Interested in becoming a wine collector? There are two primary reasons why individuals collect wine; as an investment to personally enjoy at a later date, or as a financial investment with the intention of generating a profit from a future sale.
During uncertain economic times, individual investors often turn to alternative investments, rather than traditional securities for their private capital. Commodities such as gold, platinum and even wine top the individual investor lists within the U.S. and around the globe when the more well known investment markets begin to exhibit signs of fluctuation. Before you turn to wine as an investment, it is crucial to understand the financial opportunity, initial investment costs, what to select and how to care for the investment over time in order to realize the potential appreciation.
Building a Wine Collection- Understanding the Investment
Investors can begin to build an impressive collection on a relatively modest capital investment. Wine investors begin their collection by purchasing by the case, ranging in price from $2,000 to $10,000+, depending upon the vintage and producer. Each wine will have an associated prime maturity date, or time frame in which the investment value is expected to peak.
Most investment grade wines will develop their value several years following their addition to your collection, but of course this depends upon when you purchased it and if it had an inherent value at the time of purchase. Therefore, investors should have an investment time frame of 5-10 years, as the appreciation will unlikely be available within the shorter term. Appreciation ranges from 20-120% depending upon the vintage, purchase price and final sales price of each individual bottle. Shorter and longer term investments should be utilized within the investor’s portfolio to provide for proper investment diversification.
Building a Collection- Basics of Evaluating Wines
As you begin to search for wines, there are several terms and factors in which you should become familiar with, including:
· Wine Scores– Most wine enthusiasts are familiar with scores commonly assigned to individual wines. These scores not only help an individual to select a wine to enjoy, but enable investors and traders to establish their position. Wine scores are also universally understood worldwide, opening up the wine market to global investors.
· Wine Futures– Also referred to as En Primeur, wine futures refer to purchasing wine after it is made, but before it has been bottled and is a wine investment niche. Samples of these wines are created for collectors, distributors and journalists to taste, allowing bottles to be sold, but not shipped until 1-2 years later. Many investors are attracted to this opportunity, as there is a greater chance of purchasing a wine at a discounted value that will appreciate faster or greater than more well-known wines already sold on the open market.
· Wine Prices– Statistics showing price fluctuations of wines can be a valuable tool for selecting investment grade wines. Just as you would utilize a stock price chart, look for wines that are considered undervalued currently, as they hold an opportunity for capital appreciation.
In addition to prices, futures and scores, investors should also take note of fill levels, insurance, wine storage and valuation when making investment selections for their collection.
Which Wines Hold Their Value when Stored?
While a variety of wines can be considered investment grade, yielding investors profits over time, there are a few well known types that are often added to portfolios for their long term, proven capital appreciation track records.
Many wine portfolios include classic red Bordeaux from top vintages as these wines have a well established secondary market, making them a solid long term investment. These wines are also known for their positive reaction to wine storage over time. The top vineyards produce a limited quantity of cases per year, typically less than 500,000. This limit in quantity is one of the factors determining the value of these wines, as it pushes their values higher than other vintages.
For investors who are interested in both red and white wines, Burgundy wines may be appealing. These wines are also produced in restricted volumes, so are often purchased immediately following their release. There are only a few Burgundy wines that have established a strong secondary market presence, including Domaine de la Romanee-Conti.
Over the past decade, interest has increased in wine collection, so additional vintages have begun to develop a secondary market presence. Italy, Spain, Rhone Valley and California regions are now each producing wines with a strong secondary market presence, giving investors more to select from than the Bordeaux or Burgundy wines. These secondary markets are newer, so the trading volume is significantly slower than the more traditional investment grade wines.
For port lovers, there are investment grade options including Croft, Taylor, Fonseca and Graham. One of the attractions to port as a long term investment is that it ages well in wine storage, giving them a strong longevity.
Keeping your Investment at its Top Quality
When purchasing great wines as an investment, it is crucial to understand how to store them, as if they are stored improperly, their value will never reach its true potential. Ideal wine storage conditions include wine rack, wine chillers, and an environment that is neither too dry, nor too damp. Most wine experts recommend the temperature of wine cellar storage to be near 55 degrees Fahrenheit. Wine should also be free of light and vibration. While collectors could establish proper storage within their homes, most turn to professionals for their valuable collections.
So, if you are in search of alternative investment options during this uncertain economy, consider wine collecting. Worst case scenario, you are building an amazing collection of wine that you can enjoy potentially for decades.
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