Pros, cons and what you need to know

Key Points

• Investing in wine is a popular asset class alternative.
• Alternative asset classes can provide big returns and diversification to your portfolio.
• Like stocks and other traditional assets, there are primary and secondary wine markets.

Fine wine is a popular alternative investment that has the potential for value appreciation, as well as the tangible benefit of good taste. 

Many wine investors enjoy owning, storing and displaying physical wine bottles. But you can also add wine exposure to your investment portfolio without having to deal with the challenges and costs associated with owning a wine cellar.

How to invest in wine

Much like stocks and other traditional assets, there are primary and secondary wine markets. The primary wine market typically involves the flow of wine from producers selling the product to wholesale distributors. 

The distributors then pass it on to retailers who sell it directly to consumers. The secondary wine market includes traders and collectors who buy and sell wines using auction houses, wine brokers and exchanges. 

Top auction houses regularly hold live actions for fine wine, and buyers can attend in person or place bids over the phone. Auction houses such as Sotheby’s, Christie’s and Acker Merrall & Condit Co. have prestigious reputations, and investors can rest assured that any wines they sell are legitimate and high quality. 

Online auctions have become increasingly popular as well due to their convenience and wide selection of wines. For instance, Brentwood Auctions and WineBid have both operated for more than 25 years, and each holds weekly online wine auctions. 

Investors can also buy wine online via an exchange, such as the London International Vintners Exchange, known as Liv-ex. Wines trade like stocks on these exchanges. Buyers and sellers connect directly to agree on wine trades, and users pay a small commission on the exchange.

Choose which wines

Fine wine is generally rated on a 100-point quality scale. This system somewhat mirrors the 100-point grading system familiar to American students and was popularized by famous wine critic Robert Parker in his print publication The Wine Advocate. 

The Wine Advocate considers a wine with a score ranging from 70 to 79 to be an average wine with little distinction. Wines rated 80 to 89 are considered above average to very good with no noticeable flaws, and wines rated between 90 and 95 are regarded as outstanding quality with exceptional complexity and character. Wines with a score of 96 or above are considered extraordinary, and the publication deems these wines worthy of “special effort to find, purchase and consume.”

Wine investors need to understand the 100-point scale is subjective, and a particular wine can receive different ratings from various wine critics, depending on their preferences. However, investors can use the 100-point scale to gauge the caliber of wine they would like to buy.

Besides quality, scarcity is the other major influence on wine prices. Like any other market, fine wine prices are determined by supply and demand. A high-quality wine may generate plenty of demand, but its price may appreciate less than other wines over time if produced in large quantities.

Wine investors may also need to consider factors other than quality and scarcity. Adam Lapierre, head of wine and spirits and chief operating officer at fine wine and rare spirits investing company Vint, said investors should diversify their wine investing portfolio just like they would a stock portfolio.

“You need broad exposure to many regions, producers and vintages. While certain regions can surely be considered ‘blue chips,’ such as Bordeaux and Burgundy, there is value to be had from emerging markets and producers,” Lapierre said.

How much to invest in wine

You can dip your toes into the wine investing world by bidding on single bottles for under $100 each. However, like stock prices, lower priced wines may not be of the highest quality or appreciate much value over time. 

If you are new to wine investing or need help figuring out where to start, there are many online resources and platforms for novice investors. For example, wine investing platform Vinovest provides helpful information for inexperienced investors and assistance from master sommeliers who choose wines for your portfolio. The minimum investment amount is $1,000 for the starter plan, and its most popular wine investment plan starts at $10,000.

If you want to invest in physical bottles of wine, several upfront costs are involved with properly storing your investment to maintain its value. Building and installing a cooling unit and rack to store and preserve fine wine can cost between $10,000 and $15,000. Larger walk-in cellars may come with price tags upward of $50,000.

Like any investment, how much money you should invest in wine depends on several factors, such as your time horizon, risk tolerance and financial goals. 

Pros and cons of investing in wine

There are several advantages and disadvantages to investing in wine.

Wine investing pros

• Low correlation to equities and other traditional asset classes. The Liv-ex Fine Wine 1000, which tracks the prices of 1,000 fine wines from around the world, has only a 0.19 correlation with the MSCI World index and only a 0.12 correlation with the S&P 500 index, according to Vinovest. 

• Tangible value as a beverage and a physical collectible. Many wine investors display their collection in wine cellars and discuss it with houseguests, and investors can always enjoy drinking high-quality wines if their investment doesn’t pan out. 

• Wine is recession-resistant. Wine’s low correlation to stocks and other assets means wine prices could provide stability and protection during financial market downturns. During the COVID-19 pandemic stock market sell-off, the price of fine wine declined just 1.4%, according to Vinovest.

Jay James, master sommelier and president of Benchmark Wine Group, said wine can provide a unique type of diversification to your investment portfolio.

“A related plus is the fact that wine values show low correlation to the value swings of more traditional assets like stocks and can provide returns when other market vehicles are trending down, helping to manage the risk of investing,” James said.

Wine investing cons

• Difficult to store. In addition to the high price of the wine itself, wine investors must build and maintain a wine cellar or pay to have wine stored in a carefully controlled professional storage facility. 

• Long holding period. Stock traders can open and close a winning trade in minutes, but fine wine may take more than a decade to age and reach maximum value.

• Extremely expensive. The high cost of building and storing a quality portfolio of wines creates a barrier to entry for some investors. 

Wine investors must also deal with additional costs that traditional investments don’t have.

“These include paying a buyer’s premium when purchasing at auction, professional storage costs — most wines, not just investment grade, need to be stored at a low, stable temperature and moderate humidity — shipping costs and, especially at higher investment values, insurance,” James said.

Risks to consider when investing in wine

If you’re considering a fine wine investment, make sure to first carefully consider the risks involved.

Like any other investment, there is no guarantee your wine will appreciate over time. Physical bottles of wine can be broken, damaged or ruined if not handled properly, rendering them worthless. There is also a booming counterfeit fine wine industry that can fool inexperienced investors if they do not buy from reputable, trusted sources. 

Robert Johnson, a chartered financial analyst and finance professor at Creighton University’s Heider College of Business, said the biggest risk to investing in wine and other alternative assets is a lack of market liquidity.

“Most alternative assets cannot be converted into cash quickly without a significant decrease in value,” Johnson said. “And liquidity tends to matter most in economic crises or market turndowns in traditional asset classes.”

Illiquid markets can sometimes mask the true underlying volatility of the asset prices, making it seem to investors that prices are relatively stable when they are actually not.

Other investment options to consider

If you like the idea of adding wine to your portfolio but aren’t necessarily looking to build and manage a wine cellar, there are easier ways to invest in wine that don’t involve shipping and storing physical bottles. 

Funds such as the Wine Source Fund and the Wine Investment Fund can provide diversified exposure to top-tier wines, but these funds may only be available to high-net-worth-accredited investors. 

Alternatively, investors can buy fine wine futures to purchase wine at low prices 18 to 24 months before it’s released to retailers and arrives on the market. Investors can purchase wine futures at an auction house or futures tasting event. They can also buy them via Vinovest or another reputable online platform. 

Finally, investors can buy shares of stock in some of the biggest public wine companies directly in their brokerage accounts. These stocks include Treasury Wine Estates (TSRYY), The Duckhorn Portfolio Inc. (NAPA) and Vintage Wine Estates (VWE).