There’s a growing trend around investment in fine wine, offering diversification and the potential for returns.
There are many people who enjoy a glass of wine, and some who go to great lengths to collect a fine, vintage bottle. For others, an interest in fine wine may lead them to consider it as a potential way to diversify their investment portfolio.
“Wine is an example of people turning a passion into an investment,” says Angie O’Leary, head of wealth planning at RBC Wealth Management-U.S. “It’s comparable to individuals who also choose to invest in scarce tangible assets such as rare coins, classic cars or antiques.” There’s a growing trend, she says, around passion investing that goes beyond simply collecting for personal use, instead offering diversification and the potential for investment returns.
To demonstrate the increasing interest in this type of investing, there are a series of indices that track prices in the fine wine market. The industry-leading benchmark is the London International Vintners Exchange, which includes the Liv-ex Fine Wine 100 Index that tracks the top 100 most sought-after wines. The index generated a five-year return of more than 22 percent through the end of 2018.
But that kind of return doesn’t mean you should go out and completely fill your portfolio with wine or other such investments, says Liz Jacovino, wealth strategist at RBC Wealth Management-U.S.
“Wine, like other passion investments, should only represent a small part of your overall portfolio, and needs to fit within the context of your overall asset mix,” she says.
While many fans and collectors of wine may think buying premium bottles of wine is the only way to invest in the product, there are actually several different methods to tap this market, including:
France – specifically the Bordeaux and Burgundy regions – produces the majority of high-demand wine for investment purposes. In fact, up to 80 percent of all investment-grade wine comes from France. A smaller amount of investable wine comes from Italy and California.
Many investors prefer to hire a professional wine manager to help recommend and facilitate their purchases. Because this is an ever-changing marketplace, it requires a great deal of specialized knowledge to separate the best investment opportunities from the rest of the market.
“Ultimately, the person advising you will also likely be the one who will take the wine you own to market for you,” says Jacovino.
As with any investment, it’s crucial to understand the risks of investing in wine, which could include:
“Expect a holding period of at least 10 years to benefit from potential price appreciation, though it’s reasonable to plan on holding your investment for even longer,” says Jacovino.
Getting into the wine market with the goal of earning a return requires an understanding of the challenges and risks involved, which is why many wine investors seek the guidance of professional wine buyers. While the potential market for wine may lead some investors to consider it a potential way to diversify their portfolios, working with someone experienced in the marketplace could allow your passion investment, just like a fine bottle of wine, to appreciate with age.
RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.
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