Alternative Outlook

Wine as an alternative investment

Introduction to Wine

Fine Wine has proven to be a fantastic alternative investment over the last thirty years, outperforming more commonly held, riskier assets such as equities and bonds. For example, 2005 Château Lafite-Rothschild was released in June 2006 at £3,760 per case. By the summer of 2008 it was fetching just under £10,000 per case and in May 2010 reached  £10,000 per case.

The key here is that fine wine improves with age, has limited production and a huge global demand base – a demand base that is increasing as newly rich Chinese and Asian middle classes develop a taste for it. The supply of this already limited asset then declines over the years as the wines are consumed. So the basics of supply and demand inevitably push prices higher.

Pitfalls

However, there are many pitfalls when investing in wine. Demand can slacken – as happened during the recession in 2008 – and you have to buy the right wines at the right price. Only specific wines from certain chateaus and vintages will increase in value over time. Wine is an unregulated market and many unscrupulous investment houses will have few qualms about selling the wrong wines or the right wines at the wrong prices for investment.

Buying the right wines at the right prices

When investing in wine château and vintage are of primary importance. Then you should look for the following attributes; the wine should be from a limited production, be produced under strict regulations, be from a recognised system of classification, and have a complexity of taste and longevity that improves its quality with age. You need to ensure you are investing in something that will still be in demand in years to come. Only buy from established merchants or invest via reputable funds with a proven track record.

Other considerations

The wine must be stored correctly! The atmospheric pressure, temperature and overall condition of its storage all impact the quality and value of the wine. If you take possession of your wine, you must be able to store it properly or arrange to have it stored expertly on your behalf. If you invest in a fund, be sure to ask exactly where and how the wine is stored and assure yourself that the storage facilities are appropriate. Make sure it’s stored in your name and that its fully insured.

To make serious returns, a realistic investments size is £5,000 – £10,000 and the investment should be held for a minimum of five years, with higher returns expected after eight to ten years.

Perhaps one of the nicest things about investing in wine is that it’s a great topic to take an interest in and develop your understanding – and as you improve your understanding, you can make increasingly knowledgeable and profitable investments.

Conclusions

If you can navigate the pitfalls – and with expert help from reputable funds and merchants many do – wine is a great alternative investment. The supply / demand equation will always support the price; it’s a tangible asset and its good way of diversifying your wealth. And unlike other assets, you can still drink the wine and enjoy it yourself if you choose!