Are you thinking of investing in wine? This guide should point you in the right direction.
The Motley Fool has always argued that long-term investment in shares is a great way to build wealth. We still believe that today.
But you might possibly be looking to diversify your portfolio a little or want to have some fun. If that's the case, investing in some 'alternative' assets might be worth considering. In a series of articles starting today, I'm going to be investigating some of these assets -- namely wine, antiques, books and art.
Let's kick off with the first one -- investing in wine. Here, I'm going to outline the main things you should think about, and the pros and cons involved.
Of course, I can't cover everything you need to know in a single article. But hopefully, it'll point you in the right direction, and help you decide whether wine investment is the right choice for you.
A good investment?
So far, the fine wine market has weathered the credit crunch well. Prices have hit new highs, due partly to the rise of the affluent middle class in Asia and Russia and the swift evolution of wine investment funds.
Wine industry experts say the best bottles can see returns of 30% a year -- and more conservative estimates put typical returns at 10% to 15%.
Drinker demand means your particular vintage could quickly become scarce (and therefore more valuable).
And if the worst comes to the worst and the market crashes -- you can always drown your sorrows by drinking your investment!
What sort of wine?
It's important to invest in the very best of what's on offer. High quality wine takes time to mature. Once its ‘peak' is reached, it will begin to deteriorate (both in quality and financial value).
So, it generally makes sense to buy wine of a good vintage and a quality that will last -- and to buy it as early as possible in its life.
Securing wine ‘en primeur' basically means buying after the wine has been produced and after an initial tasting -- but before it's bottled for the mass market.
This allows you to get in early (and buy at a cheaper price) but it also presents risks, because the wine hasn't matured yet (and so might turn out to be nothing special).
Wine can also be bought ‘in bottle' through a wine merchant, usually around two years later.
Before you invest in any wine, check the price independently to make sure you're not being ripped off. Wine Searcher is a great website for locating and pricing different wines.
It obviously depends on your means, but wine experts often advise a minimum investment of £3000, to ensure a balanced portfolio.
Where from?
Bordeaux is widely seen as an excellent starting point for wine investors. This is due to a number of factors:
- The region's geographical and climatic conditions mean that it can produce fine wine with exceptional regularity.
- Quantity limits are imposed which make each vintage ideal for investment purposes. The top 30 chateaux in Bordeaux can produce no more than 500,000 cases of wine in any one vintage.
- Plenty of information is available on the region's wine prices (past and present) and on the quality of particular vintages.
- Bordeaux has a thriving auction market in which wine is bought and sold.
Wherever you decide to invest, make sure you thoroughly research the chateaux, and vintage of your choice. Hugh Johnson's Pocket Wine Book is a good reference companion when choosing which wine to go for. It contains assessments of individual chateaux, as well as observations on the quality of different vintages.
How to buy
Wine producers will not generally sell direct to members of the public - so you'll have to buy through a merchant (also known as a broker).
Your broker will be able to advise you on investment choices and provide valuable subject expertise. Just make sure you find out exactly how much it's all costing you!
Firms differ in the charges they make: For example, some brokers charge an upfront fee of around 5% of the total value of the wine, others an annual 1% management charge. And they will take commission (typically 10%) when you come to sell your wine.
You need to choose your broker carefully, as drink investment scams are common and often convincing. Check out Investdrinks.org -- a site that highlights ‘dodgy' wine companies - for more information.
Well-established, credible wine brokers include Dunbar Fine Wine, Magnum Fine Wines, Premier Cru Fine Wine Investments and Berry Bros & Rudd.
Where to put it
If you're thinking of impressing your friends with your ‘worth a fortune' wine cellar, you might have to think again. Most wine brokers will advise you to store your investment in a temperature-controlled bonded warehouse, either an independent one, or one run by them.
This is because fine wines can be ruined if they're not stored at the right level of temperature, humidity and light.
Storing your wine in this way makes financial sense, as well. Because it is kept under bond, in a customs-controlled warehouse, it isn't treated as having entered the UK market. And this means you won't have to pay duty or VAT on it.
Having said that, remember that you'll be charged for this storage - usually on a-per case, per-year basis.
An added bonus
Investing in wine comes with another ‘tax break' as well. The Inland Revenue sometimes consider wine to be a wasting asset (in other words, something which will ultimately deteriorate in value).
This means that you may find no capital gains tax is levied on the gains made on the sales of your wine.
Do your research!
As with most forms of investment, you need to do your research thoroughly if you want to stay ahead of the game.
To keep track of wine market developments, have a look at Liv-ex (The London International Vintners Exchange). This independent trading and settlement organisation produces an index of prices of the world's top 500 wines.
It's also worth keeping tabs on the opinions of certain high-profile wine writers. Robert Parker, for example, gives wines a score out of 100 -- and any wine scoring over 90 is usually an investment worth considering.
In the next article in the series, I'm going to be looking at how to invest in antiques.
In the meantime, why not visit The Fool's Wine Lovers discussion board, for helpful advice and investment pointers on all the best plonk. You can also sign up for some free brochures on wine investing via Fool.co.uk.
Good luck!
