Fine wine, fine profits?
One of the most talked-about alternative investments has been fine wine. Yet Is fine wine investing an opportunity for retail investors or the preserve of a few expert specialists?
One of the most talked-about alternative investments has been fine wine.
Drinking wine is an age-old tradition. The first great western civilisations owed much of their success to the cultivation and creation of wine.
One of the first questions investors need to ask themselves is why are they getting into wine investing? Do they want to become fine wine connoisseurs or view it as another alternative investment strategy?
Is fine wine investing a genuine opportunity for retail investors or merely the preserve of a few expert specialists?
Beginning wine investing
Wine investment is through two different approaches.
The first is either buying and reselling single bottles or cases of a specific type of wine. Typically, the amount of wine is sold in a set of 3, 6, 9, or 12 bottles.
The other approach is purchasing shares in a wine investment pool. For the novice wine investor, this is an encouraging way to begin. Wine producers are abundant worldwide.
However, only a few hundred producers produce elite wines classified as fine wines or suitable for an alternative financial investment.
It is these vintages from renowned vineyards that sell for thousands per just one bottle.
Why?
Because fine wine is considered a Veblen good, which means that as the price rises, the demand increases too.
Fine wines are a status symbol.
Because everything that went into a specific wine can never be replicated, certain weather conditions, year produced; cannot duplicate production methods.
All of these factors add to a wine’s allure as a status symbol.
Buying & storing your wine
For regular wine you’re going to drink soon, you can store it in your home wine rack.
However, if you wish to store the wine for a few years at a time, you’ll need to keep it in optimal conditions.
If a storage area is too hot, then the wine matures faster, too cold, and crystal flakes will appear.
The optimal place to store the wine is in a basement or darkened cabinet, or closet. However, for serious wine investors who have ample storage space within their home, it is best to buy a wine cooler.
Should they consider a wine cooler, investors will need to factor in the electricity costs of having one. They will need to deduct the electricity costs when calculating their overall wine investment returns.
Insuring your wine
Similar to jewellery and art, fine wine is considered a valuable commodity.
One of the first steps is to contact your home insurance company about whether your insurance will cover your wine collection.
Wine insurance is a great way to protect your new investment if anything should happen to them.
There are other storage options to consider if storing at home is not a feasible option. A quick ‘Google’ will soon find a plethora of websites dedicated to wine storage. Ensure you compare the rates and factor in their cost too.
Wine market pricing
There are two critical indicators out there to look for when researching wine’s current and predicted value.
These two indicators are scarcity and rating.
Wine critics out there rate wine on a scale of 1 to 100. Wines that are in the 95+ plus range are of stellar quality.
Predicting scarcity is a more complex thing to do.
A limitedly produced wine is a good indication that the wine maintains its scarcity. ”
Potential investors should research several wineries that attract them and view their list of past pricing points. These prices indicate what the future will bring for a particular vintage.
There are also fine wine indexes, much the same as those which track stocks and shares. Livex is a popular index that can track the value of a wine collection, including any future purchases.
Wine investment funds
For investors not keen on buying or investing in the wine themselves, there are funds out there to do that for them. These wine funds allow investors to distribute capital to the fund to get exposure to different wines worldwide.
The Wine Investment Fund is a well-known fund. Still, as an unregulated collective investment scheme, it is only suitable for specific categories of investors.
But even though there are listed funds, investors still need to be aware that they are investing for the long term in a high-risk asset.
Be cautious with wine investing
Wine is a specialist area that requires expert knowledge. Sadly, unscrupulous business practices and outright fraud can catch out the unwary.
Without expert knowledge, it is tough to distinguish between genuine fine wines and fakes. There have been recent media stories of counterfeit wine scams.
Besides, only particular wines bought at the right price represent suitable investments. Only wines from certain (French) chateaus and vintages will increase in value as they age. Investors should seek wines that:
- are from a limited production
- produced under strict wine-production regulations
- be from a recognised system of classification;
- have a combination of taste and longevity that develops its quality with age.
You need to ensure you invest in something that will still be in demand in years to come. Wine is an unregulated market. Many unprincipled investment houses have few qualms about selling lower-quality wines at higher prices.
As discussed above, storage can be costly. Achieving the right temperature, atmospheric pressure, humidity, and overall storage conditions will impact a wine’s quality and subsequent value.
Make sure you have the budget to store your wines correctly.
Another concern is that wine will not rise in value as quickly as other alternative investments like P2P loans or cryptocurrencies. Most superb wines sit on lengthy price plateaux during periods of maturation.
Often, this has to do with wine reputation. If no wine experts discuss your wine, then the wine will not rise in value, and the price of your wine will remain, not earning any income until you sell.
So is wine worth investing in?
Yes, but probably through a broker and not a direct purchase (unless you truly understand your wine).
The opportunities and selection for a superb wine collection are endless. With the right knowledge, wine investing can be an excellent investment many years down the line.
Alternative investing in wine can be rewarding yet risky, which is why it is imperative to weigh out all the costs of buying and storing fine wines.
If you do not wish to invest in a wine fund, then it can be exciting to do on your own. Just be prepared to drink whatever you cannot sell, or hopefully, toast to your wine collection sale.
