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Is Vinovest wine investing really worth it?
Is wine investing a good way to diversify your investment portfolio?
What are the potential risks involved in wine investing with Vinovest?
Risks of Wine Investing With Vinovest
Wine investing is speculative in nature.
The price of the wine you purchase may decrease or lose its value completely.
There are also two interesting clauses in Vinovest’s terms and conditions.
“You and Vinovest agree that any claim or dispute at law or equity that has arisen or may arise between us relating in any way to this or previous versions of the Vinovest Terms, your use of the Vinovest Site or Services, or to any products sold or distributed by Vinovest or through the Vinovest Site or Services will be resolved by binding arbitration, rather than in court.“
“You and Vinovest agree that each of us may bring claims against the other only on an individual basis and not as a plaintiff or class member in any purported class or representative action.”
In short, you are to waive your right to bring a class action lawsuit against Vinovest.
Also, you agree to settle any dispute or claim by arbitration instead of court.
These are basically protecting Vinovest from any potential future lawsuits.
For example, in the event that you and other wine investors suffer a huge investment loss because the price of the wine that Vinovest bought for you went down sharply, you will NOT be able to bring a class action lawsuit together with other investors against Vinovest.
By having you agree to that, Vinovest can significantly limit its legal risks.
Without this clause, Vinovest would probably have a bigger incentive to protect investors’ interests because of the potential legal risks.
So, this clause does not help align your interests with Vinovest’s interests.
In fact, this clause does exactly the opposite.
It’s like you have to basically hope and pray that Vinovest would act in your best interest when it comes to buying and selling wine.
How Vinovest Works
Vinovest is a wine investing platform that makes wine investing very simple and fast for everyday investors.
Its platform is very easy to use.
There are two types of accounts that you can create:
- A managed account (i.e. you authorize Vinovest to buy and sell wine for you)
- Trading account (i.e. you make your own buying and selling decisions)
Let’s say you create a managed account.
After you set your investment criteria (e.g. risk tolerance and investment horizon), Vinovest’s algorithm helps you create a diversified wine portfolio that matches your investment criteria.
There are three different types of risk tolerance:
If you choose “Aggressive”, the algorithm will choose more wines from emerging markets because these wines have higher potential (but could also have higher risks).
If you choose “Conservative”, the algorithm will choose more blue-chip wines from well-established regions that have track records of price appreciation.
Vinovest’s most popular wine-buying regions include Bordeaux, Burgundy, Champagne, and the Rhône in France, Barolo and Piedmont in Italy, and some regions in Spain and California.
It is also keeping an eye on up-and-coming regions such as Australia, Chile, and Argentina.
It is somewhat similar to stock investing.
Aggressive stock investors invest in risky high-growth stocks while conservative stock investors go for safe blue-chip stocks.
Vinovest sources wines directly from wineries, global wine exchanges, and merchants.
According to its website, it aims to buy wine at its provenance rather than intermediaries to ensure more market transparency.
It also claims that it always tries to buy wine below retail price to help investors achieve the maximum possible return on investment.
The buying process takes about 2 to 3 weeks.
After Vinovest buys your wine, it authenticates, ships, and stores the bottles at the nearest bonded warehouse.
By the way, the wines are stored under your name.
So, if anything happens to Vinovest, you still get your wine.
With Vinovest, it’s very simple to sell your wine in your portfolio.
Before you create an account, there are four different tiers for you to choose from.
For each tier, the minimum investment requirement and annual fee are different.
The higher tier it is, the more exclusive benefits you have.
If your wine portfolio is algorithmically managed under the Starter and Plus tiers, when the wine reaches either your selected timeline or the final year of the ideal selling window, Vinovest will try to sell those wines at no cost to you.
But, if you are under the Premium or Grand Cru tier, you can customize your wine portfolio as well as choose to algorithmically manage your portfolio.
The Premium or Grand Cru tiers are more suitable for seasoned wine investors who know a lot of wine and want to select which wine to invest.
The selling process usually takes about 4 to 8 weeks.
If you decide not to sell your wine, you can request to have your wine delivered to your home as well.
Vinovest Pros & Cons
Let’s talk about the drawback of wine investing with Vinovest.
First of all, Vinovest says that it can take up to 90 days to sell your wine, but on average it takes about one to two months.
With stocks, you can liquidate your stock holdings within seconds.
Also, the selling process is not very clear and transparent.
Where and how does Vinovest find buyers to buy your wine?
How does it make sure you get the highest selling price for your wine?
The current wine price you see in your portfolio is the average of thousands of daily price points taken from the secondary market by Vinovest.
On the other hand, with stock investing, you can see the buy and sell price at any time.
Secondly, the fees involved in wine investing with Vinovest are much higher, especially compared with stock investing.
Vinovest charges an annual management fee that varies based on your investment tier.
The current fee structure is as follows:
- Standard Tier: 2.85%
- Plus Tier: 2.75%
- Premier Tier: 2.5%
- Grand Cru Tier: 2.25%
High annual fees can result in a significant decrease in your returns over the long term.
On top of the annual fees, if you sell within 3 years of receiving your wine, you will be charged a 3% early liquidation penalty.
If you choose to sell your wine on Vinovest Marketplace, you will be charged a 1.5% selling fee after your wine is sold.
Now, let’s look at how much of a negative impact these fees can have on your returns.
Assuming that you are on Standard Tier and your $10,000 wine portfolio has appreciated 6% every year for 3 years and you want to sell it, here’s what your return would be with and without the fees.
With fees: your $10,000 wine portfolio becomes $10,920, or up around 9.2%
Without fees: your $10,000 wine portfolio becomes $11,800, or up 18%.
As you can see, the fees can substantially reduce your investment returns.
That’s one of the biggest drawbacks of wine investing with Vinovest.
With stocks, there are no transaction fees.
If you invest in index ETFs, the annual management fee can be as low as 0.1%.
Personally, I still prefer stock investing to wine investing.
Of course, there are advantages to using Vinovestto invest in wine.
For example, it makes it hassle-free for investors to invest in wine because it helps take care of buying, storage, authentication, insurance, and selling.
It also alerts you when your wine is ready to sell because its team keeps track of each wine’s maturity date which corresponds with its peak value.
Of course, this convenience is reflected in the fees charged to you every year.
In addition, the wine Vinovest buys for you is under your name.
If Vinovest fails, you still retain 100% ownership of your wine.
The storage facilities will get in touch with you and ask you if you want to continue to store your wine there or ship the wine to your home or liquidate your wine via auction.
So, is wine investing with Vinovest a good idea?
If you are very knowledgeable about wine and are confident about picking the winners, then Vinovest is a very easy-to-use platform for you to invest in wine, although I still don’t like the fees.
However, if you are a beginner investor in wine and completely rely on Vinovest’s algorithm to help you invest, then I think you might be better off with stock investing because Vinovest does not have a proven track record yet.