Fine wine is one such type of collectable that qualifies as an alternative investment. Investing in wine is a smart and effective way to diversify your portfolio, which can help maximise the returns on your investments. Unlike traditional assets, commodities like wine can withstand market volatility and offer stable returns. This makes it an attractive non-traditional investment option.
There is enough data to support the merits of wine as an investment choice. The fine wine market has historically performed better than typical investments like stocks and equities. It has also outperformed other alternative investment assets like fine art and luxury handbags over the last 30 years with an impressive 10.6% compound annual growth rate.
Even during the turmoil of the recent COVID-19 pandemic and global financial crises such as the Great Recession of 2008, fine wine has shown strong performance. This low-risk characteristic is what makes fine wine a high-performing asset. Its value has little correlation to macroeconomic factors, interest rates or corporate earnings. Instead, the value of wine is determined by factors like vintage, region, age-ability, availability, critics’ scores, and consumer trends.
The supply and demand of fine wine
These factors also drive the supply and demand cycle. The core concept behind fine wine investment is that rising demand for a diminishing supply of the commodity drives up its prices. Superior vintages are produced in limited quantities, to begin with. Over time, as these are purchased, collected, or consumed, their market availability decreases.
Globally, people are now drinking more wine than they used to. Despite the COVID years, demand for fine wine has not suffered – in fact, it has picked up, especially with the growing popularity of wine in emerging economies and new markets. This structural rise in demand makes fine wine an attractive investment asset. The intrinsic value of wine makes it suitable for holding as an investment asset for medium to long term.
For example, a bottle of 1947 Cheval Blanc sold for £112,000 at Vinfolio in San Francisco in 2006, making it one of the most expensive collectable red wines in the world today. Last year at Christie’s Finest and Rarest Wines and Spirits auction in London, a bottle of 1874 Perrier-Jouët Champagne sold for £42,875 at about three times the expected price.
Investing in wine on a budget
If these numbers overwhelm you, rest assured that it is possible to invest in wine on a tight budget. In fact, it is advisable to start small in wine investment until you become familiar with the fine wine market and its forces. Instead of creating a wine portfolio immediately, start with wine as a means to diversify your existing portfolio.
While up to a thousand pounds is a good measure of how much money you need to seriously start investing in wine, you can do so even with a few hundred pounds through online platforms and services. Just be sure to not scrimp on the storage costs!
There are several other ways to make the most of your money when starting off in wine investment: –
- Although investment-grade wines have traditionally belonged to historic winemaking regions like Bordeaux and Burgundy, the fine wine market is now global and investing in lesser-known but recognisable wines that are gaining in prestige is one way to go. Thinks wines from Rhone Valley, Argentina, or Australia that are now investable.
- Hold your wine. Instead of stressing over a short-term loss, set your sight on the long-term and stay put for about five years before you try to sell. Grab your wine when supply has started to wane and demand is steadily increasing, then put it in professional storage and don’t touch it for a few years. A long-term approach is your best bet to make high returns on your investment.
- Do your research and get some advice from an expert before you commit. No matter what stage of the investment journey you’re at, staying informed and updated is the golden rule of alternative investment. It will help you to avoid the sharks, compare costs, and build the best investment plan to fit your budget.
