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Transcript
- Lucas: So Luna, I was looking at the latest CPI print — 332.8 for July, up just a tick from 332.57. And it got me thinking about all the stuff we talk about on this show, the classic ways inflation sneaks into your wallet. But today I wanted to talk about something a little more… delicious. Luna: Delicious? Are we finally doing an episode on how inflation is eating your grocery bill? Lucas: Close, but no. I'm talking about wine. Collectible wine. You know, the stuff people buy as an 'investment' — cases of Bordeaux, Burgundy, maybe some cult Napa cab. It's marketed as a store of value, an inflation hedge. But like so many alternative assets, it has this quiet, corrosive cost structure that most hobbyists never fully account for. Luna: Right, because it's not just the price of the bottle. There's storage, insurance, and the fact that you can't exactly sell a Château Margaux on a moment's notice. Lucas: Exactly. And that's the angle. We've done episodes on how inflation eats your emergency fund, your dividend stocks, even your gold. But wine is this unique beast because it combines the problems of a physical asset with the illiquidity of a private equity stake. And unlike gold, which is up over 1 percent this week to around 44 hundred an ounce, wine doesn't have that kind of transparent market. Luna: So before we dive in — and I know we're just getting started — I want to say something. You know, our show is completely ad-free, and that's something I'm really proud of. It means we can talk about stuff like this without any sponsor telling us to 'invest in gold' or 'buy this wine fund.' Lucas: Yeah, and if you find these conversations useful — maybe they've helped you think about a financial decision differently — you can support us at buy me a coffee dot com slash fexingo. It's a small gesture, but it keeps the lights on and the episodes coming. Luna: Exactly. And honestly, every little bit helps. But back to the wine cellar, because I want to know — how does inflation actually eat a wine collection? Lucas: So first, let's talk about the cost of storage. Wine is famously finicky. It needs steady temperature, around 55 degrees Fahrenheit, and humidity around 70 percent. If you don't have a proper cellar, you're looking at paying a professional storage facility. Those fees can run anywhere from 10 to 20 dollars a case per year. For a serious collection — say 500 cases — that's 5,000 to 10,000 dollars a year just to keep the bottles alive. Luna: And that's a pure expense. It's not like you're earning a yield on that money. It's a negative carry. Lucas: Right. And then there's insurance. Standard homeowners policies typically don't cover collectibles above a certain value. You need a separate rider, which can add another 1 to 2 percent of the collection's appraised value annually. On a 100,000-dollar collection, that's another 1,000 to 2,000 dollars a year. So now you're at maybe 3 percent of your collection's value just in carrying costs. Luna: And that's before you even think about the opportunity cost. That money could be in a money market fund earning — what, 4 percent? The Fed funds rate is sitting at 3.63 right now. Lucas: Precisely. And that's the quiet killer. Inflation is running around 2.3 percent on a ten-year breakeven basis, but your wine has to appreciate enough to cover storage, insurance, AND that lost yield. So if your collection is growing at, say, 5 percent a year in value — which is a decent long-term average for fine wine — you're actually only netting maybe 2 percent after costs. And that's if it appreciates at all. Luna: But wine has those vintage years where certain bottles just explode in value. Like a 2000 Mouton Rothschild or something. Lucas: Oh, absolutely. There are stories of cases bought at 500 dollars that sell for 10,000 at auction twenty years later. But here's the thing — those are the exceptions. The average bottle of wine, even from a good vintage, might appreciate modestly, but you have to factor in the risk of spoilage, breakage, or just a market that shifts. And wine is also highly illiquid. You can't just list it on an exchange. You're dealing with auction houses that take commissions of 15 to 25 percent, or private dealers who will lowball you if you need to sell quickly. Luna: So it's almost like a private equity investment — high fees, no liquidity, and a long time horizon. But at least with private equity you get a financial statement. With wine, you get a cork. Lucas: And that's a great way to frame it. The other thing people overlook is the bid-ask spread. If you buy a case of wine from a retailer, you're paying retail. If you try to sell it back, you're getting wholesale or auction prices. That gap can be 30 to 50 percent. So you're starting in a hole before you even open the first bottle. Luna: So what's the actual data on wine returns? I've seen some indexes that claim 10 percent annualized, but I'm skeptical. Lucas: And you should be. There are indexes like the Liv-ex 100 that track fine wine prices, and they've shown solid gains over long periods — but they're heavily weighted toward top Bordeaux and Burgundy, and they don't account for carrying costs or transaction fees. When you strip those out, the net return looks a lot more like a bond than a growth stock. And it's a very lumpy, unpredictable bond. Luna: So is wine ever a good inflation hedge? Or is it just a hobby with a fancy label? Lucas: I think it's a hobby first, investment second. If you genuinely enjoy wine — the taste, the history, the thrill of hunting down a rare bottle — then it's a passion that might preserve some value. But if you're purely looking at it as a financial asset, the math is tough. The carrying costs alone can eat up your real returns. And we haven't even talked about the risk of a changing climate, which could drastically alter the value of certain regions and vintages. Luna: Climate change is a huge wildcard. A heatwave in Bordeaux could make a whole vintage less desirable, or more desirable if it's a 'warm year' that produces concentrated wines. It's unpredictable. Lucas: Exactly. So my takeaway is this: if you're going to buy wine as an investment, treat it like a concentrated speculative position. Keep it to a small percentage of your net worth, buy only what you would enjoy drinking, and be prepared to hold for decades. And remember, the real inflation hedge might just be your salary — especially if it goes up with the cost of living. Luna: That's a good point. The best inflation hedge is often your earning power. And a diversified portfolio with equities, TIPS, and maybe a little gold. But not a cellar full of Bordeaux. Lucas: Right. So next time someone tells you that wine is a great inflation hedge, ask them how much they're paying for storage and insurance. And then ask them how quickly they could liquidate if they needed cash. The answers will tell you everything. Luna: And if they hesitate... just pour yourself a glass and enjoy it. Lucas: Ha, I'll drink to that. That's all for today. We'll be back tomorrow with more ways inflation is quietly sneaking into your wallet.