Building a wine collection, whether for investment or consumption – or a blend of both – can seem a daunting task to those just beginning to appreciate and drink fine wines. However, if approached the same way one would structure a portfolio of assets, it becomes a very familiar exercise to those in the financial industry.
Questions to consider, whether starting anew or looking to add to an existing cellar, are: What is your overall goal? What is your time horizon? Do you want to diversify? What is your expected Return on Investment? And perhaps most important: what do you enjoy drinking? Even those who are looking solely to wine as an investment should consider this last question, for as we all know, past performance is no guarantee of future returns. Or, as one of my clients used to tell me during the US housing crisis in 2008, “Hope is not a viable investment strategy.” However, this is what makes wine such a wonderful ‘liquid asset’ in which to invest – you always have the option of drinking your portfolio.
Time horizon is therefore is of significant importance, as wines have ‘drinking windows’ in which they are ideally consumed. Certain regions are known for producing age-worthy wines, Bordeaux being the prime example, with some vintages better for long-term ageing, such as 2005 and 2006 Bordeaux.
Purchasing Bordeaux en primeur, or futures, is also a valid option, depending on the chateaux release prices. If you’re looking to recognize returns in the short-term, one could consider new world wines or purchasing older vintage wines which are reaching the end of their drinking period. This is not to say that wines from California or Australia are not meant for long-term ageing; this is a perception rather than reality, but we also know that perception can drive markets.
Regarding diversification, the regions for fine wine investment have broadened beyond Bordeaux, which until 2012 comprised more than 90 per cent of the Liv-Ex fine wine Index trade by value. Wines from Australia, Spain, Napa, Piemonte and Burgundy should all be considered for an investment portfolio, but no regional wines have performed as well as Super Tuscans (Masseto, Tignanello, Solaia, Ornellaia, and Sassicaia) over the past five years. Even better, they are absolutely delicious.
So, even if looking to wine solely as an investment, I would urge you to consider choosing not only the wines with the best potential to appreciate, but that your palate also appreciates.
And as comedian Jack Handey said, “Sometimes when I reflect back on all the wine I drink, I feel shame! Then I look into the glass and think about the workers in the vineyards and all of their hopes and dreams. If I didn’t drink this wine, they might be out of work, and their dreams would be shattered.” Yet another reason to start your collection.