People often take to investing in wine rather than stocks and shares because of the way this market has performed and grown reliably over the years. Others simply use it as a way of diversifying their investment portfolio – a case of not keeping your eggs all in one basket.
The results over the last couple of decades have been interesting to say the least. Some of the top bottles of wine, particularly from the Bordeaux regions, have boosted in price by as much as 165% in the last five years – a return you very rarely get when it comes to traditional stocks and shares – while the average increase is between 5% and 15%.
Financial and wine markets aren’t entirely mutually exclusive. The big financial crash of 2008 did cause changes in the prices of vintage wine produced at the time. Some bottles of Chateau Lafite Rothschild fell in price but eventually recovered.
The return overall seems to be far less affected by the stock market which is what makes it an attractive option for many investors. A case of the leading vintage from 1982 would have cost just over £2,500 at the beginning of the noughties but was selling recently for nearly ten times that amount; a significant return on investment.
The Brexit decision caused a drop in the pound which also impacted on the value of fine wine investments. The UK is a popular choice for investment because there is protection from capital gains tax and you can store the wine in bond (essentially free from VAT and customs) while it remains an investment.
The wine market is tracked by the Liv-ex Fine Wine Investables Index and shows that, once you can get into the market and pick the right vintages, you can still make a sizeable, sustained profit over time. Suppliers are limited to the number of bottles in each vintage for a start and every time an expensive bottle is drunk, that’s one less on the market. The reason that Bordeaux and Burgundy’s remain top of the list is largely because of their provenance – they have hundreds of years of production and tradition behind them.
Certainly over the last half a century, the fine wine investment market has been fairly stable even with the volatility of financial markets at various times. The warning of the crash of 2008 and further problems on the stock market anticipated in the future, diversifying has been a key component for serious investors. Of course, it’s a pretty limited market and you need to have the cash base to purchase the right bottles at the right time – it’s not without risks.
In recent times, however, wine has even outperformed traditional choices for investment such as gold and copper and has managed to deliver high profitability with a relatively low amount of risk. Continuous growth has seen it becoming an efficient diversification asset – it also has the benefit of being a tangible product that people really enjoy collecting.
For those who are looking to diversify their investment portfolios, fine wine is a still a sensible place to start. That said, it’s not an easy one to get into if you don’t have the knowledge of how the industry works and which wines to buy. Using a wine broker is the obvious choice if you aren’t confident or have little knowledge.
And beware: there are scams out there. In 2012, it was estimated that some 100 million had been lost to investors because of wine investment scams. And, of course, you also have to know how to store your wine properly and keep it safe as it, hopefully, gains in value.