Every Question You Could Have About Fine Wine Investment Answered

 

The fine wine market achieved growth of 22.3% over the past year and has a proven track record of achieving double digit returns year in year out.

But they say you should never ever invest in anything you don’t understand and to many people the idea of investing into fine wine is completely alien.

After all, wine can be intimidating enough to drink sometimes let alone invest in.

So we thought we’d run through every question you could ever ask about fine wine investment.

We’re basing this on all of the questions we’ve been asked over the years, however if you’ve still got any burning questions that we’ve managed to miss then please do give us a call on 020 3475 2553 or drop us an email at enquiries@elitefinewines.com.


 
 
 
 

Answer: Well if you look at the graph here, you can see from December 2015 - December 2016, fine wine outperformed the FTSE 100, the S&P 500, Copper and Gold.

 
 
 
 

And that wasn’t just a freak year either, fine wine historically boasts one of the best performing asset classes of the past 20 years.

Back in 1952, a wine merchant would have probably recommended that you purchase wines such as Chateau Latour 1949 and Chateau Mouton Rothschild 1945.

At the time it would have cost roughly £100 to purchase 3 cases of each vintage. Whereas today you’d be looking at £45,600 for the cases of Latour and £114,000 for the Mouton Rothschild.

That’s over a 100,000% return for the Mouton Rothschild, not too shabby at all.

So we know that it has a history of outperforming traditional asset classes, but what about when you compare it to other alternative investments, or ‘treasure assets’ as some people call them.

Well research using the Liv-ex Investables index for wine, found that in a five year average hold: Classic cars saw a rise of 52.62%, Art saw a rise of 55.05% and fine wine saw a whopping rise of 99.72%.

That’s almost double the growth!

However, it is important to note that past performance doesn't dictate future performance. So while the track record of an asset class can be a useful indication, you shouldn't solely rely on it.


 
 
 
 

Answer: First things first, the fine wine market is not regulated by the FCA because it’s not classed as a financial market. This means that any investment capital you have in the fine wine market will not be covered by the Financial Services Compensation Scheme (FSCS).

So when you’re entering the fine wine market you should make sure to go in with your eyes wide open and do plenty of research before investing any capital.

Recent developments have seen the Wine Investment Association (WIA) team up with the National Fraud Intelligence Bureau (NFIB) to help protect investors from fraudulent activity which, unfortunately, the fine wine market has a reputation for.

Our advice would be to stick with reputable wine merchants who have all of their accounts filed on companies house, are WSTA registered and are members of Liv-ex (the global wine trading platform) and to never invest capital that you can’t afford to lose.


 
 
 
 

Answer: Well if you consider that the stock market is super liquid, and that property is illiquid, you would have to say that fine wine is somewhere in the middle of them.

Because while you do have to find a buyer for your wine, that buyer will be far easier to find than it would if you were selling a property.

Similarly to property, how soon you can find a buyer will depend on the quality of the wine you have in your portfolio. For example, Bordeaux wines are highly liquid because they’re extremely sought after.

This is one of the reasons why you should always buy the very best wine that you can afford. Because not only should the returns be more attractive, but you’ll have a much easier time when you’re ready to exit out of the market.


 
 
 
 

Answer: Before we answer this next question we just want to clarify that we are not tax advisers and if you seek any tax advice you should always always ALWAYS seek the help of a professional.

However, we do need to address the tax efficiency of wine because it’s one of the main attractions of the investment and one of the most common questions that come up.

So, how and why is fine wine a tax free investment?

Well table wine is classed a wasting asset because it has a shelf life of under 50 years.

However, fine wine finds itself in somewhat of a grey area because much of it can age for half a century, however it’s often drunk before then. This means that the ‘predictable life’ of fine wine is difficult to pinpoint and is therefore decided objectively by the owner at the point of purchase.

So assuming that the fine wine you invest in is classed as a wasting asset, you won’t be liable to pay capital gains tax on any profits up to £250,000.

But on the off chance that the wine isn’t classed as a wasting asset, you’ll only be capital gains tax free on any profits up to £6,000.


 
 
 
 

Answer: Well firstly, it’s an investment.

All investments carry a certain degree of risk and you should never invest what you can’t afford to lose.

Secondly, if you don’t purchase the right wines then you could risk losing money. Not all wines are going to generate a positive return on your investment, so it’s highly recommended that you buy the best that you can afford.

Another risk is getting cold feet and withdrawing from the market too early. We always recommend holding your wine for at least 5 years to allow time for appreciation. If you pull out as soon as there’s a slight dip in the market you could make a short term loss in place of what could have been a long term gain.

Also, as we mentioned earlier, the fine wine market isn’t regulated. This means that your investment capital will not be covered by the FSCS.

Another way in which your wine could depreciate in value is if it isn’t stored in the right conditions. Your wine should always be stored in a government licensed bonded facility, or if you’re fortunate enough to have a home cellar with optimum conditions then that will do too of course.

And lastly, but very importantly, the fine wine market has been known in the past for being somewhat of a breeding ground for fraudulent companies and rogue salesmen. So always make sure that you’re dealing with a reputable company. If you're not sure what a reputable company looks like then you can check out our guide to avoiding fine wine scams.


 
 
 
 

Answer: Well there’s two answers here.

The first one is that you educate yourself on the fine wine market and bury your head in books and online articles until you feel like you understand the market a little better.

Or you can work with a fine wine merchant who assess the market and build a portfolio for you based upon which wines they believe will appreciate over the next 5 0 10 years.

A professional fine wine merchant should always talk you through their selection and educate you as to why they have chosen certain wines for your portfolio.

Ideally, you can get the best of both worlds by working with a fine wine merchant and also continuing to educate yourself throughout the investment term.


 
 
 
 

Answer: Well that depends on a number of factors such as how long you hold the wine for, what wine you have purchased, how the markets are performing, the liquidity of the market at the point of sale, the condition of your wine and so on and so fourth. Basically there is no concrete answer for this question.

However, it has been shown that historically, fine wine has almost always realised double digit returns over a 10 year holding period.

For example if you look at this graph of the fine wine index from 2006 - 2016, you’ll see that the annual performance was 10.4%.

 
 
 
 
 
 

Answer: Your wine should always be stored in a government bonded facility such as EHD London No.1 bond. These bonded warehouses will provide optimum conditions for your wine, ensuring the best possible price for you at the point of sale.

We always recommend, if you can, going down to the bonded facility to see where your wine is stored. You should be given a unique account number for your wine by your merchant that gives you access to the specific vault that your wine is in. This will give you the peace of mind that your wine is in safe hands. There have been horror stories from the past of people investing money in wine that never even existed.


 
 
 
 

Answer: We have already mentioned this, but we always recommend investing for at least 5 - 10 years.

Naturally it depends on the state of the market and the wine that you have in your portfolio, but the fine wine market has almost always produced double digit returns when held over a 10 year period.

Again, if you invest in the best possible wine that you can afford, you increase your chances of seeing a healthy return over your holding period.


 
 
 
 

Answer: Typically experts tend to recommend investing between £10,000 and £15,000 into the market to stand the best possible chance of maximising your returns.

Any less than that and you could end up with a portfolio of cheaper wines which are less likely to appreciate well with age.

However the amount you invest should always be dictated by you and you should never invest what you cannot afford to lose.