Consider wine as a potential investment

March 21, 2008

If you love to impress your friends with a good bottle of cabernet sauvignon, you might like it as an investment, too.

Key Points

So you enjoy drinking wine, and have become a budding oenophile. You've been to a few tastings at your local wine shop, have started reading the wine magazines, and want to start a collection. The good news is your wine cellar is a lot like an investment portfolio: If you buy shrewdly, the value will grow. Even better, the profits from buying and selling top-drawer wines can support you through a long life of drinking enjoyment.

To continue the wine-as-investment metaphor, the first step in building a portfolio is to find a broker who will help you manage it. In this case it's a wine retailer who will learn your tastes and direct you to new wines you might enjoy. Even more important, a smart retailer will recommend older wines to buy for profit.

Build a wine "pyramid"

However, the structure is the same.

The average client starts with an investment of about $15,000, enough to create three well-diversified tiers. The bottom and largest tier is everyday wine, which turns over frequently. The middle tier is composed of "safe" wines-those that the owner enjoys enough to hold for years and save for special occasions. The top tier of the pyramid-equal to only about 15 percent of the initial investment amount-is made up of top-flight wines that are bought purely for profit. (See page 44 for wine suggestions to start your own cellar.)

Over two decades of buying wine, Palmer has found that it generally takes about seven years to profit from more-expensive wines. (You can always hold them longer if they age well.) In managing his own collection, his patience has been rewarded handsomely. By making savvy selections, Palmer's "risk" wines have paid for the rest of his cellar.

The idea is to select wines that will be highly sought after by other oenophiles over time, as their vintages gain a reputation for greatness and become scarcer as the supply dwindles. These investment wines are often French, and largely reds, because whites have a reputation for not aging well. (Whites are meant to enjoy while they're young and fresh.) A popular and reliable source for wine information and pricing is noted wine writer and critic Robert Parker's website, http://erobertparker.com/, which charges a $99 annual subscription fee. The website http://wine-searcher.com/ is another good place to check pricing.

Protect your liquid assets

The second step in building your wine portfolio is having a proper place to store the goods. "You can't just put it under the stairs," Palmer says. "It's not going to work. Wine is by its very nature fickle."

Take, for example, burgundy, which is prized by wine investors. Palmer says it's rare to lose money buying the right burgundy of the right vintage. However, burgundy is made from the pinot noir grape, which, if stored incorrectly, will deteriorate. And so will any hope of a profit.

To stay its best, wine needs a temperature-controlled environment. Optimal is cold, but not freezing, typically 56 degrees Fahrenheit. You should also keep humidity in mind: Some is good, but not too much. With too much, the labels on the bottles start to rot. It won't hurt the wine, but it'll hurt its resale value.