Many of us enjoy the odd glass of wine, but have you ever looked at a bottle and wondered if it could also be a great investment? According to the Knight Frank Wealth Index, fine wine has appreciated in value by 127% over the past 10 years. There are two primary reasons people purchase fine wine. The first is for consumption, and the second is to generate a financial return. Wealthy individuals often combine the two. Fine wine can be an excellent addition to any investment portfolio, but if you’re new to the world of wine investing the options may seem overwhelming and it can be difficult to figure out how to get started. In this post we’ll go through a few key points to help you understand and get started with wine investing.
Wine investors look for the value of the wine to increase over time whilst also owning an asset that can help diversify an investment portfolio. There are various reasons that explain why fine wine goes up in value over time:
Top wineries such as Chateau Latour and Mouton Rothschild only produce a limited amount of cases of wine a year (appr. 20,000-30,000). Pair that with the fact that bottles of wine get consumed over the years and it means an already scarce asset gets scarcer over time.
2) Wine gets better with age
Fine wine gets better with age and the optimal drinking window - depending on the type of wine and vintage - is typically 10+ years. Some wine lovers or restaurants would like to buy the wine when it’s optimal to drink rather than pay upfront and store it for many years before being able to drink or sell it to customers.
3) Growing global demand
Wine consumption in emerging markets such as China has grown rapidly over the past decade and increase in demand will naturally drive up prices.
Not all wine is suitable for investment and wine you buy in the supermarket will be unlikely to go up in value over time.
Type of Wine
Most investment wine is red wine, rather than white wine. This is because white wine doesn’t age as well as red wine and needs to be consumed within a shorter period of time. There are some exceptions, such as this 1811 bottle of Chateau d’Yquem, a sweet white wine, being sold for £75,000 at auction. However, by far most of the investment-grade wine is red wine and when starting an investment portfolio this is what most investors would turn to.
Most investment-grade wine is coming from France, specifically Bordeaux, followed by Burgundy. Some champagnes, Spanish and Italian as well as new world wines have generated great investment returns, but prices are more volatile and it’s typically a more risky investment as it’s hard to predict which (new) producers will rise to the top; you can loosely compare it to investing in stocks of a blue chip company vs investing in a growth company.
While most investment-grade wine comes from Bordeaux, not every wine from Bordeaux is suitable as an investment. There are several factors that wine lovers and investors consider when considering whether a wine is of the right quality to make it investable. These include wine scores by famous critics such as Robert Parker, as well as the traditional Bordeaux classification system which classifies certain wine producers as “premium”. Some ofproducers appointed in 1855 as first-growths / Premiers Crus are still amongst the most popular wines bought as investments.
Another important element is provenance, or where the wine came from and where it’s traveled. If a wine was not stored correctly it can spoil its taste. Or worse, if it is not clear where the wine came from, it could be a fake. It’s therefore important to always buy from a trusted source and make sure the wine is and has been stored correctly in a proper wine cellar or a bonded warehouse.
There are a few key risks to consider when investing in wine.
1) Price Volatility
While over the past 10 years, the fine wine market has been less volatile than the stock market, like any investment past performance is no guarantee for future results. As with any investment, prices can go up and down and wine is typically most suitable as a long-term investment.
Unlike a stock, you can’t always sell your wines immediately if you suddenly need cash. While the wine market does have a very well-established secondary market, it may still take a few weeks to find a buyer, unless you’re willing to accept a low price. What’s more, since wine is best suited as a long-term investment you may not have maximised the potential of this investment if you need to sell in a rush.
3) Frauds & bankruptcies
Over the years there have been a number of cases of fraud in the world of wine investing. Firstly, there have been cases where fraudsters produced fake bottles of premium wine, with the most high-profile case illustrated in the documentary Sour Grapes. Secondly, there have been a number of fraudulent investment businesses selling shares in a wine fund or selling wines that never existed. Lastly, some companies have gone bankrupt and in some cases, depending on the legal setup of the business, investors lost their money. It’s therefore important to do your due diligence before working with a business.
As with any consumable good, storing wine in the correct environment is critical to preserve it’s quality. Correct temperature, humidity and lighting is key. There are a number of specialist wine storage providers in the UK such as Octavian or LCB’s Vinotheque that provide high-quality and secure long-term storage.
There are various ways in which you can invest in wine. We’ll go over the 3 main options here.
1) Managed Portfolio
There are various wine investment businesses in the UK and abroad that allow you to deposit money and in turn a portfolio manager picks wines to invest in on your behalf. Usually, the service is bespoke and the portfolio is created based on your investment goals (and taste, if you want to drink some of it). It typically requires you to put in a relatively high amount to start with. The experience is akin to working with a wealth manager or private banker.
If you have the money to invest and value the personal service and attention, this may be a suitable option for you. Minimum investment amounts with some of the more well-known wine investment businesses such as Cult Wines typically start at £25,000. We would strongly advise doing your research or contacting an independent specialist, as historically a number of less than reputable companies have offered managed portfolios to clients.
2) Buy your own wines
Another option would be to buy your own wines via fine wine merchants like Fine + Rare. As stock of the more premium wines is usually limited, the wine merchant would regularly contact you via phone or email when new wines become available. They may also offer you an opportunity to buy “En Primeur”, which means you can buy the wine before it’s bottled.
The advantage with this option is that you have full control over what you want to buy and you can get started for less than a thousand pounds if buying lower-end cases of fine wine. The main challenge with this approach is that you would need to do your own research. The retailer may be able to advise you, but keep in mind that they want to sell their wine and if they’re primarily a retail business they may not utilise the same data-driven approach that a professional investment firm would to make investment decisions. Lastly, you cannot easily diversify your portfolio, unless you have thousands of pounds to spend and can buy a number of different cases.
At Koia, we fractionalise ownership in alternative assets such as wine. This means you can get started investing in wine with as little as £20. We will only list a small number of carefully selected wines on the platform at a time, with clear information about the producers, critics scores, as well as price history to give you as much information as possible and allow you to make an informed decision. We also clearly state where the wine will be stored and how it was sourced. Moreover, since you can buy fractions of the cases of wine, it means that you can more easily diversify your portfolio and buy into a number of different wines from different years and different regions, without needing to spend thousands of pounds.
This option is most suitable for investors who want to get started with modest amounts and want to diversify. You’d typically have some interest in (wine) investing and are happy to read up on investments put out on the platform, but don’t want to spend many hours learning or becoming an expert and choosing between hundreds of possible options to buy.
In this article we’ve covered some of the key reasons why wine appreciates in price, as well as what to look out for when buying fine wines. More importantly, we covered a few different ways of getting started with wine investing: via a wine investment business, by selecting and buying your own wines, or via the Koia platform. Each and every option has its own pros and cons, depending on which level of investment makes sense for you, as well as the level of research and time you want to put into building your wine investment portfolio.
At Koia, we allow you to start investing in tangible assets for as little as €50, via fractional investing. Our experts make sure to source and buy the best assets, and we take care of authentication, storage and insurance. All of the benefits, with none of the hassle.
The articles and information made available on Koia are provided for information and educational purposes only and do not constitute financial advice. You are advised to consult with an independent financial advisor for advice on your specific circumstances.