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Investing in fine wine can be a great, lucrative way to diversify your portfolio.
Investors seeking to diversify their portfolios and hedge against financial crises may find a great option in a surprising alternative to traditional investments: fine wine.
Don’t laugh: Bottles of wine like Domaine de la Romanee-Conti Romanee-Conti Grand Cru have fetched nearly US$200,000. One 1945 bottle of Château Mouton Rothschild sold for US$114,614. Beyond the merits of their contents, bottles of fine wine offer several advantages that merit investors’ attention.
Higher Return on Investment (ROI)
s with any investment, investors should not base their expected profits on past profits. Nevertheless, fine wine has traditionally outperformed traditional investments year-on-year. As more people around the globe thirst for fine wine and the status associated with it, it is likely that wine will continue to perform well relative to traditional investments.
Fine wine’s ROI usually ranges between 9% and 22%. Compare that to more traditional investment ROIs:
|Investment Type||Average ROI (%)|
|Bonds||5.0 – 6.0|
|High Yield Bonds (*excluding 2009)||9.3|
|Mutual Fund for investors (over the past 30 years)||3.66|
|Stock market (last 10 years, incl. 2008)||6.88|
|Stock Market (over the past 50 years)||10.09|
|Stock Market (inception to Now)||7.0|
Since 1988, fine wine investments have outperformed all other major investment classes. Wine increased in value by 1474%, more than twice the appreciation rate of the Dow Jones Index (+783%) and the S&P 500 (+744%). When compared to the FTSE 100 (+306%) and Gold (+162%) its rate of appreciation is even more awe-inspiring.
In 2018, the Liv-ex Fine Wine 100 Index had a +0.22% year-to-date ROI, while the Liv-ex Fine Wine 1000 Index had an increased ROI of +10.2%. The Liv-ex Fine Wine 1000 Index outperformed the majority of global securities indexes (e.g., FTSE 100, S&P 500 DAX, and SEHK).
Investment-grade wine is a luxury, with prices and demand unaffected by financial crises, market-rocking events, or any specific countries, industries, or markets. Its prices do not follow predictable market movements, nor move in synch with traditional investments. People with the means to purchase fine wine are likely to continue doing so, even in periods of financial crises and market decline.
During the 2008 financial crisis, the Liv-ex Fine Wine 1000 Index fell just under 0% annual ROI, while gold futures worldwide had -3% ROI. It also performed far better than the MSCI World Stock Index, which dropped to -38%, and the FTSE All Shares Index, which fell to -25% ROI.
From 2015 to 2017, the Liv-ex Fine Wine 1000 Index had an ROI of 10%, outperforming the FTSE All Share (approx. +9%) and gold futures (+8%). Its +11.3% ROI was surpassed by the Burgundy 150-Index – another fine wine index that covered a narrower market, focusing strictly on highly-sought-after premium Burgundy wines.
Healthy Supply and Demand
Investment-grade wine is in high demand and only produced in limited quantities. In addition, the demand for fine wine continues to grow as it gains consumers in emerging markets. Moreover, winemakers can only produce a limited amount each year, and after the production year has passed, the number of intact bottles only declines. As people consume the stock of fine wine produced from a specific winery/region in a specific year, the remaining supply is likely to be in greater demand and worth more.
Unlike stock certificates and bonds, wine investors own a physical asset that they can see, feel, and drink. There is a certain satisfaction to being the sole owner of an investment that you can sell, give as a gift, or consume!
Still, the question of liquidity – for the related investments, not the wine itself – is of great concern to novice fine wine investors. It was true 10 to 20 years ago that fine wine investments were not very liquid, because there were limited places to sell it, listed distribution options, and almost no secondary market for it. These days, that is no longer true.
Nowadays, fine wine investments combine the best aspects of real estate and securities. They are tangible assets like real estate, but highly liquid like heavily traded securities on the U.S. stock exchanges. Consider that in 2012, the fine wine market had an estimated value of US$168 billion. Moreover, in the same year, more than 2.7 billion cases of fine wine were sold globally. Investors in premium fine wines need not worry about the liquidity of their investment.
Plus, as demand for fine wine continues to grow in developed and emerging markets around the world, demand will continue to outpace supply. Finally, fine wines like Bordeaux are a symbol of luxury, class, and status for the well-heeled and elite. Thus, regardless of the future financial climate, they will likely remain in demand and highly valued, and command a high market price.
Bring on the Bubbly . . .
Investors in wine are likely to not only enjoy watching their investment appreciate in value, demand, and desirability, but to also use it as a hedge against an economic downturn.
The wine market can be entered into by those with extensive knowledge of wine, or none at all. As the market and demand for its vintages increases, investors can likely look forward to an investment that outperforms traditional investments and market indexes.
Ultimately, while your initial investment and profit may fizz out, you are more likely to get a buzz, if not become drunk, from your ROI.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.