Tom Otley advises on how best to get a good return from investing in fine wines.
With interest rates continuing an unprecedented low run, it’s tempting to look around for alternative investments. Considering the price increases of certain wines over the past 20 years, surely this investment is a taste worth acquiring?
As background, wine merchant Justerini and Brooks quotes the fine wine market as having average growth of 13-15 per cent cumulatively per annum over the past 20 years, although recently the market has been flat or even fallen slightly – so buyer beware.
An illiquid liquid asset
There are a few things to bear in mind. First, although this is in one sense a liquid asset, in others it is illiquid – selling your wine quickly at a good price may not be easy, and you may make a loss if you need to realise your investment at short notice.
Where to store it
Unlike buying fine art, which you can display at home until you decide to sell it, the chances are your wine will be held in a warehouse. This makes it like other assets in your portfolio – an invisible investment. Invisible, that is, unless you decide to store it at home. Wonderful for boasting to your friends, but you should really only do it if you are planning on drinking the wine. A form of appreciation, but not a capital one.
Why? Well, wine warehouses are not only secure but they also reassure potential buyers. When it comes to selling your wine, there is no doubt that it has been kept in the proper conditions, and it helps with any questions about its provenance. In addition, if you are buying wine en primeur, it will be a few years before it is delivered “in bond”, and so keeping it in a warehouse means UK duty and VAT is suspended and not paid on purchase or sale.
If you do want to keep the wine at home, reasoning that you might drink some, make sure you insure it fully for fire, flood and theft.
Where to buy
Deal with established, reputable merchants – whether famous names such as Berry Bros and Rudd, Justerini and Brooks, or members’ clubs such as The Wine Society – and make sure you compare prices, although it’s unlikely these will be significantly different between well-known sellers.
Bear in mind that buying wine is going to be a medium-duration investment – a minimum of five years or longer – and that the price may well go down as well as up. Many of the price rises of recent years were supposedly driven by new markets such as the BRIC countries becoming interested in famous wine producers. Fashions change, however, as does political policy towards such “luxury” items.
Factor in the amount you would need to invest to see significant returns, plus associated costs such as warehouse fees. It’s worthwhile either taking expert advice, or becoming interested in the subject – if you follow only well-known names you are less likely to see large increases in value. Discovering an underappreciated producer with potential is a better way of seeing a good return. Such investments will carry more risk, however, so try to build a balanced portfolio.