Barclays Wealth and Investment Management conducted a survey in 2012 and found that 28% of high net worth individuals owned a wine collection and that on average 2% of their net worth was invested in that wine. Since 2012 it is expected that the figure is closer to 32% of high net worth individuals owning some form of wine collection. Wine trading and collecting have been around for centuries and in various forms, it was present during the days of the ancient Greeks, Egyptians, and Romans.
The value of fine wine has continued to rise today despite the pandemic, with some auction houses turning double their expected profit. In the past, investing in wine used to be a pastime for the elite, but nowadays, anybody can invest in wine, and there are online platforms and wine merchants that make it easy. However, there is no regulation on this alternative investment, and it is very easy to get scammed in the wine world. This guide will discuss everything you need to know about wine investment, tips to use, and different ways to invest in wine.
The wine investment market
So what about the current wine investment market, is it worth finding out more?
Looking back at historical performance investing in wine shows a very low correlation to typical mainstream assets. This of course makes it a useful portfolio diversifier due to its resilience during a recession. Estimates offered up by academic researchers suggest a 4.1% return on your investment in real terms between 1900 and 2012 meaning it has typically outperformed alternative assets such as stamps and art.
There are two ways to enter the market as a private investor in wine. The most common way is to purchase bottles or cases through an established wine merchant. The second option is to invest in wine funds. A wine fund offers investors the opportunity to invest in ‘en primeur’ wine, which is basically future wine. The wine you invest in is sat in barrels with 2 to 3 years left before it is ready for bottling. This allows investors the opportunity to own a percentage of a barrel of vintage wine at a lower price with the only risk being the value not reaching its target when its bottled and sold years down the line.
The Liv-ex 100 Index that features on the Bloomberg terminal is considered the industry benchmark when it comes to tracking the prices of market leading fine wines. Due to Liv-ex, collectors can now receive independent valuations of wine they either wish to invest in or they already own and want to sell. The prices are verified through the trading information on the marketplace and also via merchant members in order to provide the most accurate information.
The modern fine wine market is set up to cater for all types of investors. Small private investors aiming for personal collections are spoilt for choice and large investors looking for consistent high returns can also be appeased. If you wish to find out more about investing in fine wine then please contact us below.
Is Wine a Profitable Investment?
Wine investment is an excellent alternative investment that enables you to diversify your portfolio, counter market volatility, and manage portfolio risk. The value of the wine is not based on factors that affect stocks and bonds like economic performance, corporate earnings, and interest rates – enabling you to have a distinct diversification source. Besides, factors like harvest yields, consumer trends, weather patterns, vintage, demand, and supply affect the value of wine.
Unlike the global stock market, the fine wine market has outperformed many exchange-traded funds (ETFs) and global equities, and it has delivered more than 13% annual returns over the past 15 years. Wine investment can be very lucrative if done well, and you need to note that the indexes from wine exchanges and auction houses are not a replica of the performance of individual wines.
Tips to Follow When Investing in Wine
Target Investment-Grade Wine
Fine wine with the ability to increase its value after about five years is referred to as investment-grade wine. When evaluating these types of wine, there are different factors like scarcity, age-worthiness, vintage, pedigree, critic ratings, price appreciation, and longevity. Let’s take a look at some of these factors.
Wines with limited quantities are usually more valuable as scarcity increases the value of the wines. For example, the Dom Perignon 2002 and Domaine de La Romanée-Conti are some of the few wines produced in small quantities annually, making them valuable to investors and wine connoisseurs alike.
You need to know the aging potential of the wine you want to invest in, as it is critical to its investment-worthiness. Also, the type of grape used, acid levels, flavour, tannins, and alcohol can affect the age-worthiness of the wine.
The winemaker’s reputation has a considerable impact on the wine’s potential for value appreciation. Most investment wines come from leading wine producers in top regions like Burgundy, Tuscany, Rhone Valley, and the Bordeaux region.
- Critic Ratings
Critic ratings have an impact on the potential value of a wine. Wines with a rating of 95 by wine critics are deemed investment-worthy.
Invest for Long-term Returns
Just like any investment market, the wine market is volatile. You will not double your investment in a short time, so you need to look at a minimum five-year horizon. However, five to 10 years is the optimum term to benefit from a classic market cycle.
Research the Wine Market
To be a successful wine investor, you need to know the wine market and everything it entails. There are different resources and books you can use as references, and you can also join the mailing lists of wine companies to be at the top of every new release. Plus, you need to follow the market demand when purchasing investment-grade wines.
There are different costs associated with wine investment, and storage costs are very big. This is because wine not appropriately stored will lose its taste and decrease market value. You need to compare the prices of different fine wine storage companies or find out if your wine merchant provides storage insurance. Besides, you can store your wine at a bonded warehouse, where they’ll be exempt from VAT and duty payments.
Understand Market Risks
Even though fine wines are less volatile than other investment opportunities, some risks are still involved. Your wines can get damaged in transit or storage, wine value does not increase forever, and there are fake investment-grade wines in the market.
There are different wine investment scams in the market. This is why you must use a well-known merchant or platform when investing in wine to avoid falling prey to these scams.