How and why Invest in Wine in 2023? | Part 1
Have you inherited, saved, or simply set aside some money? Have you already thought about where to invest this money, instead of putting it in your bank account? Real estate, stock market, all kinds of stocks, vintage cars, or even cryptocurrency… To date, you have seen and studied everything. But have you thought about investing in wine?
Although it should remain a sideline and a pleasure, wine can be a profitable investment if you are smart... To accompany you in this approach, Pleasure Wine has worked tirelessly to offer you the ultimate article on investing in wine. At the end of this three-part guide, you will become an expert on the subject. And if there is any doubt, we are at your disposal to answer all your questions!
In this first article, we will start with the basics: Why invest in wine and what are the results and risks. If you are a bit pressed for time (and we understand!), we’ll sum everything up just for you at the end of the article.
1) Why should I invest in wine?
For the passion of wine
Investing in wine, what a strange idea you might say! And yet, it is indeed possible to invest money while nurturing a passion like wine. To start, and before asking yourself which wines you should invest in, keep in mind that passion is essential. Indeed, if you bet on bottles randomly, without taking into account all the necessary parameters, only thinking of the profit you could make… you risk losing money. As a connoisseur, you will have to put all your knowledge and acumen at the service of this quest to find THE hidden gem that will be in high demand, 10 to 20 years from now. Buying a wine is not just owning a bottle of alcohol, it is also acquiring a little piece of history that has lived through countless events. Having it in your cellar can be a real pride!
Diversify your financial investments with wine
Investing in one or more bottles is also an excellent way to diversify your assets, especially during an economic crisis. However, you will need to be patient: these financial investments are intended for medium to long term. Therefore, you should not try to get rid of your bottle after 2 years! Why? Because 50% of people who sell their bottle after 2 years actually suffer a loss of money according to Thierry Goddet, the founder of Cavissima. During an interview for Capital, he mentioned that "you have to be very patient." Take your time, give your bottle all the care it deserves and wait for the right moment!
Gain added value with a Grand Cru
This brings us to the heart of the matter: margins. It is obvious that, as with any well-thought-out investment, you can recover the initial price of the latter by selling it, but also make a more or less significant profit depending on the condition and appreciation of the asset. As with any purchase intended for resale, you should buy when the product price is low and then sell when the price increases. We will develop this in the next part.
Support a good cause through wine investment
Yes, you read that right: investing in wine also allows you to do some good around you. Intriguing? Not really, since this type of investment falls within the framework of SRI (Socially Responsible Investing). This investment is adapted from an Anglo-Saxon system that includes topics other than pure and hard finance, such as the environment, social and ethical issues, and governance in investment decisions and portfolio management. To put it simply, when you invest in wine, you also support ethical companies that care about the environment and social issues, values that are more relevant than ever.
What to do if I can't sell my bottle?
What if several years later the bottle still hasn't been sold? Don't worry! Remember that you're a wine enthusiast, so you can let your bottle shine and enjoy it alone or with a select group of people. This is one of the other advantages of building a wine cellar: in the worst case scenario, you can still taste it.
So, are you still willing to take the plunge? Not entirely sure yet? That's perfectly normal, but Pleasure Wine thinks of all the details! Together, let's take a look at the potential of your wine cellar.
2) Is investing in wine profitable?
There are many reasons to invest in wine, but is it really profitable? One may think that it’s all a waste of time and money, especially given the number of years it takes to store the asset.
According to several studies, investing in wine would provide an average gain of 4% for the interested party. For more accurate estimates on a case-by-case basis, we strongly recommend studying the Liv-ex website. Based in London, the London International Vintners Exchange has established itself as a reference in wine trading. This paid platform offers to sell or buy bottles, but also, through these transactions, show market prices. As for wine merchants, the company Cavissima, which has specialized in investment, has reported a 16 to 22% return on 80% of transactions with its clients over 3 to 4 years of ownership.
If you want more concrete examples, we have the famous 1945 Romanée Conti bottle. In 2018, it was sold for 482,000 euros at an auction by the famous Sotheby's. This price increase makes this exceptional bottle the most expensive wine in the world. Also at Sotheby's, a bottle of Château Lafite Rothschild 1869 was sold for 204,430 euros in 2010. This was the record for the most expensive bottle sold before the Romanée Conti bottle mentioned earlier. Château d'Yquem is not to be outdone with a bottle of 1811 sold by the Antique Wine Company in London for €85,000 in 2011. This made it the most expensive white wine in the world.
