Many of us enjoy a good glass of wine, and some of us go to great lengths to collect a fine, vintage bottle. For others still, an interest in fine wine may evolve into an investment strategy.
Similar to investing in scarce tangible assets like rare coins, classic cars or antiques, there is a growing trend around passion investing specific to wine that goes beyond simply collecting for personal use, instead offering diversification and the potential for returns.
Showcasing the heightened interest in this type of investing, a series of indices has emerged to track prices in the fine wine market. The industry-leading benchmark is the London International Vintners Exchange, which includes the Liv-ex Fine Wine 100 Index that tracks the top 100 most sought-after wines. The index generated a five-year return of more than 22 percent through the end of 2018.
But that kind of return doesn't mean you should overfill your portfolio with wine—or any one kind of investment. Wine, like other passion investments, should only represent a small part of a diversified portfolio and needs to fit within the context of an overall asset mix.
Different Approaches To Wine Investing
While many wine fans and collectors may think buying premium bottles is the only way to invest in the product, there are actually several different methods to tap this market, including:
• Wine futures, or wine that is still aging in the barrel and sold as-is. With this option, you invest upfront, but the wine is typically not bottled for at least two years and not shipped from the winery for three years after harvest. This is a speculative purchase in which you’re trying to predict the quality in advance based on a variety of factors, including your knowledge of the vintner and the weather.
• Pre-arrivals, or wine that is bottled but not yet officially released on the market. Since these are young bottles, the price you pay may be lower than the retail price. The quality may also be more evident than with wine futures, and the turnaround time for making potential profits may be faster.
• Market wines, or those that can be purchased on the open market. In this case, you may have a clear sense of what the volume of production has been for a given vintage and a better idea of the quality. Certain wines may be in high demand and sell out quickly when they initially come to market. Due to limited quantities—as with stocks, bonds and other securities—there’s also a secondary market for wine.
• Investing directly in a vineyard. Either by partnering with an established vineyard or starting your own, investing directly might be considered a long-term investment, requiring a great deal of expertise and operational know-how.