Invest in Wine
It might not be the first thing that comes to mind when thinking about investing, but rare wine has fascinated investors for centuries, and when done right, it can prove to be a very lucrative business.
Learn the ins and outs of fine wine investment, and discover how Splint Invest can help you uncork the investing potential lying in rare and fine wines.
Why invest in wine?
Investing in fine and rare wine has become a popular choice among savvy investors searching for alternative investment opportunities to diversify their portfolios.
This is for good reason, of course.
Like other alternative assets, wine isn’t generally tied to economic indicators, such as interest rates or inflation. It also has little correlation with the stock market.
All these factors make fine wine an excellent option for portfolio diversification and, in some instances, even protection.
The numbers also work in wine investing’s favour. Rare wine prices have increased by over 135% in the last 10 years and by an average of 16% in 2021 alone.
According to Fortune Business Insights, the global wine market size was USD 364.25 billion in 2019 and is expected to reach USD 444.93 billion by 2027 at the CAGR (Compound Annual Growth Rate) of 6.06%.
These values may vary depending on the source, as market research firms use various indicators and methodologies. They are, however, in conformity regarding one, most important thing - the wine market is expected to grow.
Potential advantages & drawbacks of wine investments
|
Pros |
Cons |
|
Diversification: Fine wine can add diversity to a portfolio. This means that if the stock market takes a downturn, the value of your wine collection might hold steady or even increase, lessening the overall blow to your investments. Hedge against inflation: Like other tangible assets, fine wine can be a hedge against inflation. As the cost of living rises, the value of rare wines tends to go up as well. Potential for high returns: The value of certain fine wines can increase significantly over time. This is especially true for wines from limited productions or particularly good years. |
High barrier to entry: Fine wine can be expensive, and storing it properly requires specific conditions (temperature, humidity, etc.) This can make it a difficult investment for beginners. Illiquidity: Unlike stocks that can be easily bought and sold on an exchange, fine wine can be difficult to sell. There is a smaller pool of potential buyers, and the selling process can take time. Market knowledge required: Not all wines are good investments. You need to have a good understanding of the market and the factors that influence the value of particular wines. |
Fine wine vs other investment options
If you still aren’t sure whether investing in fine wine can be a good idea, here’s a breakdown of how fine wine investments compare to other popular options - stocks and real estate:
Wine vs stocks
Risk: Wine is generally considered lower risk than stocks. Stock prices can fluctuate significantly in the short term, while fine wines tend to appreciate steadily over time (if chosen well).
Returns: Wine has the potential for high returns, especially for rare or well-aged wines. However, past performance doesn't guarantee future results, and some wines may not appreciate as expected. Stocks also have the potential for high returns, but they can also experience significant losses.
Liquidity: Wine is a much less liquid investment than stocks. Stocks can be easily bought and sold on exchanges while selling wine can be time-consuming and require finding the right buyer.
Diversification: Wine can be a good way to diversify your portfolio. Since its value doesn't always move in tandem with the stock market, it can help offset losses in other areas.
Barriers to entry: Investing in stocks is generally easier for beginners. You can start with smaller amounts and there are many resources available to help you learn. Fine wine can be expensive and requires specific storage conditions.
Wine vs real estate
Risk: Both wine and real estate can be considered relatively low-risk investments in the long term. However, real estate can be more volatile in the short term and carries the risk of vacancy or property damage.
Returns: Real estate can offer steady returns through rental income and potential appreciation in value. Fine wine has the potential for higher returns, but success depends on choosing the right wines and managing storage well.
Liquidity: Real estate is generally less liquid than wine. Selling a property can take months, while some fine wines can be sold relatively quickly through the right channels.
Management: Real estate requires ongoing management and maintenance, which can be time-consuming and costly. Wine requires proper storage but less hands-on management.
Investment size: Real estate investment often requires a significant initial investment. Fine wine can be purchased by the bottle, allowing for more flexibility with investment size.
How to invest in wine?
There are two primary ways to invest in fine wine - buying individual wine bottles and investing in wine funds. Here’s how the two compare:
|
Buying wine bottles |
Investing in wine funds |
|
It involves researching and buying individual wine bottles. This approach offers greater control over your assets and has the potential for higher gains. On the other hand, it requires more in-depth knowledge about fine wines. It also involves higher upfront costs and requires investing in professional wine storage solutions. |
With wine investment funds, you entrust professionals to buy and manage your fine wine portfolio. They handle selection, storage, and buying/selling, offering diversification and lower entry points compared to buying individual bottles. On the flip side, it typically offers less control over your investment and may incur additional management fees. |
Key factors to consider when investing in fine wine
Region: Choosing the right portfolio mix is similar to choosing on the stock market. We should avoid putting all our eggs in one basket and therefore diversify our portfolio across different wine regions. To this end, we should always keep a few classics from regions such as Piedmont, Tuscany, Bordeaux, and Champagne in the portfolio. But it is also important to diversify not only across regions but also across countries and to include wines from Spain, Portugal, Switzerland, and Austria, for example.
Quality: The first step towards success has been taken with the selection of wine regions for our portfolio. Now comes the main part of the research. Not every producer within these selected regions maintains the same quality standards. It is estimated that only 0.1% of the world's wine production reaches investment quality. Therefore, it is of utmost importance to select award-winning wines from top producers.
Storage: It is not enough to store carefully selected wines in an ordinary cellar if you expect serious returns. The importance of professional storage of wine is the key requirement to obtain world-renowned quality labels. Many auction houses won't even accept the wine if they feel that the storage requirements have not been met.
What are the potential risks to consider?
Damaged bottles: The handling and storage of wine bottles are crucial in maintaining their fundamental value. However, in case of unforeseen events such as human errors, a fire, or natural disasters, the casks can be damaged or destroyed.
Counterfeit bottles: Due to the popularity and exclusivity of premium wine bottles, counterfeit pieces are not uncommon on the market. As the popularity of the category increases, the issue will become even more paramount.
Oversupply of wine: Wine is governed by the laws of supply and demand. It is possible that the supply will increase in the future. However, the more established domains have been very conservative and successful while matching the supply with the demand and avoiding any reputation damage. Additionally, the demand for fine wine has been increasing significantly both domestically and abroad, thanks to several emerging economies.
Legislation: Legislation is a significant risk that every investor must understand. There are some extreme examples in history, such as American Prohibition in the 1920s, where alcohol was banned completely. Other more recent examples include various tariffs and quotas in international trade that can affect exports and therefore the global demand.
Invest in fine wine with Splint Invest
At Splint Invest, we specialise in buying, managing, and selling alternative assets, rare wine included.
In September 2023, we exited our first wine investment case.
Originally, the investment horizon was projected to span 9 to 11 years. However, the prices of the two bottles have exhibited remarkable performance since their release and have already reached the optimistic scenario of years 6 to 7. In collaboration with our expert Rare Wine Invest, we have made the decision to capitalise on these profits at this time.
Join Splint Invest today, invest in fine wine with no hidden fees or additional costs, and build a diversified portfolio of alternative investments!
