Wine investing may appeal to investors seeking exposure to alternative asset classes. Owning wine as an investment can add diversification to a portfolio, which can act as an inflationary hedge and a buffer against market volatility.
And while investing in a tangible asset has its own risks, wine can potentially offer returns over time. Online platforms have made it easier to invest in wine, though some investors may prefer to build a physical collection of their own. There are pros and cons to both approaches to investing in wine.
The Rise of Wine as an Alternative Investment
Wine holds some attraction for investors, and it’s gained popularity as an alternative investment in recent years. Fine wine assets recorded an average growth of 146% during the 10 years ending in the fourth quarter of 2023.
Technology has also reshaped the wine investing landscape. Investors are no longer limited to setting up their own wine cellar; online platforms offer access to diversified portfolios of fine wines and premium whiskies. The barrier to entry can be lower in some cases, making wine a more accessible investment overall.
In addition, investing in wine is an opportunity to explore your passions. If you consider yourself a wine connoisseur, holding wine as an investment could be a natural fit. As with any type of investment, it helps to be engaged in the assets you own.
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Is Wine a Good Investment Option?
Wine offers some unique advantages for investors who are interested in adding something different to their portfolio. Historically, investment-grade wine returns an average compound annual growth rate of 10%. As a point of comparison, since its inception the S&P 500 has also delivered historical returns of about 10% annually.
To better track the wine market, investors may want to become familiar with benchmarks like the London International Vintners Exchange (aka, the Liv-ex). Similar to how the S&P 500 index is the benchmark for U.S. equities, the Liv-ex tracks the international wine market.
While it’s possible to debate whether wine should be considered a commodity vs. a security, there’s no question that many investors turn to wine as an investment. Following are some of the reasons investors find it to be an attractive option:
• Investing in wine allows for diversification with little to no correlation to stocks, bonds, and other traditional asset classes.
• Like real estate and other alternatives, wine is generally less susceptible to disruptions in the market that may result in increased volatility.
• Wine investments may hold steady during periods of rising inflation or market downturns, including recessionary periods.
• Fine wines can be an effective risk management tool when held alongside more traditional assets.
Risks and Considerations of Wine Investing
Before exploring wine investments, it’s helpful to consider the potential risks. For example:
• Wine may require a sizable initial investment if you’re purchasing individual bottles or buying into a private placement wine fund.
• Similar to the risks of investing in art, transporting and insuring physical wine collections can be expensive, and you face the risk of bottles being damaged or spoiled.
• Wine generally requires a longer holding period than other investments, which may not be ideal if you don’t want to be “locked in” for a certain time frame.
• Wine investment requires thorough due diligence to ensure that you’re working with a reputable platform, auction house, exchange, or private seller.
• Supply and demand, weather and climate conditions, and geopolitical events can all influence the value of fine wines.
Lastly, remember that nothing is guaranteed with wine or any other alternative asset class, like gold or real estate. While it’s certainly possible to generate substantial returns through wine investments, it can be just as easy to lose money.
Building a Portfolio
There are several ways to build a portfolio that includes wine investments. Your options for investing in wine include:
• Purchasing physical bottles of wine
• Investing in wine funds
• Buying wine stocks
• Investing in wine futures
The first step in building a wine portfolio is deciding which investment option makes the most sense.
Buying Fine Wine
Owning physical wine assets can be time-consuming and expensive, as you’ll need to research the wines you want to buy, arrange for their purchase and delivery, and ensure they’re stored appropriately to prevent spoilage. You may need to insure the wine you buy.
If you’re interested in collecting wines, you may use online or in-person auctions or wine exchanges to seek out your preferred vintages.
Wine Funds and Wine Stocks
Investing in wine funds may be more appealing if you don’t want the burden of maintaining a physical collection, or you want exposure to a diversified mix of wines. Investors can trade mutual funds or exchange-traded funds (ETFs) that include alcohol-producing companies, as well as companies in the wine sector.
It’s also possible to buy individual shares of stock in wineries and wine companies. Getting to know the wine industry, various technologies, and the relevance of different companies and products is key, as it would be when investing in any type of stock.
Wine Investing Platforms
Private placements are another option. Wine investing platforms allow access to actively managed portfolios of fine wines and premium spirits through private placement. One thing to note is that you may need to be an accredited investor to pursue private wine investments. The SEC defines accredited investors as individuals who have:
• Net worth exceeding $1 million (not including their primary residence), OR
• Income over $200,000 individually ($300,000 for married couples) in each of the two prior years, with a reasonable expectation of the same income in future years, OR
• A valid Series 7, Series 65, or Series 82 securities license
Wine Futures
If you’re comfortable with speculative investments, you might consider investing in wine futures. Similar to investing in commodities futures, this strategy involves investing in wines before they’re bottled. You can purchase specific vintages via futures contracts before they’re released, which may allow a competitive edge in the market if those vintages are highly sought after upon release.
As with commodities futures, there can be substantial risks to this strategy. Futures are derivative investments, meaning their value is determined by the price of the underlying asset, i.e., the wine you’re agreeing to trade. And outcomes rely largely on investors making correct assumptions about which commodity prices will move. It’s possible to lose money on futures contracts if you’re expecting prices to increase but they decline instead.
Managing a Wine Investment Portfolio
How you manage wine investments can depend largely on how you own them. If you’re collecting physical bottles, for instance, then your primary considerations include:
• Storage
• Transport, if you need to move your collection or are ready to sell at auction
• Timing and when it makes sense to sell, once a wine matures
• Wine insurance to protect your investment against losses stemming from theft, damage, and other covered perils
With wine funds and stocks, you’ll need to consider diversification and what you’re gaining exposure to, as well as the overall cost of owning those investments. It’s also important to look at the minimum investment required, as well as the holding period where wine funds are concerned.
Wine typically requires longer holding periods than stocks or bonds and you need to be comfortable with how long you may have to wait to sell your investment.
How much of your portfolio should you dedicate to wine investments? The answer can depend on how much money you have to invest, the degree of risk you’re comfortable with, and your goals for investing in wine. There’s no fixed rule of thumb for deciding how much of a portfolio to invest in alternatives. For some investors, 5% is more than enough while others may be comfortable with 10% or more.
Reviewing the entirety of your portfolio, your time horizon for investing, and your goals can give you a better idea of how much to invest in wine.
Explore Alternative Investments With SoFi
Wine is just one way to diversify a portfolio. If you’re ready to explore alternative investments, SoFi Invest offers access to a range of choices, including commodities, private credit, and real estate. Almost anyone can invest, and high net worth isn’t a requirement.
Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.
FAQ
What factors make wine a viable alternative investment?
Wine is considered an alternative investment thanks to its low correlation with traditional asset classes like stocks and bonds. Investing in wine can act as an inflationary hedge and provide some protection against market volatility. It’s also an opportunity to invest in something you’re passionate about if collecting or enjoying wine is one of your hobbies.
What are the potential risks of investing in fine wines?
The main risks associated with wine investing center on changing valuations and the potential for damage or spoilage of physical wine collections. Changing supply and demand or poor weather can influence wine prices while maintaining a wine inventory has its risks. If you plan to own wines, it’s wise to purchase wine insurance to protect your investment.
How can investors build and manage a diversified wine portfolio?
Building a diversified wine portfolio begins with deciding how you’d prefer to own wines. Physical ownership has its pros and cons and some investors may choose to invest in alt funds, wine stocks, or wine futures instead. Managing your wine investments requires regular review of performance and asset allocation to ensure that you’re maintaining a diversified mix that aligns with your risk tolerance.
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