Investing in fine wines has become increasingly popular over the past few decades as many in the viticulture industry have promoted fermented grapes as a way to boost returns and diversify a portfolio. The rapid rise in public interest has been accompanied by a growing body of economic literature. The evidence suggests it may not be wise to buy wine as investment instead of for drinking. Investing in common stocks yield higher returns in the long run – and is less risky.
As you might expect, the wine trade considers its product the ultimate asset. Industry insiders have argued that wine generates above-average returns, helps to diversify an investor’s portfolio (thus lowering its risk) and – if all fails – the owner can still drink it.
Zachy’s, a major New York wine retailer and wine auction house, for example, claims that auction prices of top Bordeaux wines have increased 25% to 50% annually in the past few years. And back in 1998, Peter Meltzer of the Wine Spectator, the world’s largest wine magazine, wrote that the wine market outpaced the Dow Jones Industrial Average throughout the 1990s.
A would-be investor should know that the majority of wines are not “investment-grade” – a financial term signifying relatively low risk – and will not benefit from being stored for more than two or three years. Experienced wine investors concentrate on only the finest growths from Bordeaux and Burgundy and selected wines from California.
