If you’ve read our recent articles on the effects of coronavirus on the Italian wine industry, you might have noticed a titbit of information that stood out.
As the entire industry struggles, investors are pointing towards wine as one of the best things to buy into. In fact, some are going to abandon stocks, shares, and other assets that have been made unstable during this crisis to bring their ships into the comparatively safe harbour of Italian, French, and other wines.
The question is why?
It doesn’t seem to make much sense. After all we’ve also see a downswing in the purchase of high-quality wines, such as Barolo and Chianti. How can people be investing in wine if that’s happening?
It all comes down to the differences between an investor and a regular wine drinker.
When most people buy a bottle of wine, they do it with the intention of drinking the wine sooner, rather than later. But when an investor buys, they’re looking for vintages that will increase in value over time, thus giving them a return on the investment.
In other words, an investor who buys an expensive bottle of wine now is looking far into the future in regards to making a profit on it.
So that answers the why in terms of why somebody would invest in wine in the first place.
But why would somebody choose to invest in wine over the many other asset classes out there? We can think of a few reasons.
Reason #1 – There’s Always a Demand
No matter what happens in the world, there will always be a demand for wine. We’re seeing this during the coronavirus pandemic. Though people are certainly buying less wine, the demand is still there. For now, it’s just a little harder for people to justify the purchase when they have so much uncertainty floating around their finances.
For investors, there will always be people who want to get their hands on certain types of vintages. These high-end wines have a very specific market of people who are far less likely to be affected by external events, even a pandemic.
The presence of that demand means that a wine investor can always feel fairly confident about making a return. They just need to do their research to find the right type of wine to invest in.
Speaking of which…
Reason #2 – Knowledge Actually Pays Off
If you ask any investor to tell you honestly about investing in stocks, they’ll tell you that it’s always a bit of a gamble. No matter how much research they put into getting it right, external forces can ruin the gamble in an instant. And just like that, they’ve lost a ton of money.
You’re taking less of a gamble when you invest in wine.
There are always certain producers that investors favour. The same goes for certain types of wine and even specific qualities that you might find in a wine. If you understand what these things are, you’re in a great position to pick out good wine investments that are very likely to pay off in the future.
Of course, the element of luck doesn’t leave entirely. There’s always a chance that market tastes may evolve. But there’s certainly less risk with wine than there is with other investment vehicles.
Reason #3 – They’re Great Over the Long-Term
The great thing about wines is that they tend to get more valuable as time goes on. People age wines to ensure they reach an optimal level before tasting them.
And an investor can take advantage of that.
Just think about what sounds more appealing to a buyer…
Here’s a wine that you’ll need to hold onto for about 10 years.
Here’s a wine that I bought 10 years ago. It’s aged to perfect and ready to drink.
It’s the latter every time. An investor who buys a wine today isn’t looking to make a profit tomorrow. They’re looking for a stable asset that will pay off many years into the future. And each day that passes leads to a small amount of appreciation until the investor reaches the perfect point to make a return.
And if the wine doesn’t end up improving in value for whatever reason, you at least have a stellar bottle that you can enjoy for yourself.
Reason #4 – The Numbers Don’t Lie…
Wine is an extremely lucrative investment.
An article published in Bloomberg examined this fact in more detail. According to the article:
“Had you allocated $100,000 to Cult Wines, a U.K.-based wine portfolio manager, your money—which is to say your wine—would have returned an average of 13 percent annually. In 2016, its index performance was actually 26 percent.”
Those are enormous returns and they’re not at all uncommon in wine investing circles. If you know what you’re doing and invest in the right places, you stand to make a massive profit.
The key here is that you work with somebody who understand the industry. You can learn what you need to know over time and maybe even start making investments without guidance. But when you start out, you can look to a manager to point you in the direction of wines and wine companies that are very likely to generate big returns.
There are few stocks, shares, fund, or even properties that can hit those sorts of numbers with any regularity over many years. So in addition to stability, a wine investor will get enormous returns.
The Final Word
Those investing in wine right now are doing it for a number of reasons. They see wine as a safe and secure investment that can also generate great returns. And moreover, they recognise that the current situation is only a temporary one. While it’s wreaking havoc on markets all over the world, wine’s weathering the storm better than most.
And that means it’s more likely to come out stronger when the pandemic is over.
Unfortunately, we can’t help you directly if you want to invest in wine. You’ll need a good portfolio manager for that. But we may just be able to help you find some amazing wines that could become part of your portfolio. Just check out our catalogue to start your search!