Wine investing can look incredibly complicated from the outside.

There are thousands of producers, hundreds of regions, different vintages, critic scores, bottle formats, storage rules and prices ranging from £20 to tens of thousands of pounds.

So where on earth do you start?

For me, one of the best places is Bordeaux. More specifically, with a list drawn up in 1855 that still influences the fine-wine market today.

The story begins with the 1855 Paris Universal Exhibition.

Napoleon III wanted France to showcase the very best it had to offer, and Bordeaux’s wine merchants were asked to produce a classification of the region’s finest wines.

Importantly, they didn’t simply sit around tasting bottles and deciding which ones they liked most.

The classification was heavily influenced by two things: the reputation of each château and the prices its wine was already achieving in the market. In other words, the classification reflected what buyers were actually prepared to pay.

That makes it particularly interesting from an investment perspective.

It was, in many ways, a nineteenth-century attempt to identify Bordeaux’s blue-chip wine producers.

The red wines were separated into five levels, or “Growths”.

At the top sit the Premier Cru, or First Growths.

Today there are five:

Château Lafite Rothschild
Château Latour
Château Margaux
Château Haut-Brion
Château Mouton Rothschild

These are essentially the aristocracy of Bordeaux.

Below them sit the Second, Third, Fourth and Fifth Growths, containing many other famous names including Château Cos d’Estournel, Château Montrose, Château Palmer and Château Lynch-Bages.

There are currently 61 classified red wine estates: 60 from the Médoc and Château Haut-Brion from what is now Pessac-Léognan. The classification also covers 27 sweet-wine estates from Sauternes and Barsac, giving 88 classified estates in total.

Château d’Yquem sits alone at the very top of the Sauternes hierarchy as Premier Cru Supérieur.

Perhaps the most extraordinary thing about the classification is its longevity.

Wine estates have changed owners. Vineyards have been bought and sold. Winemaking technology has transformed. Consumer tastes have changed dramatically.

Yet the 1855 hierarchy has experienced only two official changes.

Château Cantemerle was added as a Fifth Growth later in 1855, while Château Mouton Rothschild achieved its famous promotion from Second Growth to First Growth in 1973.

That means a ranking created when Queen Victoria was on the British throne continues to influence the price and prestige of wine today.

For an alternative asset, that sort of brand longevity is difficult to ignore.

And this is where investors need to be careful.

A First Growth is not automatically a good investment simply because it says Premier Cru Classé on the bottle.

Likewise, a Fifth Growth is not automatically inferior. The market has spent 170 years making its own adjustments.

Some estates classified lower down have developed enormous reputations, while several Second Growths are now commonly referred to as “Super Seconds” because their quality, demand and pricing can challenge the First Growths. Sotheby’s highlights names such as Cos d’Estournel, Ducru-Beaucaillou and Léoville Las Cases in this category.

Think of the 1855 Classification as the starting grid rather than the finishing order.

Here is another important lesson for beginners.

Some of the most expensive and desirable wines in Bordeaux aren’t in the 1855 Classification at all.

Pétrus, Le Pin, Cheval Blanc and other great Right Bank wines sit outside it because the classification largely concerns the Médoc on Bordeaux’s Left Bank.

Saint-Émilion has its own classification system, while Pomerol — home of Pétrus and Le Pin — has no official classification.

Yet Liv-ex includes Pétrus, Cheval Blanc, Lafleur, Le Pin and Ausone in its Right Bank Super 50 index alongside separate indices covering Bordeaux’s First Growths and other leading wines.

So classification matters enormously.

But the market matters more.

This is also an investment, not a magic bottle-shaped savings account.

At the time of writing, the Liv-ex Fine Wine 50 — which tracks the ten most recent physical vintages of the five Bordeaux First Growths — is actually down 22.4% over five years, despite recovering 2.3% over the past year.

That is a useful reminder that prestige does not eliminate risk.

Wine produces no dividends. There is no interest payment while you wait. Storage costs money. Buying and selling involves spreads and fees. And ultimately you still need somebody willing to buy your wine at a higher price than you paid for it.

If you want to start investing in wine, don't begin by randomly buying expensive bottles.

Begin by understanding the hierarchy.

The 1855 Classification gives us an excellent framework for doing exactly that. It introduces some of the world's most established wine brands and shows us which estates have maintained international demand for generations.

But it is only the first layer.

Knowing that Château Margaux is a First Growth tells us something.

It doesn't tell us whether the 2019 vintage is attractively priced, whether a particular case has impeccable provenance, whether we should buy six bottles or twelve, whether we should buy en primeur, or whether another vintage offers substantially better value.

And those are the questions that start turning a collection of expensive bottles into an investment portfolio.

Next, we need to talk about vintages.

Because when investing in wine, the château is only half the story.

The Compounder
Long-term investing made simple.

The Compounder is for financial education and commentary only. I am not authorised or regulated by the Financial Conduct Authority and I do not provide financial advice, investment advice, or personal recommendations. Nothing published here should be taken as a recommendation to buy, sell, hold or switch any investment, fund, pension, ISA, crypto asset or financial product. Always do your own research and consider speaking to an FCA-authorised financial adviser if you are unsure.