Departments — 13 August 2021
The ABCs of investing in fine wine

By Robyn A. Friedman

City & Shore Magazine

Portfolio manager Peter Lynch was able to achieve phenomenal returns – 29 percent annualized – when he managed the Fidelity Magellan mutual fund between 1977 and 1990. One of his oft-quoted investing principles is “invest in what you know.”

So, if you’re an oenophile, you might be considering dipping your toes into the wine market. Not so fast.

“You don’t want to just go and buy bottles or cases of wine based on something you’ve read without really knowing what you’re doing,” says Robin Back, Ph.D., an associate professor in the Department of Foodservice and Lodging Management at Rosen College of Hospitality Management in Orlando. “If you don’t know enough about wine, you need to make sure you receive expert advice from someone who does and whom you trust.”

Wine is considered an alternative asset class, much like gold and investment-grade diamonds. But investments in wine are not for the faint of heart – despite the lure of strong returns, which Anthony Zhang, chief executive officer and co-founder of wine investment platform Vinovest, says yielded 11.6 percent annualized to investors over the past 15 years.

Back said there are different ways to invest in wine. Perhaps the easiest is to purchase individual bottles or cases and then hold them, hoping that values go up over time. “You have to wait for the right time to buy, which is vintage-dependent, and then you need to be prepared to wait for perhaps 10 or 20 years for the right time to sell,” he says. “So, wine investments are not really a good way to realize short-term gains.”

Another consideration: storage. Your collection must be stored in the proper conditions – temperature- and humidity-controlled, for example – because wine will only increase in value if it’s been stored correctly. Options include building a professional wine cellar in your home – the average homeowner spends $40,000 to build a wine cellar, Back says – or to store your collection off-site.

Alternative ways to invest in wine include purchasing wine futures – known as en primeur – where wine is purchased while it’s still in barrels. Common in France, this practice allows investors to take advantage of price increases once the wine is bottled and released – but there is no guarantee that prices will appreciate. Investors can also purchase the stock of wine producers or a vineyard.

Vinovest is an online platform that allows investors to buy and sell fine wine. It “greatly reduces the barriers to entry of this asset class by managing all acquisition and sales responsibilities, storage, insurance and portfolio management,” Zhang says. The company charges a 2.85 percent annual fee, which is reduced to 2.5 percent with a $50,000 investment.

Back says that despite the upside potential for those who are patient, there’s risk to collecting wine. “I love wine, I come from a wine-producing family, I drink wine and I teach wine,” he says. “But I do not invest in wine. I personally feel I can do better by investing in other categories of investments.”

 

 

 

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