When markets are in turmoil, people tend to look for resilient alternatives to invest in. Experts recommend that you should always diversify your investments. Once you have collected a balanced portfolio of traditional assets like cash, bonds, stocks and shares, you can confidently dip your toe into the fine wine investment market.
With a little bit of research, patience, and the help of professional tools like our free wine valuation, investing in wine can be a smart way to diversify your portfolio. This can help you gain slow but stable returns on your investment. Alternative assets like fine wine have a track record of being able to withstand market volatility, and there is enough data to support this.
What makes wine a good investment?
Over the last 15 years, fine wine has registered an annualised return of 13.6%. The Knight Frank Wealth Report 2022, by the investment index that tracks the value of luxury assets, ranks wine as the best-performing asset in 2021 (the fourth best in the last 10 years) with an average return of 16% during the year. Since the start of 2022, the Liv-ex Fine Wine 100 index is also up over 10%.
Fine wine has historically outperformed not only typical assets like stocks and equities but also other alternative assets like fine art and rare coins. The wine investment market has shown resilience and performed well even during the turbulence of the recent COVID-19 pandemic and earlier global financial crises such as the Great Recession of 2008. Despite the ups and downs of the stock market, the value of wine has only been growing over the last many years, registering an average growth of 137% over the past ten years.
The low-risk slow-return characteristic of wine is what makes wine a high-performing asset. Its value has little correlation to macroeconomic factors like interest rates or corporate earnings. Instead, the value of the wine is determined by factors that drive its supply and demand cycle, such as vintage, region, provenance, critics’ scores, and consumer trends.
Rising demand for a diminishing supply of the commodity is what drives up the prices of superior vintages in wine. Fine wines are produced in limited quantities, to begin with. Globally, people are also drinking more wine now than they used to, especially in new and emerging markets, a phenomenon that is further boosting the market.
What other reasons make wine investment-worthy?
- The global wine market is growing. As per recent research, the market is currently at about GBP 350 billion and is projected to grow to GBP 500 billion within the next eight years.
- Fine wine as an investment can be used as a hedge against inflation.
- Wine is a low-stress investment since it doesn’t require constant attention or frequent trading in and out.
- Being a tangible asset, wine has some intrinsic value, which makes it suitable for holding for the medium to long term.
- Wine is a consumable, and at the end of the day, it can always be consumed or gifted, and the investment never goes to waste.
- Another key benefit that sets fine wine apart from shares or property investment is that wine investors do not need to pay capital gains tax (CGT) on any realised profits. The CGT savings can be significant. However, fortified wines like port or Madeira do not qualify for this exception.
- The wine investment market has become much more accessible today than you might think. It is easy to start investing in wine – there are even apps to help you along. Wine investing is also possible on a budget.
Which wine is best to invest in?
Investment-grade wines have traditionally belonged to historic winemaking regions in Europe like Bordeaux and Burgundy, but the fine wine market is now global and lesser-known but prestigious wines from places like Rhone Valley, San Francisco, Argentina, or Australia are also investable.
According to Vin-X, the fine wine investment platform, the five most valuable (and expensive) wines in 2021 were Lafite Rothschild, Mouton Rothschild, Domaine de la Romanée-Conti (DRC), Margaux, Petrus. These are all conventional luxury-label choices, but there are many valuable investment-grade wines from the new world as well. Look beyond the Grand Crus and consider notable producers like Screaming Eagle, Penfolds, Schrader, Promontory, Realm Cellars, Abreu Vineyard, and Bryant Family Vineyard. Brunello wines and Barolo wines from Italy have also become popular for investment.