protect your investments is incredibly risky. You might purchase a wine that you think will be worth hundreds of dollars more in ten years, only to discover it depreciated in value because you didn’t sell during its ideal drinking window. Or, you might buy a wine with a patchy provenance, meaning you can’t prove who owned it before you. Not to mention, even experienced investors have had bottles get damaged in storage due to flooding or poor temperature control. These details can take many years to learn, often through trial and error.
In addition, it is very difficult for do-it-yourself wine investors to liquidate their assets when the time comes. Because wine is more like fine art than a traditional investment, you can only sell at your desired price target if you can find the right buyer. For an unconnected seller, this usually means either spending a long time searching or settling for a lower return.
Instead of learning these hard lessons on your own, the easiest way to start investing in wine is to set up a managed portfolio. This takes the guesswork out of the process and enables you to start investing in wine right away–you don’t have to spend months or years researching.
How a Managed Portfolio Works
At Vinfolio, staff select blue-chip wines for your portfolio based on their expertise, auction data, Liv-ex trends, a proprietary algorithm, and Vinfolio marketplace sales data (which updates every 24 hours). As a client, you only pay for the cost of the wine and a storage fee. Wine prices are typically lower than they are when sold at retail–you’ll often get between a 10 and 15 percent discount, depending on the product and availability. From here, the wine is purchased and professionally stored in the UK, which means it is entirely free of sales tax and import fees. This also helps prove the wine’s provenance, as it never leaves the storage facility once it’s shipped from the winery or distributor.
Later, when it comes time to resell the wine for a profit, Vinfolio has multiple outlets to liquidate your assets, entirely or in part, including a well-established network of private client collectors. While other investment companies are often tied to a specific outlet, Vinfolio’s connections and in-depth knowledge of the fine wine market make it easier to add to or sell from your fine wine portfolio.
This process is repeated throughout the years. Most managed portfolios aren’t stagnant. If the client so chooses, they can reinvest the profits from each sale into more wine. You can think of these wine portfolios as an asset-based version of a 401(k): you invest a certain amount of money into your portfolio, then the wine experts purchase and store investment-grade wines for you (much like a brokerage firm would manage stocks for a client).
What Sets This Portfolio Apart
Vinfolio’s investment portfolios are also managed by real people, not just algorithms. Your portfolio is overseen by experts with in-depth knowledge of the fine wine market. You’ll get personalized communications about how your investments are doing and one-on-one time with wine experts who can answer all of your questions. In addition, when you want to liquidate or rebalance your investment, you’ll have access to Vinfolio’s vast buyer and seller networks. So, if you’re looking to diversify your investments this year, get in touch with Vinfolio and we’ll help you build a blue-chip wine portfolio from scratch.