Investing in fine wine is essentially a mix of speculation and long-term investing, as you need a certain amount of patience and understanding of the market to make money.
There is a massive difference between buying wine as a drink to enjoy compared to buying wine holdings to sell. In the latter case, you are “buying wine for the financial return, not for the pleasure of drinking it.”
Investing in fine wine is usually done by buying wine holdings and holding them for an extended period to profit from their rising value. If you are looking for a quick turnaround on your investment, you should probably look into other markets.
But if you’re curious and eager to learn about investing in fine wine, this article is for you. Today, we will explore essential things you need to know about investing in fine wine. Here’s what you need to know:
Why Do People Invest in Fine Wine?
There are two main reasons why people invest in fine wines:
The first reason is simply for the appreciation of value. Although the prices of fine wine can fluctuate significantly in the short term, the value of good wines increases considerably in the longer term. This is because good wines are almost always in demand.
People invest in fine wines to produce an income stream that can potentially outpace inflation. This is done by buying fine wines in large quantities and selling small parcels of wine periodically.
While those are the two principal reasons people invest in fine wines, other reasons are less common.
Some people use their fine wine purchases as part of a lifestyle choice.
Other people invest in fine wine because they love wine. They enjoy drinking fine wines and want to collect bottles as a hobby. These people tend to favour wines regarded as fine by their peers but that are less expensive than the most elite wines.
How to Get Started Investing in Fine Wine?
You need to identify what type of fine wine you want to collect to get started. If you aim to make a profit, you should buy high-demand wines while also being affordable.
If you’re looking to use wine to generate income, you should buy wines in lesser demand to sell them at higher prices. When investing in wine, always remember that quality should be the most important factor for you.
When it comes to investing in fine wine, there are several ways to do it. Here are the main ways to invest in fine wine:
1. Buy and Keep
Most investors who are just entering the fine wine market do not want to invest in a small number of wines. They want to buy several fine wines and hold them for many years before selling them.
Buying several bottles at once and holding them for a few years is the simplest way to invest in fine wine.
It is also the most common way of investing in fine wine.
2. Financial Transactions
Fine wine is a liquid asset. It is liquid in that you can sell your holding quickly and easily if necessary. This can be very beneficial for investors who need to cash in their holding fast to pay for an emergency or cover an investment loss.
Most fine wine investors sell the wine individually or in small batches.
3. Wine Futures
Wine futures are not a common form of wine investment. However, they do exist. When it comes to wine futures, you are essentially speculating on the price of a wine.
It is also common for investors who buy wine futures to sell them before the delivery date.
Exchanging is a form of speculation on the price of fine wine. You are effectively buying wine at a price that you expect will increase in the future. The price increases in the first few years, and you make money on the sale.
5. Other Forms of Investment
A few other forms of fine wine investment are not widely known. These include wine loans, wine exchange-traded funds (ETF), wine derivatives, and wine bonds.
Except for wine loans, most forms of fine wine investment are not very common.
How to Value Fine Wine?
The valuation of fine wines is a complex and challenging topic.
Fine wine is a unique form of investment. Unlike other assets, fine wine is also consumable. You can consume it after you buy it. This is unlike other assets that you buy, such as a house.
Investing in fine wine has no fixed market, unlike many other markets. As a result, the price of fine wine depends mainly on the seller and the buyer.
However, some basic guidelines can help you determine the value of fine wines. Here are some of them:
1. The Supply and Demand of Wine
The supply and demand principle applies to wine investment. The demand for a particular wine increases as the price increases. Therefore, if you have to sell your wine, high demand can increase the price.
Similarly, you can ensure that the demand for a particular wine is high by charging a high price.
2. The Quality of Wine
Quality is the most critical factor in determining the price of a wine. Quality determines whether a wine will increase in value or decrease in value. Lower quality wines will lose value over time, while higher quality wines will gain weight. The price of wine will be determined by its quality, age, and how the general public perceives it.
3. The Wine’s Story
The story of the wine is another factor that determines the price of fine wine. Generally, wines that undergo a special event or have a unique history will be more valuable than wines with no story. For example, wines affected by a volcanic eruption or bottles that a renowned person owned will be more useful and have a better story.
4. The Wine’s Age
Age is another factor that determines the price of fine wine. The age of wine will impact its taste and its value.
Wines that are aged for a long time will generally be more valuable than wines that are aged for a short period of time. For example, over 50 years are generally more valuable than wines aged for less than ten years.
Investing in fine wine is a risky business. This is because fine wine is a luxury item that is very different from other assets. It is also not a liquid market because it is not traded like stocks and bonds are. Therefore, it is difficult to predict the value of fine wines, and it is easy to get caught up in speculation.
However, fine wines can be a sound investment for the right buyer. They can provide income and the potential for long-term gains. This is because some wines appreciate over some time.
If you’re interested in buying wine for investment, we can help you. Cru Wine offers fine wine with a modern approach. Wine is a passion and a huge source of enjoyment. Our goal is to make it easier to buy wine. At the same time, we wish to provide you with a more enriched experience. Download our fine wine investment brochure today to learn more!