Fine wine is emerging as one of the most attractive alternative investment strategies. To celebrate this, we’ve created a simple, 3-part guide to investing directed at the novice collector.
Over the next three weeks, we’ll be laying out the basics of fine wine investment by answering the three most fundamental questions – why to invest, how to invest, and which wines to buy.
Part 1: The Market – Why invest in vintage wine?
People have been buying, selling and drinking fine wine for over 300 years. It has always been a tradeable commodity and has been the making and breaking of speculator’s fortunes worldwide.
In the 21st century, adopting vintage wine collection as a reliable, long-term investment strategy has a number of key benefits.
Stable, reliable appreciation
The market for fine wine fluctuates just like any other, but the key driving factor here is the unique relationship between supply and demand.
High quality vintages are generally produced in relatively small amounts to begin with. Then, the older a vintage is, the more has been sampled and enjoyed by connoisseurs and collectors. This inevitable drop in supply coupled with the natural age-related price appreciation is why fine wine is such a reliable investment option.
Long-term, high-yield investment
For the novice investor, patience is indeed a virtue as long-term returns are far better than short-term ones.
Wine Owners, an online exchange, tracks the price of a “balanced portfolio” in its 150 index, including wines from Bordeaux, Burgundy, California, Champagne and Italy. Over the past three years it is up by only 3% – less than half of FTSE 100 gains. Over the past 12 months however, the index is up by 8.7%, overtaking the FTSE 100. And if you had invested in these wines in January 2007, by October 2015 you would have seen an increase of 107% compared with the FTSE.
On average, Liv-ex, the London-based fine wine exchange, calculates that the long-term compound return for a portfolio of Bordeaux wines is around 12% a year.
The perfect time to buy fine wine
Classic Bordeaux and Burgundy wines will always bring healthy returns, but at present we are seeing an exciting influx of top quality vintages from Champagne, Italy, California and even South Africa. With trade booming on Liv-ex and prices relatively low due to China’s recent market wobbles, it could be the perfect time to start investing.
Last week’s blog discussed how conditions in the Napa Valley this year have produced a harvest with promising investment prospects. For more on why China’s economic troubles represent a golden opportunity for wine investment, click here.
No capital gains tax
Due to its status as a perishable commodity, the profit you make from selling your investment grade wine is not subject to capital gains tax. Fine wine investment also benefits from a unique feature unlike any other investment strategy – you always have the option of drinking your entire portfolio!
Easy to buy, easy to sell
As a consumable, fine wine is relatively easy to trade. And with Capital Vintners’ team of experienced advisors ready to assist you in choosing the wines, it couldn’t be easier to start your collection.
Look out for Part 2 of our guide next week, where we’ll be discussing how to begin collecting wine, and the factors you need to consider when compiling a portfolio.