Wine, for some it's passion, love, quality and a potable link to a time and place long ago and far away. Wine can also be extremely valuable, and can appreciate rapidly...very rapidly. So should you be considering making the jump in to fine wine as an investment?
Some quick benefits of wine as an investment:
1 : Fine wine investment is generally exempt from Capital Gains Tax
2 : Investment in fine wine has historically achieved annual compound interest of up to 10%.
3 : Fine wine has a proven stable performance doesn't follow the volatile financial markets and offers a means to diversify investment portfolios.
"Since 1988, when reliable data first became available, the fine wine investment market has generated an annualised return of 12.1%."
Adventurous and sophisticated investors have long been tempted by the prospect of tax-free returns from investing in wine, and some even enjoy a glass or two or trip abroad in the process - purely for investment analysis purposes of course.
Not only are savers struggling for a way to grow their money, but stock markets are also volatile and that makes investing in alternative and above all "tangible" assets look attractive. Gold, art, diamonds, cars, watches are all seeing surges in sales as investment pieces. As currencies, stocks and pensions seem ever more unstable, you can understand why an asset you can hide under the mattress looks ever more enticing.
"Investors in fine wine see 10% annualised returns over the past 5 years compared to FTSE's 0.03%"
Emma Wall, The Telegraph
Prices of fine wine hit the headlines in recent years when they rocketed from 2009 to 2011, as measured by the wine industry’s benchmark, the Liv-ex 100, which tracks the prices of 100 of the most sought after fine wines. However a slump hit after this and prices took a dive, before rising slightly and then steadying in 2013. Investors who like fine wine say that it is a solid alternative asset, in finite supply, that is relatively easily tradable. Crucially, as a 'perishable' item it is not subject to capital gains tax as long as you are not trading regularly.
If you enjoy a tipple, learning and collecting, it could prove a good way of combining a hobby with something that could make money.However, this market is only for sophisticated wealthy investors as this is an unregulated asset class so you will have no financial protection if things go wrong.
How Are Wines Valued?
Wine critics are the fund analysts of this market. A good review from an established critic such as Robert Parker Jr. can send prices soaring.
Once a wine is out there to enjoy, its price reacts to drinking habits: every time a bottle is opened, there is one less in the world. A Chateau can only produce a finite number of bottles each year, and these cannot be replenished. With an excellent vintage, you can expect price growth to last at least ten years after bottling. So be prepared to invest for the medium or long-term.
As with any investment, there will always be risks. The value of wine can sway up and down. Wine in particular is vulnerable to weather conditions and market demand. The wine investment market has been riddled with scams, cons and fakes. It is an unregulated market so it is easy for fraudsters to set up and prey on vulnerable people. Fraudsters love nothing more than someone with money and just enough knowledge but who isn't an expert. There are also examples of companies that have failed to find decent investments and subsequently collapsed.
A wine merchant will sell you the wine you want to invest in. You should always deal with an established, reputable merchant. This point cannot be over-emphasised. The reason is that the wine trade is unregulated, making it easy for scam operators to con naïve investors into parting with their money for dodgy bottles of wine.
The industry regularly raise issues about wine investment scams, exaggerated returns, or tempting investment offers that seem to good to be true, so it is important to do your homework on who your merchants are, how long they have traded for and what other people say about them. A fine example is Berry Bros. in St.James, long established and trustworthy.
Wine merchants do not charge a direct fee for their services. Instead they take a 10-15 per cent margin on the wines they sell to private investors. This cost is priced into your purchase.
So if you're after a Mid-Long term investment in a tangible asset, wine may be for you.