In a world where everything seems to work against us, it’s good to know that wine has your back. That’s right: your favourite glass of red looks like it could be a better bet when it comes to long-term investments.
Wine has been called “an investment for life”. Connoisseurs and amateurs alike have been enjoying wine for thousands of years, and that doesn’t look like it’s stopping anytime soon. How does wine compare to other investments, such as the stock market?
Compared to the stock market, wine is an excellent investment because of its lower risk. It has stable returns every year, and its value rarely decreases in value.
In fact, since 2004, Burgundy wines have yielded a return of 652% and Champagne 534%. Over the same period, the stock market has provided a lower yield with a return of 371%. Therefore, wine is, indeed, a more reliable investment compared to stocks and real estate.
Average Annual Return
For the past 16 years, the average annual return of wine has been +8%, and the price of wine is expected to increase at the same rates. Several factors influence this, such as:
- Constant production: Production of the most exclusive wines is limited because the best vineyards are already fully planted and could no longer extend. In turn, an increase in demand can’t be accommodated by an increase in production, only by higher prices.
- Increase in demand: The demand for exclusive and expensive wines is increasing. One of the reasons is the strong growth in the number of wealthy people. Another reason is there is an increasing interest in wine.
- Ongoing consumption: With the daily consumption of wine, it reduces supply, resulting in price increases for remaining bottles. Therefore, ongoing consumption is a crucial parameter in increasing wine prices.
- Rising production costs: Being an agricultural product, when wine production can’t be outsourced, the costs of production increase.
Long-Term Stability of Wine Prices
Some investors prefer to invest long term to gain security and also to reap the benefits of long-term growth. Wine offers just that, with prices expected to rise in the long term.
That’s not all; Wine is also considered a safe investment because it is:
- Inconvertible: You can’t convert wine into cash. The only way to cash in on your investment is to sell it.
- Tangible: It is a physical investment that can be seen, tasted and enjoyed.
- Availability: The demand for wine is not seasonal, as it is consumed all year round.
- Commodity driven: Wine is driven by a number of factors that are considered “commodities”, such as the appreciation of the collector market and the interest in foreign wines.
- Relatively safe from scams and frauds: Wine is a tangible asset, making it easier to audit, trade and sell. Also, there is a reliable market and transparent manner of trading.
The combination of these characteristics makes wine a safe and secure long-term investment.
Strong & Capital Preserving Asset
Unlike stocks, wine is a non-financial asset that is not subject to any kind of financial risks, such as market fluctuations, and changes in government and central banks. There is no risk of default, nor are there any regulatory or political risks.
Although wine can’t be stored in a bank or a financial institution, it is a “commodity”, with market prices that are easy to access. Wine can be seen as a capital-preserving asset since it is a “commodity” in the same way that gold and silver are also “commodities”.
Also, wine has a much higher asset value than any other comparable asset. Because of the single-digit supply and the constant increase in demand, wine is becoming a more valuable asset over time.
How To Start Your Wine Investment
Interested in starting your investment in wine? Here are some things that you should know:
Don’t go in all guns blazing. Start with a few bottles of wine and wait to see whether they appreciate in value or not. Your initial investment will be small, and it will also give you the time to test the market and see if it is a good investment for you.
Learn about the market
Once you have decided to invest, buy books about wine investing, and talk to wine collectors, wine experts to learn more about the market.
And don’t forget about the Internet! There are plenty of websites which can provide you with valuable information about the market, the wines and the best wines to buy.
Keep Your Bottles Somewhere Safe
Best is to store them in a cellar, where the temperature and light are controlled. Light and heat can damage wine, ruin the taste, and even shorten the bottle’s life. This will also reduce the risk that you’ll be a victim of wine fraud.
Stay Within Your Budget
If you can afford it, buy better and more expensive wines. But don’t forget: The more valuable it is, the more expensive it is to store and maintain.
Buy Wine from Different Vintages
In this way, you will be able to see whether your investment is rising or decreasing in value. You can also diversify the risk. If any wine should decrease in value, the others might still increase in value, so your overall investment will still be a good one.
If you’re in it for the long run, then don’t expect results right away. Keep an eye on your collection and when you feel that you want to sell a few bottles, do it.
Keep a Record of Your Purchases
Keep a detailed list of all the wines you purchase, the prices you paid, how much you sell them for, and how you sell them. This will help you stay organized, especially in the long run.
Unlike stocks, wine offers more stable forms of investments in the stock market. The prices are also guaranteed to rise as long as you invest in bottles that seem to be more in demand, such as Bordeaux wines, Champagne and wines from Burgundy.
And just like with stocks, the key to making money with wine is to invest in the right wine. The right wine is the one that will appreciate in value and which you have the capacity to store. So be sure to keep a close eye on your investments.
Are you looking to invest in wine? Cru Wine offers a modern approach to fine wine. Here, we make buying wine simple with a more enriched experience. Plus, we ship worldwide. Start your wine portfolio today.