All experienced investors know that the key to minimising risk in an investment portfolio is diversification. This means setting aside a percentage of the portfolio for investment in alternative assets, alongside traditional stocks, shares and bonds. There are many alternative asset classes to choose from, but fine wines have a unique advantage over many other passion assets.
While wine is often categorised alongside investments such as art, property, classic cars and jewellery, there is a liquidity to the fine wine market that is not present with these other alternative assets. The international wine market can therefore be an excellent investment choice for true diversification, as it has little correlation to the equity markets, yet with the right bottles, there is almost always a buyer ready and willing to part with their money.
Thibaut de Roux is an avid collector of wines, with particular focus on those from the famous regions of France such as Bordeaux and Burgundy.
Starting a Wine Collection
How you begin going about starting a wine collection depends on the objectives of the investment. More serious investors should be looking to purchase a minimum of three bottles to begin with, valued at no less than $8,000 in total.
This recommendation, made by Wine Folly, accounts for costs such as professional storage and insurance, which can be high. The initial investment therefore needs to be relatively high also to make the investment worthwhile.
However, many people choose to invest in wine as more of a passion project than a serious money-making scheme, in which case choosing those you enjoy drinking and slowly building a collection may be enough. This way, if the wines do not increase in value or prove hard to sell, they can at least be enjoyed.
Look to the Long-Term
The average value of fine wines has risen steadily over the past decade, with growth of 120% over 10 years. As a consistently high performing asset, wine is a relatively low-risk investment. However, it is also not a short-term investment, so anyone looking to make money fast might be better choosing another asset to invest in.
Marketwatch estimates an investment time horizon of between 10 and 20 years before it starts to yield returns. While it probably won’t make anyone a fast buck, investment in fine wines can be an excellent way to diversify a retirement portfolio or other longer-term investment plan.
Hedging your Bets
Investment in wine can be used to hedge against risk, inflation and currency fluctuations. As there are many international wine buyers, global demand is stimulated by a weaker pound, which makes buying wine from UK collectors cheaper for the huge markets in countries such as the United States and China.
As a physical asset, wine acts as a store of value during times of financial and economic uncertainty. During the 2008 global financial crisis, wine out-performed almost every other asset class. As wine has extremely low correlation to the equity markets, it also helps hedge against risk as part of a wider investment portfolio.
When combined with its high liquidity compared to other physical assets, wine provides a unique investment opportunity for anyone looking for steady long-term growth.