Why you should start investing in wine
Why are people investing in wine?
Many people are looking for alternative investment opportunities, and luxury items such as fine wine and coloured diamonds are becoming a popular choice. They have a certain intrinsic value and good growth potential.
Of course, you can’t ignore the overwhelming appeal of wine investments for non-monetary purposes. Wine lovers, like coffee lovers, are always searching for amazing tastes. There are fine wine investors who buy up portfolios simply because they want to try particular regions, vineyards, or years.
Plus, fine wine is a tax-free investment and can be used instead of stocks and bonds. Because of this, there is no capital gains tax. However, if you lose money on your wine investment, there is also no capital gain.
What are the requirements?
It can be unclear how much capital you need when starting a wine investment. The amount can vary, and different merchants recommend minimums from as little as a £250 lump sum to initial investment points upwards of £10,000.
It is generally agreed that wine investment requires a larger starting fund because of the importance of diversifying your portfolio with a range of wines from several regions and due to the cost of storage.
So remember, it is best to buy larger cases whenever possible to offset your storage payments as much as possible.
- Make investments in less well-known wines
For those who don’t know wines well, and even for those that do, wine can be a risky bet. Sometimes fine French wines from regions like Bordeaux can be worth less than initially estimated. And occasionally, a wine from a lesser-known region will excel far above price expectations, for instance, Bodega Chacra from Argentina.
- Seek expert advice
Given that wine investments aren’t monitored by any conduct authorities, you must choose carefully. If you lose your money on a bad wine or get tricked into purchasing a fake advisor, there is little to no chance you will see those funds returned.
Speak to an impartial expert to ensure your money is well spent and uninfluenced by the self-interest of others.
- Compare and evaluate costs
Investing in wine comes with multiple expenses, one of the most significant being storage. This is inevitable since improper storage can negatively impact taste and cause a substantial drop in market value over time.
Before you invest, it is best to see if the storage includes insurance and if there are extra fees that may apply, such as commission on sales or administration fees.
And don’t forget, it can be costly to sell wine. It is common practice for merchants to request anywhere between 7 and 10% commission on wines they sell.
- Consider supply and demand
You’ll need to watch the market and purchase according to supply and demand if you want the best results.
French wines are generally a stable choice but are more expensive to buy. And while it may not be wise to build an entire portfolio filled with lesser-known wines from Guatemala or Spain, they can be a great addition.
For instance, the producer Alvaro Palacios’ wines have performed brilliantly in recent years, with prices doubling or even tripling in some cases.
What is the scale of success?
The scale of your success will depend on your portfolio investments. It is important to note that, as with most investment opportunities, there is no guarantee of success should you choose to buy a wine portfolio.
Having said that, the fine wine industry has experienced many years of overall growth. The Knight Frank investment consultancy estimates that fine wine has appreciated approximately 127% within the last 10 years, meaning it has surpassed other luxury investments, including rare furniture pieces and coloured diamonds, among other things.
Many factors can affect wine values, both regionally and globally. One of the sharpest rises in wine prices was experienced between 2005 and 2011 when China entered the market.
In 2011, the market collapsed, and Live-ex 100 showed a market drop of 30%. This could have been disastrous for many, but those who didn’t rush to sell during this dip and instead sat on their investments for a few years more were able to avoid losing money on investments made during the peak in prices.
The key to maximising your profits is to have patience and avoid panic selling.
Ultimately, there is never any guarantee that your wine investments will return a profit. On the other hand, your investments will never wholly lose their worth. Wine will always have some value, although the exact numbers may vary.
In recent years, Tuscan wines from Italy have been doing surprisingly well. O’Connell (CEO of Bordeaux Index’s LiveTrade platform) stated that in the last quarter of 2021 alone, Tuscan wine value increased by over 7%.
How long will you be investing before you start seeing results?
If you want to put money into wines, be prepared for a long investment.
Wine prices can change from year to year depending on demand and supply, which are impacted by global occurrences. If you are interested in entering the market, you should expect to put your funds in and wait at least 3 to 5 years, ideally 5 to 10 years. This allows prices to settle and gives time for a market cycle to increase the value of your portfolio.
Advice for making the most of wine investments
Wine investments are not protected by the Financial Conduct Authority (FCA) or any other Financial Services Protection scheme. This is particularly noteworthy since scammers are not unheard of and can be particularly tricky for the average investor to spot.
Wine values can be unpredictable and are often more tumultuous in the beginning. Compared with other markets, fine wine is certainly not as volatile. Even if a bottle is not worth as much as predicted, it will still be worth something. It rarely loses its value entirely.