Of course, profitability depends on the evolution of the price of the wine in question, which is why it is so important to choose your acquisitions carefully.
3) What are the risks of investing in wine?
As you know, every investment involves risks. It would be too good to be true if wine were an exception to the rule. There are, of course, precautions to be taken to make the best possible investment, and our goal is to accompany you. Every investor must be well aware of the risks he or she is taking in such an operation.
Accidental risks for bottles
Clumsiness, poor packaging or other accidents. Bottles are made of glass and are therefore fragile. The risk of breakage and leakage should be kept in mind, especially during transport. Another fact beyond our control: theft. Rare bottles can make some people envious. The location and storage conditions of your wines are determining factors in the safety of your cuvées. Note that investing in a secured cellar may result in several thousand euros in costs (alarms, secure doors...) which will need to be taken into account when calculating your margins.
Beware of the provenance of your wines!
Only buy your wines from reliable sellers, whether they are professionals or individuals. Make your purchases from professional wine merchants, reputable auction houses, or better yet, directly from the producer or in "primeur" (equivalent to a pre-order). Indeed, wine, like any luxury product, is subject to the presence of numerous counterfeit items on the market. Beware of cellar sales and second-hand bottle sales on Ebay and Leboncoin. To take fewer risks, buy cases rather than individual bottles, as the probability of counterfeits is lower.
A small tip: when buying a case, be vigilant about the following points:
- Is the case sealed?
- Are the nails still in place and in good condition?
- Are the seals on the bottles authentic?
Furthermore, you can very well buy an authentic bottle of Bordeaux and encounter problems due to its storage. Indeed, even if your bottle is not a counterfeit one, it is difficult to know if it has been stored and treated optimally by its last owner. Temperature, position, humidity level, exposure to sunlight... So many criteria come into play for a wine not to lose quality! Try to find out about the history of the bottle in order to acquire a product that isn’t or won’t be degraded.
The long-term risk of investing in wine
The biggest risk when investing in this kind of product is that you may not be able to make a profit or, worse, not sell your product at all. Be careful not to make these mistakes:
- Choosing the wrong wine. An error of judgment can happen to anyone, but do not buy a bottle on a whim! We will see later on how to choose the best bottle to invest in wine.
- Buying poorly stored or too old wine. Storing wine requires specific conditions to keep the product at its best quality. Get information on the subject beforehand. Moreover, although wine is a long-term investment, do not forget your bottles in your cellar! A wait of 10 to 20 years is ideal for reselling your bottles.
- Choosing a vintage that is not a wine made for aging. As a reminder, a wine with a high aging potential was designed to be consumed several years after bottling. Be sure to choose a wine for keeping when purchasing, as it is over the years in the cellar that it will increase in value and develop all its aromas. A wine with poor aging potential will not have as much time to increase in value.
- Having a wine lose its value. As with any investment of this kind, you are somewhat dependent on the market. You have no choice but to keep an eye on it! It is difficult to estimate the evolution of supply and demand, so caution is required when investing.
To summarize the risks of investing in wine
All of these risks are real, but avoidable if you take the time to analyze each factor and follow the best practices. For all these reasons, we advise you to be particularly cautious before any kind of investment. If you want to cover and protect your bottle as much as possible, know that insurances exist. You will then need to carefully study the terms and conditions to know in which situations your property is covered. Note also that this additional cost for insurance must be taken into account when buying and reselling your bottle. Your investment must remain profitable!
The overall summary
You can invest in wine for several reasons:
- Diversify your financial investments
- Realize a profit in a few years
- Support a good cause through SRI
- Consume your bottle if you wish!
History has repeatedly proven that investing in wine is profitable. According to statistics, the gain would be 4% per year. To monitor current wine prices, go to the Liv-Ex trading website!
Pleasure Wine still advises you to be cautious! Investing in wine carries risks:
- Accidental breakage
- Poorly stored or too old product
- Choosing a wine that won't increase in value
- Choosing a wine that is not meant for aging
- Buying a wine whose price does not increase
The risk of losing money is real. Don't panic, in our next article, we will go through each point together on how to avoid this! You will find all our advice for making your investment go smoothly and be profitable.