How To Invest In Wine
With the number of different investment vehicles on the rise, some investors are raising a glass to wine, a tasty "liquid" asset.
Some consider wine to be a promising investment that has been steadily increasing in value since the introduction of the Wine Spectator Auction Index, which tracks average sales of top Bordeaux wines and other varietals through the United States' top commercial auction houses. In the first quarter of 2011, the index showed wine sales at an all-time high. However, sales dipped more than 13 points in the second quarter of the year.
Of course, not everyone agrees that wine is the best addition to one's portfolio. But the beauty of this particular investment is that – unlike typical shares of stock or bonds—even if it doesn't fetch a handsome price at auction, it can still be consumed and enjoyed by the owner.
Here are a few basic guidelines for those interested in getting started with wine investing.
Start With The Basics
If you don't know much about wine, you'll want to educate yourself as thoroughly as possible before making any significant purchase. Track which wines are selling through wine indexes and at major auction houses, such as Christie's, Zachys and Sotheby’s. Bordeaux wines always top these lists. A typical investment is a case (12 bottles), which can run several thousand dollars.
You Can't Go Wrong With Cru Classé Bordeaux
First growth, or cru classé, Bordeaux wines are considered the most popular investments. If you pay attention to most wine fund portfolios, you will see these wines commonly make up the majority—or all—of the investment. Because of their popularity, they are also the most expensive purchases for wine investors. However, wine investor Jeff Opdyke argues that for those who may not be able to afford such bottles, many second- through fifth-growth wines also offer some solid investment opportunities.
Where You Buy Your Wine Is Important
Just as in the art and antique world, provenance is crucial when it comes to purchasing fine wines. The best place to purchase wine is directly from a winery, through a reputable dealer or from an auction house. You should keep careful records so you can later prove the wine’s authenticity to prospective buyers. When it comes time to sell your wine, you will also be transacting through a dealer. In order to prevent fraud, no one buys or sells wine out of their home.
Don't Skimp On Storage
Your investment doesn't end with your wine purchase. You will also need to invest in proper storage which will maintain a temperature of 55 to 58 degrees and a relative humidity of 60 to 75 percent. According to Opdyke, construction costs for a custom-built wine cellar start at around $5,000. This expenditure is necessary to properly protect your investment.
Get To Know The Experts
Who dictates which wines are going to be hot and therefore sell well? Many point to wine connoisseur Robert Parker (also known as the man with "The Million Dollar Nose"), whose wine ratings are eagerly anticipated and who, interestingly, has said he does not believe in purchasing wine for investment. In fact, many true wine aficionados are unable to set aside their enjoyment of wine in order to attach a monetary value to it. This is something to consider for those whose frequent visits to the cellar might eat into potential earnings. Also, be sure to check out magazines like Wine Enthusiast and Wine Spectator and spend some time researching on Wine.com.
Outsource Your Investment
On the other hand, if you are more interested in wine from an investment perspective and don't care to debate the finer points of Pinot Noir, there are more than a dozen wine investment funds available which you can invest in. These funds include the Fine Wine Investment Fund of London and the Elevation Wine Fund. Initial investments begin at $20,000 and can run upwards of $250,000. Another advantage of this scenario is that storage and provenance are handled by wine experts.
A Note About Wine Futures
Wine futures, meaning wine that is sold before being bottled (such as upcoming 2009 and 2010 vintages), can be a good buy, but can also represent a significant risk to investors. According to an article on WineEducation.com, in 1970 and 1971, investors hoping to cash in on a good year bought huge amounts of wine futures. The wine corresponding to the purchased futures was later declared mediocre and this eventually led to a collapse of the futures market.
Investing in wine is risky. As with any type of investing, be sure to do your homework thoroughly before plunging into the wine market.
If you decide to go for it, purchase the best vintages you can afford and be sure to have some Champagne ready for a celebratory toast when your investment ripens over the coming decade.