The Fine Wine Investment Market has witnessed significant growth both in monetary terms and in public interest over past few decades, but to most, it can seem like a mysterious and obscure world to understand. To many, the concept of purchasing fine wine, not for the primary purpose of consumption may seem an odd, curious or even ludicrous idea. So, in this article, we want to help you understand the complexities of Fine Wine Investment and demystify how it works. Together will look to explore the basics of the Fine Wine Investment Market, its history, its opportunities, and how you can get involved with investing in wine.
A Very Fine History
In a sense, fine wine investment has always existed, as simply to purchase a good wine and allow it to improve with age is an ‘investment’ of time and trial of patience. Indeed, this is the premise of the market today, as over time certain fine wines become rarer as they are consumed and changing in character as they age, potentially making them more desirable and leading to an increased monetary return.
Fine Wine Investment as we now know it, however, most clearly emerged towards the end of the 20th Century, as the market increased in size, participation and accessibility.
In its early days, the fine wine market was steady, generally bringing double-figure percentage returns, and was mainly conducted by wine merchants. The past decade has been much more volatile, experiencing a boom between 2005-2011, a crash from 2011-2014, and a more stable market ever since. Recent impressive growth has been partly attributed to the EU referendum, as investors look to alternative assets in times of uncertainty to store their wealth and also to take advantage of the subsequent lower value of sterling.
Why Invest in Fine Wine?
The main reasons for one to consider investing in fine wine are:
- Potential for good growth opportunity and return on investment
- It is a good way to diversify a portfolio, as it is not directly correlated to other stock markets (though has been linked to emerging market performance[1])
- Fine wine investment can offer investors significant tax advantages, as profits made are normally not subject to Capital Gains Tax – it should be stressed that one should consult with a tax advisor on this
Finally, it is often said though that one should never invest in wine one is not willing to drink if it crashes. Though it is obviously inadvisable and costly to drink your investment, it is certainly true that in the event of market volatility, your investment will always maintain a certain utility.
How long should I invest in Fine Wine?
Much like you would be advised if entering an investment fund, you should be comfortable with keeping your fine wine investment for at least five years, and often up to ten or more. This will allow time both for some of the other supply to decrease and for the ageing process to take place, ultimately, increasing demand. This will normally lead to a reliable return if you have invested in wines wisely.
What are Investment Grade Wines?
If you’re considering getting involved with investing in fine wine, figuring out where to begin in this market can be a difficult challenge, it can be easy to get lost and overwhelmed by the sheer number of wines, producers and vintages to choose from.
The most important qualities for investment-grade wines are:
- That they age well in-bottle
- There is a liquid market for them (i.e. sufficient supply and demand that you can buy and sell when you wish, knowing a market price)
- They have a strong track record of price growth
- The wine is from a well-received vintage – bear in mind critical reviews
If you are thinking of purchasing fine wine for the first time, it is best to stick to the Bordeaux Grand Cru Classé estates – these are what the market revolves around, with approximations that 80% of the world’s investment grade wines come from this region. However, the Liv-Ex Fine Wine 1000 Index is also comprised of wines from Burgundy, Rhône, Champagne, Italy, and even some from the so-called ‘New World’ such as Australia and California. These are certainly possibilities to consider, particularly for more experienced investors.
Getting Involved in Wine Investment
It is important to stress that investing in wine will not produce a guaranteed return, and so, as with all variable investments, you should never invest what you cannot afford to lose. If you want to explore the possibility of investing, the best ways to proceed may be:
- Speak to a trusted merchant, wine fund or wine broker
- Ensure the suitability of your broker by researching their reviews, past clients and endorsements
- Use price-checking software such as wine-searcher.com to ensure you are paying a fair price
- Consider investing in fewer, higher quality wines – this comes with the downside that you cannot diversify as much but will save you money on storage costs
Also, a note of caution: due to the Bull Market of 2005-2011, many fraudsters began entering the world of fine wine investment, promising investors large and easy returns, or undervaluing the wine clients were looking to sell.
Practicalities: Buying, Storing, Managing & Selling Fine Wine
There is nothing so costly in fine wine investment as improper storage, and so it is highly recommended to use a government licensed bonded warehouse, as this is the best way to prove provenance, and may even offer some tax benefits; VAT and Excise Duty does not apply whilst they are kept there! Moreover, the wine will be kept at a constant temperature, and will not be damaged, making it preferable to home storage. You can also guarantee that you won’t break into a case yourself one excitable night!
Once you have purchased your investment, you will have to pay ongoing storage costs and should regularly check the price of your investment.
Use resources such as:
- Liv-Ex (a wine trade exchange for buying and selling wine) and Cellar Watch
- Websites such as wine-searcher.com
- Our Free Online Wine Valuation and Quotation Tool
Finally, when it comes to selling your wine investment, ensure you use a reputable trader or wine merchant and are getting a fair price for your wine.
References
https://www.ft.com/content/59eaee64-a819-11e6-8898-79a99e2a4de6
http://blog.vinfolio.com/2016/06/02/best-investment-wines-beginning-collectors/
http://thewineinvestors.com/investment-wines/investment-grade-wines/
https://jftwines.com/wine-resources/selling-wine/selling-wine-in-bond/
[1] The long-term financial drivers of fine wine prices: The role of emerging markets (http://www.sciencedirect.com/science/article/pii/S1062976917302594) supports this, or, for an easier read, the FT shows the link between Chinese money supply and the fine wine market (https://www.ft.com/content/3c3b1c46-0e02-11e7-a88c-50ba212dce4d)
