Filed under: Personal Finance, Lynnette Khalfani-Cox
And it's little wonder: first off, wine is far sexier - to appreciate, to talk about, and of course to drink and to buy -- than your run-of-the-mill stock or bond. And with the growth of wine clubs, wine tasting events and wine magazines, there is a steady stream of people who are interested in wine for more than consumption alone. Fortunately, as it turns out, investing in wine can turn you a tidy profit - fetching annual returns in the range of 8% to 12% annually for investors in fine wine. Before you net those handsome returns, however, be aware that investing in fine wines can be a somewhat costly endeavor.
Do Your Homework
In addition to buying the wine itself, high storage costs can eat into your potential profits, as fine wines must be carefully store in a temperature controlled environment, which can costs thousands per year. Another caveat: as more countries around the globe produce wine, that can put pressure on prices. Still, if you're looking for a fun, alternative investment, here are a few tips worth knowing if you decide to buy wine for future monetary appreciation, and not just for the love of your favorite Bordeaux.
To begin with, you'll be pleased to know that buying wines offers several benefits you can't get with paper assets like stocks and bonds. For instance, there's worldwide demand for wine, and there's relatively low risk even if you don't make a profit - since you'll probably enjoy your investment, and wine allows you to diversify your portfolio because wine isn't correlated with the financial markets.
Three Ways to Get Started
So how can you invest in wines? There are three primary ways.
Often times, people who invest in wines never take inventory or even see the bottles of wine they've bought. Instead, they buy wine futures, that is, they get the wine straight from the barrel. If you buy wine this way, it typically takes 18 months or so before en primeur wine (i.e wine still in the barrel) will be bottled. This lets you take advantage of a cheaper price for the wine before it's bottled and released.
At other times, you can buy wine through an auction house or in the secondary market. In these instances, the wine goes directly to a warehouse facility for sake-keeping and storage.
Auction houses like Christie's or Sotheby's keep very detailed records about the history of the wines they sell, because these facts - such as who owned the wine and for how long, as well as how was it kept, and so forth, will actually help determine the value of the wine. Just beware that auction houses charge hefty commissions, on the order of 20% to 25%.
A final way to buy wine, which is now popular throughout Europe, is to purchase so-called "fine wine funds," which operate much like mutual funds. For instance, the Vintage Wine Fund lets you own stock in companies that produce wine.
Investing in wine is so acceptable overseas that in 2006 the U.K. allowed pension funds to invest in fine wines. Also, there are currently two primary indices tracking the prices of certain wines: the Decanter Index and the Bordeaux Index.
The top wines of impeccable quality are: Bordeaux, Burgundies, Champagne, Tuscan wines and wine from the Rhone Valley, according to Mahesh Kumar, author of Wine Investment for Portfolio Diversification. One reason these are highly sought after wines is that Bordeaux and Burgundies have a shelf life of over 100 years, unlike many newer wines. So longevity can also impact a wine's value. Performance track record also matters - you want to invest in wines that have consistently demonstrated high demand and high return, not wines that have very wildly fluctuating prices.
And remember: many other things can cause your wine investment to go sour: improper storage, bad maintenance of wine, natural disasters, or just purchasing a poor vintage can all result in wine that depreciates, rather than appreciates in value. So don't make the mistake of grabbing any old wine off your local grocery store shelf and thinking you'll make money off of it if you hang on to it long enough.
On the contrary, only about 5% of wines offered globally are advisable to invest in. Some examples: Australian, French, Californian and Italian wines all tend to be what's known as "well-commented," meaning that international wine critics - including Jeremy Oliver, Robert Parker Jr. and James Halliday give favorable comments and ratings about the wines, using a standard - and strict - formula that is followed by all serious wine critics. (Ironically, some people are critics of wine critics, saying that wine ratings are badly flawed; but that's another story.)
If you invest in a company that promises to store wine, make sure it has insurance coverage for leakage or broken bottles. It goes without saying that the company should properly store the wine at the right temperature - typically between 10 and 15 degrees Celsius. And in case you're wondering, Forbes.com has reported that the most expensive bottle of wine that you could drink today is also the most expensive bottle that has ever been sold in America. The wine: a Montrachet 1978 from Domaine de la Romanee-Conti, sold at Sotheby's in New York in 2001. The lot of seven bottles went for a total of $167,500, or $23,929 per bottle.
Talk about a liquid asset.
Web Resources
For more information on investing in wines, check out these websites:
www.Decanter.com has a Fine Wine Tracker where you can chart wine prices (much like stock prices) for more than three decades - clear back to 1978.
www.InvestDrinks.org is devoted to showing you the other side of investing in wine, namely the risks and pitfalls involved in wine investing that proponents may not mention.
www.vintagewinefund.com is for those seeking an offshore fund through which you can invest in wines.
Lynnette Khalfani-Cox, an award-winning financial news journalist and former Wall Street Journal reporter for CNBC, has been featured in the Washington Post, USA Today, and the New York Times, as well as magazines ranging from Essence and Redbook to Black Enterprise and Smart Money. Check out her New York Times best seller 'Zero Debt: The Ultimate Guide to Financial Freedom.'