Many people enjoy drinking wine, but fewer realize that buying fine wine can be a profitable investment as well. The annual return on some wines has been excellent, and this could be a good asset class to use in diversifying your overall portfolio. It’s perfectly true that the market went through some serious changes over the years. Wine investment are no longer pursued by wealthy gentlemen who own private cellars and are willing to spend thousands in a blink of an eye.
This incredible change was driven by several important factors. Specialists say that Bordeaux prices have risen because of the diminishing supply in Europe. Asian buyers want to buy Bordeaux wine but because it’s becoming so rare, prices have exploded. Here are some tips on investing in wine for serious returns.
Why invest in fine wines
Supply and demand is the key to wine investment. Top quality wines are available only in limited supply. The demand is high among those who appreciate fine wine. As the years go by, people drink some of the wine, continually lowering the supply of noted vintages, thereby increasing prices.
Another factor is increasing demand in emerging markets. Brazil, Russia, India and China (the BRIC countries) are opening up and increasing wine imports, and demand in the traditional wine drinking countries remains strong. This combination of factors means that some fine wine has performed exceedingly well over the past two decades, with annual growth percentages in the 13-15 range.
Of course, as with any investment, past performance does not guarantee future returns, and some wine assets can go down in value as well as up. It is important to select the right wines to begin with.
Choosing your wine portfolio
As with stocks, certain wines are classified as “blue chip”, the most reliable wines for investment. At the top of this list are the best known chateaux from Bordeaux – the first growths of the 1855 Bordeaux classification. A few of the names you could look for in investment grade wine are Latour, Lafite Rothschild, Margaux, and Mouton Rothschild.
These blue chip wines can be expensive, especially for excellent vintages, so investors are also turning to so called “Super seconds”, and selected top chateaux in the Burgundy region, for more investment opportunities. Talk to your wine merchant or wine advisor about your budget and goals and they can give you suggestions.
How to get started investing in fine wines
Decide on your budget and level of risk. Starting with five to ten thousand pounds as a budget could give you a reasonably sized and diversified wine portfolio. You need to view this as a medium or long term investment, planning to hold your wines five to ten years for maximum return. While secondary wines can yield excellent results, they do carry more risk than the blue chip wines.
Establish a relationship with a trusted wine investment advisor or a well respected wine merchant. Only buy from well known sources. Do your own research on wines, and never take the word of someone who cold calls you with a supposed great opportunity.
Always buy wine in full cases, under bond, with guaranteed provenance. Keep them stored in ideal cellar conditions, at a facility such as Octavian Corsham. Maintain your wines In Bond, with a professional company, so that VAT and duty charges are suspended and not due. Diversify your portfolio; even with blue chip wines, keeping your entire wine portfolio invested in just one or two wines is risky.
Consumer tastes and trends change with time, and diversification enables you to reduce your overall risk. In order to invest in wine that can bring serious investment returns you have to be an excellent entrepreneur. Apart from knowing the ins and outs of the wine business, you have to like the drink. Understanding the market and the people who drink the wine is vital.
How can you make money from a business idea if you’re not 100% committed to that idea? Know as much as you can about fine wine, stay constantly updated with the latest changes in both quality and price, and you’ll see great profit in the long run.