Traderlife Guide To: Investing In Wine

A glass or two of wine is a very welcome reward for many traders after a hard day’s work. But, if you can resist drinking it, wine can also be a profitable investment.

Global demand for good quality wine has been mostly steadily rising over the past decade or so, according to wine merchant Cult Wines, thanks in part to increasing demand from Asia. Meanwhile, production is levelling off or even falling as producers focus to an even greater extent on product quality. Taken together, these mean that the supply/demand balance in the future is likely to favour those who invest now.

Like rare books, vinyl and other “passion assets”, wine – while unlikely to make you rich by itself – can be a great place to put some of your money as its price movements are not necessarily correlated with those of conventional asset classes. Wine also has the advantage of being resistant to economic downturns, says Cult Wines.

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Wine is a surprisingly accessible investment. You could spend a month’s earnings on a top French claret, but a bottle worth investing in can be had for as little as £20. Wine merchants recommend that investors should be prepared to invest a few thousand pounds to be sure of a good return, but many offer “cellar plans” where you could invest just £100 a month. A stake in a wine fund is another option if you only have a limited amount to allocate.

However small you start, here is our guide to what you should consider when investing in wine.

What to buy

Assessing the quality and potential value of a wine is an incredibly complicated topic. As a very general guide, Cult Wines suggests that buyers should consider eleven factors: brand, producer history, vintage quality, critic score, vintage production, supply levels, historical price performance, comparative price analysis, market trends, drinking window and scheduled re-scores

If in doubt, it is acceptable to go with your tastebuds. “It’s better to start with buying wines that you could realistically see yourself drinking,” says Simon Staples, sales director for fine wine at wine merchant Berry Bros. & Rudds. That way you can be sure that you can at least enjoy your wines yourself if they end up not performing as investments.

Whatever you choose, make sure you know a wine’s provenance – in simple terms, where it has come from, which is “key to a wine’s future value”, says Staples. Aim to buy, and retain, whole cases of wine or, if possible, parcels of several cases, as this will make your wine easier to resell.

Where to buy

France is the toast of the town when it comes to producing investable wines. Over 80 per cent of bottles worth buying are French, according to Cult Wine figures. This makes the country’s major wine-producing regions such as Burgundy and Bordeaux relatively safe bets for beginners.

However, “there are collectible wines coming from North America, South Africa, Australia and Italy,” says Staples. But those buying here should make sure they go for a well-known producer, he adds.

The most expensive bottle of wine ever sold was actually an American one – six litres of 1992 Cabernet Sauvignon from Californian producer Screaming Eagle fetched $500,000 in a charity auction. Staples’ top tips are Bordeaux wines from 2014, 2012, 2008, 2006 and 2005, and 2015 bottles of northern Italian red Barolo for those interested in looking outside France.

When to buy

“If you can, buy en primeur – when the wine is released,” says Staples, as this is when the wine is cheapest. This is January for burgundies and summer for wines from Bordeaux.

Buying this way means you could get a bargain by acquiring a good wine before (hopefully) good reviews send its value up.

In times of economic uncertainty like today, people tend to drink more affordable wines, says Staples, which means that now is a good time to back wines at this level.

Racking it up

Bottles must be stored correctly to retain their value. “Don’t hold any of your investment grade wine in your wine rack under the stairs!” says Staples. They should also be protected from theft and damage, and insured.

For these reasons, a specialist wine warehouse – a service offered by many wine merchants – is usually the best option once you get serious.

Tax advantages are another reason for using a warehouse. If wines are stored in a “bonded” warehouse they will not be subject to excise duty or VAT, costs that cannot be reclaimed once paid.

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When to sell

“Wine is not a quick win investment,” says Staples. He suggests traders should expect to hold their wine for 5-10 years as a minimum.

“Bear in mind that for the most part you will be buying wines with a lifespan of 10 to 20 years and more, and that their financial maturity will be linked with their drinking maturity.”

However, opportunities to make money more quickly do come along. “Customers who bought well before the financial crisis in 2008 will have done very well indeed over a matter of a couple of years,” he says. So be prepared to sell up quickly if the time is right.

Bottoms up!

Traders interested in tracking wine prices closely should check out Liv-Ex, which produces a range of wine indices that track prices for certain groups of wines.

One of most important is the Liv-Ex 100, which tracks the prices of 100 of the world’s most sought-after wines. The broader Liv-Ex 1000 is made up of seven sub-indexes for a range of types of wine – five for wines from France, one for Italian wines, and one for wines from the rest of the world.

Reassuringly for those considering laying down a few bottles or more, both have risen steadily in value in recent years.