This article is brought to you in partnership with Vinovest
Most people don’t even know that they can invest in fine wine. As a result, there’s quite a bit of confusion over wine investing itself. Today, I’m clearing the air. Here are five myths about wine investing that are costing you money.
#1 – You Must Be Rich To Invest
This statement might have been true a few years ago. Today, not so much. Online investing platforms like Liv-ex and Vinovest have dramatically lowered the barriers to entry. Anyone can invest from anywhere in the world.
One of the traditional barriers was storage. Estimates for residential wine cellars run between $15,000 to $180,000. If you don’t have a couple hundred thousand dollars lying around, it’s hard to imagine becoming a wine investor.
Today, wine investing platforms handle storage for you in exchange for a fee. They also take care of shipping, authentication, and insurance. All you have to do is add funds to your account. It’s that easy. While there’s no hard and fast number for how much you should invest, $5,000 to $10,000 should ensure a well-diversified portfolio.
#2 – It’s Bordeaux or Bust
It’s almost impossible to overstate Bordeaux’s historical stranglehold on the wine market. In 2010, the region accounted for nearly 96% of wines traded on the secondary market. As a point of reference, Google only has 92.47% of the search engine market, and you probably can’t remember the last time you used Bing or Yahoo!
That paradigm has shifted. Currently, Bordeaux accounts for less than 45% of the total trade by value. The broadening fine wine market has seen the stratospheric rise of Tuscany and Piedmont, with the Rhône, Champagne, Burgundy, and Napa also commanding a fair amount of attention.
Case and point: these burgeoning regions have had impressive returns since November 2019. Tuscany Champagne, and California have all outperformed Bordeaux, with Piedmont not far behind. So, if you don’t have Bordeaux in your portfolio, there’s nothing to worry about.
#3 – Wine Prices Are Volatile
Of all the myths, this is the mythyist of them. Wine has bond-like volatility, a pillar for stable and reliable investing. Don’t just take my word for it. Take it from Two Sigma Investments, a hedge fund with $58 billion in assets under management.
Its researchers examined the performance of fine wine as an asset. It found that wine has roughly a third of the volatility of global equities. That means wine investors experience a smoother overall ride from when they make their first deposit until they realize their gains.
The low volatility is important for another reason: compound interest. Low volatility makes it easier to reinvest your earnings into your principal balance. When that happens, you can generate additional wealth over time. Albert Einstein even heralded compound interest as “the eighth wonder of the world.”
Aspen Funds showed the power of compound interest with a simple example. In Scenario #1, a $150,000 portfolio saw high volatility, with alternating years of 50% and -30% returns. In Scenario #2, the same portfolio saw no volatility and 9% growth each year. Which one had a higher return on investment?
You guessed it, Scenario #2, and it wasn’t even close. Scenario #2 produced six times greater returns ($1,326,768 vs. $207,893) despite having a lower average annual return (9% vs. 10%). The point is that fine wine allows investors to take full advantage of the powers of compound interest due to its low volatility.
#4 – Wine Investing Is Complicated and Time-Consuming
Call me George Washington because I cannot tell a lie. Wine can be confusing. Wine investing is a different story, though. Let me explain.
There are roughly 20 investment-grade wine regions in the world. You know and love them – the Barossa Valley, Bordeaux, Burgundy, Champagne, Mosel, Napa, Sonoma, and so on. From there, there are hundreds of wineries in each region. Each of those wineries produces a wide range of wines. Combine that with a new vintage every year, and you have to have a mountain of information to read and retain.
Fortunately, you do not have to be a master sommelier or oenologist to invest in wine. The best investment platforms provide the guardrails to invest with confidence.
The company starts with a questionnaire. This one-minute survey helps Vinovest tailor portfolios to investors’ goals and preferences. Do they want to invest for the long or short term? Do they want to grow aggressively or conservatively?
That’s not all. The company uses an AI-driven algorithm and master sommeliers to select wines. The algorithm computes millions of data points in a fraction of the time that it would take an individual, while the master sommeliers provide a human touch. Plus, investors can talk with portfolio advisors and portfolio managers at any time. That way, questions get answered whenever they pop up.
#5 – Fine Wine Will Make You Rich Quick
Fine wine is not cryptocurrency. As much as the industry would like to grow 2,400,000% like Shuba Inu Coin (no, that is not a typo), it just can’t. Investors will just have to settle for doubling their money every seven or eight years.
Sarcasm aside, fine wine is a remarkably consistent performer. According to the investment firm Knight Frank, fine wine was the third-best performing alternative asset over the last decade:
– Rare whisky – 478% return
– Vintage cars – 193% return
– Fine wine – 127% return
– Handbags – 108% return
– Watches – 89% return
– Coins – 72% return
– Art – 71% return
– Jewelry – 67% return
– Colored diamonds – 39% return
– Furniture – 22% return
While fine wine might not make you a millionaire overnight, it does reward patience. Anyone willing to invest for the long term should see their net worth compound and grow with each passing year.