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Investors know the importance of diversifying their portfolio, and buying fine wines is a way to expand that diversification beyond the traditional world of stocks and bonds. Fine wines are usually profitable over the long term, and can yield some remarkable returns. Global demand for exquisite wine has boomed significantly over the past 10 years. Fine wine is not an object of enjoyment anymore, but a sensible investment commodity. In spite of this, a small fraction of the world’s wines have the capacity to increase in value. If you are contemplating investing in wine, here are some tips that can help you make money there.
Before you invest in anything, you should learn about it, and the world of wine is no exception. Read as much as you can find about the top investment grade wines. Learn the major wine regions, especially in France, and find out the top producers there and what they are known for. Sample fine wines yourself so you can begin to understand the differences. Study the track record of different wines, so you can start to see the type of returns on investment that are possible. Learning about wine will be an on-going process, but the more you know, the better.
Understand how wine appreciates
First of all, you want to invest in red wines, not whites. This is because red wines mature and develop over a longer period of time (sometimes 50 years or even more), while most white wines reach their peak and start to decline much sooner. The fact that red wine can get better as it ages is one of the reasons that it increases in value. You buy the wine when it is young, cellar it properly for years, and then sell it when it reaches the perfect point. A second reason that wine goes up in value is because the supply goes down. A chateau only produces so many bottles of a particular vintage. As consumers drink those bottles, the number left on the market decreases, which raises the price.
Understand the risks
There is no such thing as a guaranteed investment, and wine is no exception. Not all wine goes up in value. You also face risks of breakage or spoilage. If wine is not transported carefully and stored in a perfect, climate-controlled environment, it can spoil and turn to vinegar, and you lose your investment. You may also have difficulty selling it quickly when you want to get your cash out, because unlike stocks or bonds, selling wine takes time to find the right buyer. Another risk is holding onto it too long, so that the wine peaks in quality and begins its decline.
Study what the wine critics say
In the field of fine wines, there are a handful of wine critics who wield enormous power. If Robert Parker says that a wine is superb, the price can shoot up. If he says that a wine is disappointing, its value can plummet. Study what these wine experts say, getting familiar with the major critics and how they evaluate wine. Try some wines yourself, and see if you can pick up on the nuances that they describe. Uncovering the latest wine trends can also be helpful when it comes to making money with wine investments.
“Liquid” wines are the best
If you’re looking to get into the wine investment business, you should turn your attention to “liquid wines”. It’s really important to select a product with sufficient volume of supply and liquidity, as well as with a well-established track record. In case a wine portfolio has wines with diminished financial liquidity (en-primeurs or very young wines), the risk profile of the initial investment may rise tremendously. New investors are advised to know the market prior to starting to spend any money. Check Liv-ex, talk to experts in the field, hire someone to help you deal with the paperwork, and don’t make irrational decisions, no matter how tempting they may seem.
Profiting from wine investment business is challenging. Patience, commitment and love for the product itself, are all critical traits you must possess. There are risks involved; however, as long as you make sensible decisions, you have great chances of witnessing incredible returns.
About the Author
William Taylor is the writer of this article and is a regular contributor at many sites, mainly focusing on business related topics. He recommends www.wineinvestment.com which provides a range of leading edge service solutions to the fine wine market.