Investing in Wine is Trickier Than it May Seem
Many investors who want to diversify their portfolio beyond the typical investment classes have been looking to fine wines as another investment opportunity. Proponents of wine investing are quick to point out that over all the years since 1950, prices for fine wine have gone up an average of 13 percent per year. On the other hand, recent cases involving forgeries of expensive wines have highlighted some of the risks that are involved. Can you really make money with wine investments?
Historical returns on fine wines
Wines from the top chateaux in the Bordeaux region of France are generally rated the top wines for investment. Experts say that historically, wine investments have produced a profit, though there have been times when prices have dropped. During the recent global financial crisis, demand for fine wine continued to increase, with high demand from the US and UK, and increasing demand from Asia. However, Bordeaux prices have suffered a steep drop since then, and are currently worth about 18 percent less than their 2011 highs. Doug Rumsam, from Hong Kong’s Bordeaux Index, said that prices do dip at times, but they come back just as strong. Many experts are predicting a 14 percent increase this year.
The costs of wine investment
Wine is perishable, and it must be stored in proper conditions to retain and increase its value. If it is handled or stored improperly, the wine can turn to vinegar, and your holdings become worthless. Even under the best humidity and temperature-controlled warehouse conditions, some wine may still fall victim to corkage. Some industry figures are that one out of 12 bottles could be lost this way.
Storing wine in such controlled circumstances costs money, and there are also some risks. If there is a power outage, a fire, or a flood, then the wine could be ruined as a result. When you want to calculate your profits on a wine investment, you need to deduct the costs to see your overall return. You need to have made 10 percent in order to break even after calculating all of the costs.
Knowing when to sell
Fine wine appreciates in value for two reasons. The first is that the supply declines over the years. There are a fixed number of bottles produced of a certain wine in a given vintage. As people drink those bottles, the number remaining declines, so the price goes up. The second factor is that fine red wines mature in the bottle, reaching their peak quality 25 to 50 years later, or sometimes even longer. When you buy a young wine and then hold it over the long term, it will be a better wine and worth considerably more by the time you sell it.
This raises the issue of knowing when to sell. To maximize your returns, you want to hold onto the wine and sell it near its peak. If you hold the wine too long, it will decline in value. You can test the wine yourself to evaluate its progress, or hire a knowledgeable sommelier. You can also read expert opinions of the vintage, to try to determine when your wine will reach its full potential.
Investing for money vs. investing for love
Are you looking to invest in fine wine for money, or do you want to do it because you genuinely love the product? Do it for both reasons. Whether you’re a wine connoisseur or not, it’s really important to stay on the safe side and make sensible decisions. Ask for advice prior to getting started, get to know the market and learn to select the best wines. While there are significant risks to this sort of investment, the returns can be incredible, too. Many people consider that fine wine investments are a savvy decision, especially if you’re lucky enough to pick a winning case.
Some would agree that investing in wine is a lot trickier than it seems. They might be right, especially if you’re new to the whole fine wine business. The secret to experiencing great returns is to be patient; investors will have to devote up to 10 years to this investment if they want to make profit. Unfortunately, very few people have that much patience.
Category: Investing
Well written and informative. Wine can be a good investment.