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Making a Wise Investment in the Wine Industry

When it comes to diversifying your portfolio, have you ever considered some vino?


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As the long-awaited harvest season begins in Colorado's wine country, many of us are starting to daydream about heading west, perhaps to Palisade or the Grand Junction area, to take a vineyard tour and enjoy a glass or two of Colorado’s finest homegrown wine.

According to Scientific America, the oldest fermented beverage known as the “9,000-year-old rice and honey wine” was identified in shards of pottery in Central China.  Since that first-known glass of wine, we have certainly come a long way. In the U.S., wine sales are growing at an average rate of 12 percent, with Colorado wine drinkers consuming more than the U.S. average.

Colorado's wine industry has been steadily growing for years; there are now 146 producers in the state. It is estimated that the contribution of the Colorado wine industry to our local economy is around $21.1 million from direct wine sales. Setting aside the pleasure many of us get from drinking it, should we consider investing in wine and how do we go about doing so?

First, there are a handful of companies that are traded publicly on the U.S. markets.

Second, some winemakers may be seeking family investors or private equity funding to fuel their expansion.

Finally, there is the acquisition option. Many vineyards began as family operations or small businesses.

For the savvy investor with a high tolerance for risk, acquiring a small vineyard either to operate or simply improve and sell may be a viable option that could potentially bring returns. For others, spirit companies could be considered part of a well-balanced portfolio.

It’s important to understand if you are truly interested in investing in wine, there are three main considerations to weigh before making a decision:

1. Is there a market for the wine you are purchasing? A market must exist where the item can be purchased and sold on-demand. Liquidity is part of this – the time lag that is required to sell a wine and the costs of doing so.

2. Would your investment be durable? You might hold your mutual funds for years, but you will want to make sure that your wine investment will have some lasting value as well. According to some experts, wines from Bordeaux and Burgundy are some of the most-sought-after wines in the world and therefore have lasting value while wines from countries like Italy or Australia may not hold the same.

3. What would price variability look like? This refers to the price that you will get on the open market when you sell the wine and whether or not it will exceed the cost of obtaining and storing the wine.

Thanks to wine lovers around the world, the consumable remains an industry that holds appeal for some investors. Of course, like most investments, this asset class carries significant risk. The wise investor will have to consider various options, look closely at both industry trends and individual companies, and decide whether or not to take a taste. 

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Shelley Ford

Shelley Ford is a financial advisor with The Pelican Bay Group of Morgan Stanley Wealth Management in downtown Denver.  Shelley can be reached at 303-572-4839 or visit http://www.morganstanleyfa.com/shelley.ford/.

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