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Wine can be a top-shelf investment. Here's proof

For the wealthy, a bottle of red can diversify a portfolio

By - Last modified: November 26, 2013 at 8:36 AM

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A $5,000 bottle of wine to go in your $50,000 wine cellar may seem like the most egregious example of conspicuous consumption by the wealthy since Ann Romney's infamous $990 T-shirt.

In reality, it may just be a good investment.

Top-tier earners may have regained much of the losses they sustained during the 2008 financial crisis. But as they look to avoid the next downturn — and watch so many traditional investments such as real estate still struggling — they are seeking different ways to diversify their holdings.

Howard Davidowitz, the chairman of Davidowitz & Associates, a national retail consulting and investment banking firm based in New York, knows this first hand. He said his clients simply are looking to "buy more stuff."

And while some are turning to traditional luxury items such as jewelry, art and diamonds, others are looking to wine.

"I absolutely believe this because I see it," he said.

So does Gary Fisch, the owner and operator of Gary's Wine and Marketplace stores in Bernardsville, Madison and Wayne.

Fisch said the recession and Hurricane Sandy put a damper on wine collecting, but "in the last three or four months, people have started coming back."

"This is a liquid asset," he said.

But John Foy, of Hoboken, a wine writer who buys and sells wine at auction on behalf of collectors, warned that wine is a volatile, high-risk investment.

During the 2008 financial crisis, he said, there was a huge sell-off of wine collections by Wall Streeters "who had lost their jobs or lost a significant amount of their income. It was a good time to buy."

Then, from 2010 to 2012, Chinese buyers chasing the most valuable French wines drove prices sky high — but prices fell when those buyers exited the market last year.

"You need to understand that this is a very gradual, long-term investment," Foy said, and like other commodities — like gold — should be limited to about 5 percent of an investor's portfolio. "My advice: Do not buy wine as a major part of your portfolio."

Diahann Lassus, president of the wealth management firm Lassus Wherley, echoed that advice, since collectables, unlike financial assets, such as stocks and bonds, only generate cash when sold.

"I can see it as something that is really interesting to people who love fine wine and are fascinated by it," she said. "But it is not something I would recommend to novices."

Not all investors are turned off, though. Kristy Niro, a wine consultant in Rumson, has been collecting fine wines with her husband for about 20 years. Mostly they buy wines to drink, but they also attend wine auctions where they have acquired about 25 wines as an investment.

With three children, Niro figures that some day their wine portfolio "could pay some college tuition bills, or it could go toward retirement or investing in another business."

Getting into the wine game is not easy.

Buying wine is similar to other high-end purchases — the market can change daily, and you must know a good deal when you see it. Opportunity is everything.

Of course, once you make the investment, you must protect it. That's where Jay Rosen comes in.

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Rosen has built more than 400 home wine cellars since 1991, when his avocation as a lover of wine became his vocation, and Washington Valley Cellars, in Martinsville, was born.

He said his clients are wealthier than most. And lately, they've been calling more often for his custom-designed, climate-controlled wine rooms, which cost from around $15,000 to $100,000 or more.

Rosen, who appreciates a top-quality wine, understands the need for his services — though he not necessarily convinced his cellars are a good investment on the real estate side of things.

"If the person who wants to buy your house doesn't drink wine, it has no impact whatsoever," Rosen said. "It's like a pool: Some people buy a house with a pool, and then fill in the pool."

Wine itself, however, is different.

As Ann Romney found out, we're in a time when those with money often find they have to defend their ability to spend it.

When word circulated that the shirt she wore during an interview with a morning talk show cost just under a thousand dollars, it gave her opponents an opportunity to present her as out of touch with ordinary Americans.

Spending $990 for a bottle of wine may be a more socially acceptable way to show off your wealth because it brings with it an ability to share it with others.

Lassus said she knows a man who "decided his wine collection was getting out of hand, and so he started having wine parties, so his friends and family would get to enjoy the wine while he was still around."

Fisch said that's the big difference with using wine as an investment.

"If you pay $100 for a bottle of wine and in ten years it's worth $500, then it was a great investment," he said. "If it's only worth $125, you still have a great bottle of wine."

E-mail to: beth@njbiz.com
On Twitter: @bethfitzgerald8 | @NJBIZ

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Beth Fitzgerald

Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.

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