Welcome to the wonderful world of wine! The tight-knit community of fine wine and rare spirits enthusiasts are so happy to have you on board and are thrilled that you’re interested in learning how to invest. If you do your research and play your cards right, wine can prove to be a fantastic investment.
Did you know that over the last 121 years, fine wine has returned a whopping 8.5% annually? Moreover, the fine wine and spirit market provides consistent returns on par with the most notable stock market indexes. As a result, the wine offers a unique opportunity for individuals to invest in an asset class that historically has not moved in tandem with traditional markets. This rang true in 2008 when the housing crisis rocked markets; the S&P dropped 38% while the Liv-Ex 1000 fell less than 1%.
Over the last 15 years, technology has created countless opportunities for investors. Using wine and spirits as an asset class is no different. Just like all other investment opportunities, it’s always wise to do your research to ensure this opportunity is right for you. Reviewing this article is the first step in your journey to wine investment, but the research should not end here. We encourage you to read this article thoroughly and think about some questions you would like to be answered. If you’re able to come up with a hearty list of questions, reach out to a local wine enthusiast (if you know one) to see if they can provide you some insight into any questions or concerns you may have. So now, without further adieu, here’s how to invest in wine for beginners:
Fine wine and rare spirit investing is not uber complicated like other forms of investment like crypto, credit derivatives, or NFTs. Depending on how you decide to invest, you’ll likely have a team who can masterfully curate collections of blue chips and up-and-coming investment-grade assets. Then, when the timing is right to maximize your returns, work with your team and their merchant partners, auction houses, and private buyers to sell assets within each collection and distribute proceeds on a pro-rata basis.
Like real estate and art, wine and spirits are typically medium to long-term investments. Each collection will have an expected sale range, but these are estimates, and the actual sale may occur before or after that date. If you decide to invest with a third-party, their team will help you out by keeping close watch on the markets and will be in constant communication with partners and potential buyers. This will ensure that they can make a move at the most optimal time to exit part or all of a collection. When picking a third party, be sure to inquire if they won’t pressure you to sell. Although they know best about when to take advantage of changes in the market, you still want to give yourself a feeling of being incontrol of the assets you own. Another thing to keep in mind is hen a collection sells, be sure to pick a third-party that will return 100% of the proceeds to shareholders on a pro-rata basis. This will entitle you to receive a 1099-DIV tax form.
If you’re new to investing in general, you might be concerned about inflation and what that means for your potential investments. To explain simply, when the prices of goods and services rise over time, your investments can be affected negatively, including those in your bank account, retirement funds, certificates of deposit, and others. One figure that investment experts calculate when figuring out the rate of return for a portfolio is the “real rate of return.” This helps you understand the amount of return you can expect after adjusting for inflation. Over the past 100 years or more, the U.S. has experienced roughly a 3% average annual rate of inflation. However, inflation tends to fluctuate in the short term. Most of the time, it slightly shifts, but there are times it fluctuates dramatically. For example, the U.S. inflation rate was around 1.23% in 2020 over the previous year, but the prices of many consumer goods and services increased by over 5% from 2020 to 2021.
If you’re still not sold on investing in bottles of fine wine and spirits, you can absolutely invest in some promising alcohol stocks via the stock market. In fact, investors keep an eye on alcohol stocks because they’re relatively resistant to the impact of recessions and other economic downturns, making them an easy way to diversify your portfolio. Of course, not all alcohol stocks are created equal, and some have performed better than others in recent years. As recommended before, don’t just pick your favorite brand. Do some research and consult with professionals before throwing your money into the stock market. This is an investment after all, and your end goal should be a profit.