Most experts will agree that you need at least $10,000 spare if you wish to invest in fine wine, the price of some of the most desirable wines has been known to reach over $9,000 per bottle! However, fine wine is also a solid investment opportunity; the latest research shows that wine actually outperformed stocks, bonds, fine art and even stamps. If you choose to invest then you must follow these guidelines:
Capital – how much money do you have to spare?
As with any investment, you should only ever invest what you can afford to lose. Although the market has performed well over the last twenty years there are plenty of opportunities to lose your funds. You should only ever invest what you will truly not miss. The current rapid increase in prices is being fuelled by a buoyant Chinese economy, it may not last forever!
Buy the best wine
The better the quality of the wine the easier it will be to sell in the future for a high price. There are two reasons for this:
- Proven – Top quality Burgundy’s and Bordeaux’s have been in demand for well over twenty years and the returns on these wines has remained consistently high, even during the economic downturn.
- Storing wine properly means using a bonded warehouse, there are costs involved with this. Less of your profit will be eaten up if you have a small quantity of top quality wine as opposed to a large quantity of medium quality wine.
Prices – check, check, check
Different merchants will charge different prices for exactly the same wine! Some of these fluctuations are due to the market and transport costs but some are simply the merchant trying to increase their profit. Make sure you shop around before purchasing any wine.
Invest for the long-term
The minimum investment term should, ideally, be five years. This is the amount of time which, historically, has proven to provide good rates of return on your investment. The best quality wines are only produced in limited quantities and it usually takes five years for the market to settle, those who have purchased the wine to drink will have done so and demand will now be on the increase.
It is essential to store your wine in a bonded warehouse. This can assist with your profit as you may never need to pay any tax on your purchase (providing the wine never leaves the warehouse). Bonded warehouses are temperature and climate controlled to ensure the wine is perfectly preserved. This will ensure your wine remains top quality and retains its value should you choose to sell it. Having your wine in a bonded warehouse will also remove the temptation to drink it! It is important to insure your wine, no matter where it is stored; accidents can and do happen!
It is possible to purchase a wine before it is fully matured and even bottled. This can appear to be an attractive option as you can purchase the best quality wines at a fraction of their usual cost. However, this method of investing should be approached with caution. As opposite to white wine, red wine matures faster. Also, keep in mind that a type of wine that you really like may not have any investment potential.
A young wine, which has not yet matured properly may not be as food as its reputation suggests, your wine may not increase significantly in value. You should never purchase a wine en primeur before the official prices are published.
Know everything there is to know about taxes
Investing in fine red wines can actually result in some significant tax benefits. It is advisable to seek the help and advice of a tax professional before and during your wine investment. A good advisor can save you a huge amount of capital as wine is classed as a depreciating asset: due to the fact it is perishable. However the law is not always black and white so obtain professional advice. Investing in wine is more challenging than meets the eye; an expert will help you make the best decisions though, so don’t hesitate to ask for guidance.