Tips for Safe Wine Investment

iStock_000003550102XSmallIf you have extra money and are not sure where to invest, alternative markets can offer satisfying rewards and benefits that are not typically found in the more traditional markets. Alternative investments can run the gamut from coins to vintage cars to artwork to fine wines, but the common thread throughout all of these markets is that you own something tangible. You can enjoy looking at your investments or showing them off while waiting for the right time to sell for profit.

Fine Wine as a Safe (and Fun) Investment

For safe portfolio diversification, investment in fine wines has increased in popularity as a hedge against wild fluctuations in the stock market or other financial markets. When properly handled and stored, wines from established estates will improve with age and become dearer as supply runs low. But be careful here because for investment purposes, not all wines are the same.

Investment Grade Wine

There is a great variety of New World wines available to enjoy around the table, but estates from Bordeaux produce the tried and true vintages that do not flux with changes in the stock market. The majority of investment wines come from Bordeaux, with producers from Champagne, Burgundy and the Rhone Valley making up most of the remaining supply.

Global Warming Improves Vintages

The steady increase in worldwide temperatures has been good for the grapes. The warmer weather has positively affected wines coming from Burgundy and Bordeaux over the past decade and it seems that the trend will continue. There have been fewer storms to damage vineyards and overall climate changes have helped produce vintages that can be purchased with little doubt that they will increase in value. The only question is how much?

The best advice for a beginning investment? Study the market, narrow down your preferences and consult with a reputable wine merchant to find a suitable entry point.

Solid Investments in an Evolving Wine Market

in the late 1990s, ultra-fine wine produced in Australia was predicted to be worthy of investment, but today that is not the case. There iStock_000011499766XSmallare a number of reasons for this, not the least of which is the general movements in the wine market during the past decade. Recent changes take into account increasing internet sales, a renaissance in the Bordeaux market, Hong Kong’s zero tax rate, Chinese speculative buying and the new international wine funds. Australia’s once popular cult wine market has eased up as well.
Australia’s Place in the Market

Contrary to predictions, the Australian wines were unable to capture and hold on to a corner of the fine wine investment market. One particular Australian First Growth that was singled out for success, Penfolds Grange, failed to keep up with investments in Bordeaux. A combination of downward price pressure, inability to compete and increasing costs all helped to nail that coffin shut. Many of Australia’s wine brokers are now out of business and unfortunate buyers of the recommended wines took a big hit at resale.

Choosing the Correct Wine for Investment

We know that it can take decades to build up a strong reputation in the market, with track record being the strongest market indicator. Other aspects that can make or break a wine investment are regional character and price evolution. The Australian wines that investors were encouraged to buy in the late 1990s and into early 2000 were in fact second or third wines from emerging producers. While they were not bad wines, they did not meet the expectations of investment wines. Other factors working against the Australian market have been the spiraling exchange rate, evolution of fashion trends and the cost of doing business.

Wine Auctions as an Indicator

Watching the auctions has been the most effective way to gauge wine trends. If a fine wine generates a lot of excitement in an auction, it is usually followed by market success. But even with emerging wines, first growths from reputable wine estates will always hold the highest probability for success.