The question that every investor wants to know the answer to is can they buy wine for profit as well as pleasure ?
The landscape for fine wine investments has changed in recent times and whilst there are still high net-worth individuals and perhaps members of the aristocracy, who have their own cellars and concentrate more on the pleasure aspect than making a profit, the modern market has been driven to change by several key factors.
Some of the most widely-collected and regularly traded fine wines such as bordeaux, enjoyed a rapid rise in their value as prices responded to demand at the beginning of the new millenium. This period also saw the introduction of more buyers who were more driven by profits rather than substance and also a sharp rise in the number of Asian buyers.
Information is critical
Whether your main motivation is profit or pleasure, arming yourself with the right information to allow you to make an informed and reasoned decision on your purchases, is absolutely critical.
You need to be vigilant, as wine investing has attracted a number of fraudsters who have been able to sell wine that is either vastly overvalued or not what you were promised.
Best advice if you are a novice investor with a basic grasp of fine wines, is to do plenty of research and check out sites like Liv-ex and wineowners.com, which allow you to check prices and then keep an eye on the price of your wines to track the value of your stock.
Tips for investing in wine
Fine wine investments can be fun as well as profitable but if you do decide to get involved, there are a number of tips to consider that should help you with your investment decisions.
Always remember to consider the risk and keep in your mind that investing in wines is often not as safe or strictly regulated as other investment opportunities such as unit trusts or investment trusts.There are minimal statutory investor safeguards in this sector although there are some regulations in countries like Britain which restrict or prevent the promotion of wine investment schemes to the general public.
Do not respond to unsolicited cold calls or direct mailings inviting you to invest in wine as they might even be illegal in your country as well as unlikely to provide you with a genuine opportunity to profit.
If a company is offering you a chance to invest in their wine stock and enjoy future growth in its value, these wines should normally be stored in a government-approved storage facility like a bonded-warehouse, so ask if you can arrange to view them before parting with your cash.
Get an independent valuation rather like you would when buying a house or car. The fine wine exchange, Liv-ex is considered a reliable source of pricing information.
Ensure that adequate insurance is in place in case the wine is stolen or damaged.
Get proper tax advice. In the UK, profits on wine can be free of Capital Gains Tax due to the fact that it is regarded as a wasting asset with an expected life of less than 50 years, but the structure of the investment will need to meet certain criteria, so always check the situation.
The fundamental point to remember is that fine investment-grade wine is generally regarded as being only the top 50-100 traded wines, and production is strictly controlled, which means it cannot be increased in order to meet demand.
Tight supply and strong demand are the two aspects that drive prices and when you consider that not every year produces an investment-grade wine, you can see where ideal investment conditions can be created, if you are able to secure stock of these wines at the right price.
You can use a wine merchant to store and insure your wine if you don’t have a cellar or you might want to consider investing in a wine investment fund, where experts make the buying decisions on your behalf.