What makes a simple fruit become such a valuable asset? How come people who invest in fine wine end up making a fortune? Is it possible for a single bottle of vintage Bordeaux to cost $5,000? Yes, it’s possible and we have two explanations for that: first of all, wine is an extremely valuable liquid asset and second, it’s delicious. If you can’t make money with it, at least you can drink it. Simply put, it’s a pleasurable investment. People are not putting their money in fine wine because they have to; they do it because they want to.
How do we estimate the quality of fine wine?
Wine is a fermentation product made from mashed grapes. The quality is usually determined by soil, vine genetics and age, climate, and winemaker skill. The final product is different from year to year due to unpredictable climatic changes, so that’s probably one of the main reasons people are hesitant when it comes to wine investments.
As the wine ages the fruit becomes more intense and the supply diminishes. The fewer the bottles the higher the demand, and the more people will want to buy, the higher final price will go; most vintage wines are qualitative, which means people are ready to pay good money to get their hands on an exclusive bottle.
Wine regions – the best ones are the oldest
Most countries in Europe that are known for their wine history are trying to define their regions and keep them exclusive. Certain vineyards are famous around the world for their historic crops, and some of them have been rewarded for their qualitative product. Classifying fine wine permits instant quality appreciation, so investors will know exactly if what they’re buying is worth the money or not.
Although some types of wines improve with age, that principle doesn’t apply to all varieties. Some wines have an age limit. Winemakers are constantly monitoring their wine to determine maturity and decide when it’s the best time to start drinking or selling their investment. A quality wine testing is closely monitored by the media and by potential investors who are collecting data and determine later on if they want buy or not.
Wine market overview
The vast production of wine spread around the world is not a sensible investment. Short longevity, poor quality, a deficiency of price appreciation, and large products make most wines not good for trading. 80% of the supply comes from Bordeaux Chateaux, while the remaining 20% comes from The Rhone Valley, Champagne, and Burgundy, Piedmont and Tuscany. Investment grade wines are defined by the following attributes:
- Pedigree – fine wine comes from a chateaux or domaine with a reputation, and whose name conveys quality and prestige
- Durability – good wine ages in 25 years and it reaches maturity in 10
- Price appreciation – fine wine is always backed up by consistent history and official documents of authenticity
When should you invest in fine wine?
Fine wine becomes an excellent investment when there’s a constant inequity between supply and demand. The discrepancy occurs from several reasons such as:
- Restricted wine quantities (zoning regulations imposed by leading producers such as Bordeaux and Burgundy)
- Vintage wines are the most sought-after (good wine reaches maturity in 10 years)
- Good wine is constantly being appreciated because of an increasing combination between paucity and demand
The sizeable price appreciation of fine wine is linked to the admiration people have for the liquid asset in questioning. Believe it or not, the market doesn’t just offer recent track records of colossal returns. Some proven benefits of investing in fine wine are:
- Low volatility
- Increased growth of capital
- Advanced risk-adjusted profits
- Portfolio diversifier
- Currency hedge
- Tax free investment
- Inflation hedge
- Finite supply
- Personal possession of a concrete asset
Can fine wine investments be considered profitable investments? Yes, they can; investors ready to spend money to enrich their portfolio should definitely think of diversification through wine. As smart selection backed up by a detailed understanding of the market will lead to incredible returns. If you’re a starting entrepreneur looking to get a piece of the action, start by getting informed first. Know the ins and outs of the business, ask for help, and before you know it you’ll become a wine guru.