Not Just to Drink, Can Wine Outperform the S&P 500?

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The following post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga.

Wine isn’t only useful for drinking. Carefully selected portfolios of fine wine can outperform the S&P 500 — in fact, they have done so over considerable periods.  

As Vinovest points out, fine wine has outperformed the S&P over the past 30 years. Wine profits are not a random shot in the dark that depends on a special year or significant event. Wines have performed well historically.

Portfolio Diversification

As with any investment, investors can experience down years in wine. But the general performance of the fine wine sector over time has beaten stock market averages, and returns show little correlation with stock market returns. Diversification is the secret of successful portfolio allocation. In more colloquial language, don’t put all your eggs in 1 basket or your wine in 1 case.

It’s Worked for Centuries

U.K. college and gentlemen’s clubs have been riding the wine investment wave for eons. The British investment plan involves buying double the amount of a good year’s new wine, storing it until it is mature — perhaps 20 to 30 years for reds, less for whites — then selling half. The revenue from that half will be enough to buy another double portion, and the second half can be consumed for free. The centuries-old model depends on these qualities:

• Rarity and scarcity: With the passing of time, old items of value become rarer. Things that are scarce — like a precious few bottles of a particularly fine vintage — tend to be worth more.
• Maturation: Great wines aren’t necessarily ready to drink immediately due to the process of maturation and development of the flavor and character of the wine. They mature through the years and decades. Of course, a wine that has waited 30 years to be ready is worth more than one in the present. The value rises as the wines get closer to their best date.
• Name and brand: The quality of a particular year’s wine varies, and it can take decades of maturation to find out which is the best. That uncertainty means that the investment should be in a portfolio, not in your basement. This also means that those that really improve as a libation can soar in value as their quality and distinction becomes apparent.

Buying stock in wine producers fails to achieve the potential appreciation wine portfolios offer. Investing in Diageo DEO or Constellation Brands STZ won’t provide the hedge of a wine-focused portfolio because profits and value there depend upon the production costs, not the rise in value during the maturation process.

It’s A Portfolio, Not Just a Purchase

The risks in buying 1 case of fine wine and putting it in the cellar are high. It might not be fully insured and stored in a proper environment, and the vagaries of wine popularity mean that particular estates have good and bad years and can move in and out of style. An expert guide like Vinovest might yield a balanced portfolio in a hot sector.

A Final Benefit

Wine offers much to a savvy investor. A portfolio filled with whites and reds brings more joy than a market basket of microchips and farm equipment. If stocks don’t perform, they’re just pieces of paper. In the worst case, for the holder of the wine portfolio, à votre santé.

Check out Vinovest here.

The preceding post was written and/or published as a collaboration between Benzinga’s in-house sponsored content team and a financial partner of Benzinga. Although the piece is not and should not be construed as editorial content, the sponsored content team works to ensure that any and all information contained within is true and accurate to the best of their knowledge and research. This content is for informational purposes only and not intended to be investing advice.