City thinking, local knowledge

The Quirky Investor’s Guide: Wine

By cfmaster in on Oct 09, 2018

Wine is perhaps the most quintessential ‘fun’ investment choice. However, wine is more than just fun – it’s incredibly profitable. Fine wine is one of the best performing asset classes of the last 20 years.

What’s more, it’s rising in value. The Liv-Ex Fine Wine 100 index has more than trebled since its launch in 2003. Also, fine wine investment is exempt from capital gains tax because it is classed as a wasting asset.

As with any investment, there are risks and wine is more susceptible to large price moves than most other investments. Just looking at a graph of the Liv-Ex index should show you that fine wine prices are something of a roller-coaster ride.

However, worst case scenario, if your wine portfolio falls sharply in value you can wait for the price to pick up again, as it generally does. Fine wine investment has almost always seen positive returns over a five year holding period and has outperformed global equities 98% of the time. Alternatively, you could drown your sorrows with some high quality wine, although you might regret uncorking your valuable assets the morning after.

This means it is best to think of wine as just a small part of your overall investment portfolio. Done wisely, you aren’t allocating yourself too much risk and you still have the chance to see some good returns on your initial investment.

When investing in wine, the general rule of thumb is to purchase the very best you can afford. Some experts would even suggest that you stick to the châteaux of Bordeaux, which has historically dominated fine wines. Generally, these see the best chance of ticking over a steady profit margin.

However, things are changing. In recent years, the distinguished French region has lost some of its hold on the market. In 2017, Bordeaux’s share of the fine wine market dropped below 70% as Burgundy rose to take over 10% of the market for the first time.

More expensive wines have a stronger record and are more likely to have a truly global reputation. This means you are likely to have more chance of seeing solid returns. Another factor is storage costs. A smaller quantity of finer wines will cost you less to store than multiple cases of cheaper wines. Usually storage costs around £15 per year.

The best wines are produced in small quantities, with a maximum of 20,000 cases being the upper limit. As more and more bottles are consumed over time, the increased demand for a finite supply causes prices to rise. Factor in the reality that wine matures over time and it becomes clear why prices appreciate over the years. As a result, it’s best to invest over a longer period of time.

If you seriously invest in wine, you’d be unwise to store it in your cellar or kitchen cupboard. By storing your cases ‘in bond’, in a climate controlled warehouse optimised for storage, your wine will be exempt from VAT and duty and less likely to get damaged. Importantly, this stops the temptation to open an expensive bottle at the end of an evening!

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