Investing in Wine as an Asset

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Contributor, Benzinga
November 9, 2022

Investors accumulate different types of assets to mitigate risk and gain exposure to new opportunities. Alternative investments let you explore many markets, some of which do not correlate with the stock market. A Wine Intelligence study revealed that over 77 million Americans drink wine, but far fewer people invest in the beverage. Wine investors capitalize on rising demand and long-term appreciation to outperform the market. Discover how wine investing can strengthen your portfolio.

What Is Wine Investing?

Wine is a beverage in strong demand. Millions of people drink wine each month, and some drinkers have exquisite tastes. They spend hundreds of dollars on a single bottle if it’s the right type of wine. Wine investors study the market, buy wine and hold onto it for years before selling it. Many wine vintages get better with age. Investors use this common expression as a core element of their investing strategies.

4 Ways to Invest in Wine

Investing in wine can diversify your portfolio, and investors also have several ways to build positions in this popular beverage. You can consider these investing methods for buying wine.

Bottles

You can store wine bottles in your house or a warehouse. It costs more money to store bottles, and they can get stolen. However, if you keep the bottles safe, you get access to an asset that can produce 10% annual compounded returns and isn’t subject to capital gains taxes. It can take time to sell wine, and insurance will increase your costs. Some investors lose patience and end up drinking their wine.

Stocks

Some companies in the wine industry let investors buy and sell shares in the stock market. Investing in wine stocks increases your liquidity and does not have recurring costs. However, you will miss out on some of the profit. Your investment depends on the company’s growth and profit margins. A struggling wine company can hurt your portfolio in an otherwise desirable timeframe for the wine industry. Stocks react strongly to macroeconomic conditions, which can lead to significantly undervalued and overvalued assets. You will have to pay capital gains on your stocks, which you can avoid by investing in bottles.

Futures

Wine futures let you lock in a price for a wine purchase. If you buy futures, your contract becomes more valuable as wine prices increase. However, that same contract will decrease in value if wine prices decrease. Wine futures rely on timing the market, a challenging activity no one gets right every time. Looking at wine prices every day can also cause a lot of stress and take you away from other things.

Dedicated Platform

Dedicated platforms let you more easily buy and sell wine. You can list wine on dedicated platforms and search for wine that fits your criteria. These platforms accelerate transactions by connecting buyers and sellers, but these platforms have fees. 

Protecting Your Wine Investment

Wine is a valuable asset that can quickly lose value. Someone may steal your wine, or someone may accidentally drop it. A single crack in a wine bottle can ruin the investment. Take these protective measures to keep your asset safe.

Proper Storage

It is essential to store your wine securely. Some investors have a wine cellar at home, but you can also store wine at a wine storage facility. Wine is a long-term investment, and a single break can make your asset significantly drop in value. 

Insurance

Wine is a valuable item that can reach high prices. Wine insurance policies offer extra protection in case something happens to your asset. Thefts, natural disasters, and other events can destroy your investment. You can compare quotes from multiple wine insurers and see how much they will cover. Check what your insurance policy covers before paying premiums. Each policy should cover breakage or contamination at a minimum.

Things to Consider With Investing in Wine

Investing in wine can get complicated. Keep these considerations in mind before getting started or building your position.

Budget

Wine has ongoing costs, including storage and insurance. You will also have to decide how much to spend on wine. Knowing your budget for monthly costs will help you set a budget for your wine purchases. Spending money on storage and insurance is better because these two costs can preserve your wine’s value.

Impact of State Regulations

Some states do not allow you to buy wine online. Residents in these states will have fewer options. You should review your state’s regulations on wine to determine your choices.

Research Current and Future Wine Values

Looking at current and future wine values makes you a better investor. You can spot wine opportunities that offer favorable upside. Investors should check ratings and supply before buying wine. Critics rate wines on a scale of 1 to 100, with a 95 rating or higher reserved for classics.

Commissions

Auction houses are popular places to sell wine. While these auction houses connect buyers with sellers, they also charge commissions. You should check the commission rate to make sure it is not hurting your profits too much or out of line with other auction houses. You can browse through personal and online wine auctions to compare commission rates.

Advantages 

Investing in wine can offer solid returns with substantial tax benefits. Wine has historically performed well, and demand remains strong for the beverage. You can buy bottles or seek a more liquid option such as stocks of companies that sell wine.

Risks 

Wine is a physical asset that can get damaged from improper storage. The asset can get spoiled, causing a loss of the entire investment. You can invest in an insurance policy to protect your funds in case your asset gets damaged. Areas with frequent natural disasters present a greater risk for wine investors. You also have to pay for storage and make sure you aren’t buying a forged wine bottle.

Diversify Your Portfolio With Wine

Capital gains taxes and income taxes aren’t enjoyable expenses. Wine investing helps you avoid both. Allocating some of your funds to wine bottles and other wine assets can increase your returns and offer some tax protection. You can start small with your wine position and accumulate wine bottles as you learn more about the market.

Frequently Asked Questions

Q

Is wine a good investment?

A

Wine can be a good investment. Millions of people consume wine, and some bottles sell for thousands of dollars.

Q

How much can I make investing in wine?

A

Some wine investors can make as much as a 10% compounded annual return on their wine.

Q

How much should I invest in wine?

A

Each investor has a different risk tolerance. Investing too much in wine makes your financial future dependent on wine. Spreading funds across various assets lets you capitalize on more opportunities and ride volatility.