Your significant other orders a certain cabernet for $40 that he feels will be worth $400 in the future, and wants to start collecting other vintages as well. But should you invest in a product that disappears with a broken bottle, or can be emptied into glasses at a party on a whim? How do you really know what a bottle is worth now and what it will be worth in the future? Plus, what expenses and space requirements are involved in storing wine? Read on to learn more about investing in wine.
Investing in Wine for Love or Money
When you decide to invest in wine collecting, the first decision you have to make is if you are investing for the love of certain wines, to make money, or a combination of both.
If you are going to invest purely because you are a connoisseur of fine wines, pick wines you enjoy in the hope they will increase in value. Then, if you happen to drink a few bottles along the way, it's OK, because the endeavor is a hobby, like collecting baseball cards or stamps.
(For related reading, see: Contemplating Collectible Investments.)
Defeating Breakage and Spoilage With Storage
When you are storing wine you'll drink within a few weeks, you can keep it in a wine rack for display in your home. However, keeping your wine in optimal salable and flavor condition for long time periods requires more careful storage. According to Wine Spectator writer, Bruce Sanderson, in "The ABCs Of Storage," wine will produce small, flaky crystals if exposed to excessively cold temperatures, although this is less likely to happen in wines that are cold-stabilized.
On the other end of the spectrum, a room that is too hot could cause a rapid increase in the time wine takes to reach its premium flavor and salability. If your wine matures too fast, you'll have to sell it faster, reducing the likelihood of making big profits in the future.
To properly store wine, you need a dark area with optimal temperature and humidity levels. This can be accomplished in your basement or a dark closet if you live in a moderate climate. To decide whether your area of the country is suitable to store wine, talk with wine cellar managers in your area. If you don't have optimal conditions, you will need a wine cooler, which for a large collection could run into the thousands of dollars. You'll also need substantial space.
Be sure to include the electricity costs to run your wine coolers in your budget. The best way to calculate the estimated cost of electricity use is to check energy ratings of the wine coolers you are considering buying, and then relay this information to your electric company to see what it would average per month.
If you don't have the space to store your wine collection, you will want to contact local wine storage facilities for pricing, storage capabilities and the amount of insurance included.
Expensive wines are considered valuable items, similar to jewelry. You will need to discuss with your home insurance company how to cover your collection to its full value, which will most likely include adding coverage for valuables. You will want to compare prices for wine insurance from other carriers as well. Remember to consider the deductible amount, the coverage amount in relation to the value of your collection and the cost of the insurance policy.
If you live in a climate prone to natural disasters such as earthquakes, floods or tornadoes, make sure your insurance policy covers breakage or contamination due to these weather emergencies.
Collecting According to Your Budget
Once you've added up storage and insurance costs, you should budget how much you'd like to spend. Use the following factors to calculate a total budget:
- Costs of insurance and upkeep of storage facility; and
- How much money you are willing to risk on wine after deducting insurance and storage costs, plus other safer investments, from your total investment budget.
The Impact of State Regulations
If you live in a state that doesn't allow purchasing wine over the internet, directly through a winery or through a retailer who isn't required to purchase wine through a wholesaler, you are limited in the selections of wines you can purchase for your collection based on what your region's wholesalers choose to carry. Before you decide to start a collection, find out what restrictions in availability exist in your state. (For related reading, see: Wine Country: America's Love for Wine.)
How to Research Current and Future Wine Values
The best indicators of a wine's current and future values are ratings and scarcity. Wine critics rate wines on a scale of 1 to 100. Before you purchase wine based on ratings, also read reviews from several critics. Wines that rate around 95 are considered high quality.
Scarcity is harder to predict. A wine that is currently in limited production is a good indicator, but which wines will be scarce later on is more difficult to figure out. Research wineries you are interested in for the past performance of prices. You can keep track of wine prices for more than 10,000 different wines at Vinfolio.com.
If you graduate to selling a valuable wine in the future, most of this is done through auction houses. The commission charged varies quite a bit between an online auction house, such as winebid.com or winecommune.com, and Sotheby's or Christie's. However, before you decide to go with a cheaper online alternative, make sure the sale prices of the wines you wish to sell are similar. If you have a wine currently going for $10,000 a case at Sotheby's and $5,000 at an online auction, the difference in commission costs is worthwhile. You can find bid prices for online auction houses on their websites, but brick-and-mortar auction houses will require a phone call to acquire more details.
If you don't have the storage or the willpower to keep from drinking your investment vehicle, invest in wine stocks and mutual funds. There are dozens of options to choose from. You can drink your favorite vintage and invest your money without the work involved in housing your own collection.
The Bottom Line
Investing in wine can be a risky proposition, but if you weigh all the associated costs and are prepared to drink what you don't sell, it can be a fun and savvy investment vehicle. Plus, if you fail to pick a winner, you can always toast your loss.
(For related reading, see: Top 3 Wine Stocks for 2018.)