Many investors are looking to alternative assets to invest in to diversify and boost their returns. Some are turning to wine, is this though a good alternative asset to invest in?
Investing in wine can beat the returns available from the more traditional investments, such as stocks and shares.
In recent times some fine wine portfolios have given better returns for example than the FTSE 100 or the Dow Jones.
Other alternative asset options include art, classic cars, antiques or other collectables to boost investments.
With wine, one option of course is to purchase a case or two of a good vintage and plan to sell a portion of it a later date to realise a profit. Perhaps though this is more about simply making enough profit on the bottles of wine sold to cover the cost of those drunk?
A more serious purchase of wine as an alternative asset opportunity is made when the intention is to make a profit on the whole purchase and not to drink any of the wine at all.
Under current UK taxation rules, as long as the wine is held by an individual not connected to the wine trade, wine is not subject to capital gains tax (it is considered to be a ‘wasting asset’ according to the Inland Revenue) and therefore any profit made from the sale of wine belongs to the vendor. Also, inheritance tax is paid on the value of the original purchase and not on the appreciating value.
The wine collectables market is not easy to understand, is highly specialised and as such invariably you will need advice from a wine broker to understand what wine to invest in.
Top wine comes with a high price, with such as Lafite Rotschild, Latour or Margaux commanding prices in the high hundreds of pounds, if not thousands.
On the plus side, investing in wine is perhaps a more stable market than stocks and shares but still wine prices may not increase in value. Concentrating on niche wines, which have small productions, can produce good returns as often these are in high demand from followers which in turn raises prices – the simple economics of supply and demand.
If investing in wine, be aware of the cost and complexities of storing the wine. If it is stored incorrectly it could be rendered worthless. It is unlikely that your standard home insurance will cover your wine collection and you will need to make sure you protect your investment with suitable insurance cover.
To get a balanced portfolio of wine, from a variety of regions and vintages, a minimum investment of around £5,000 is likely to be required. It must not be considered a short term investment, rather a longer term investment, perhaps 5 years or more.
Most experts still consider France, especially Bordeaux, as the region to focus on, albeit there are some great quality wines from the New World.
One way to buy top class wines, before the prices become too high, is to buy wine en primeur – this means purchasing the wine the year after the grapes are harvested, perhaps several years before it is bottled for the mass market.
Overall investing in wine can be a good alternative asset but, as with all investing, great care needs to be taken and input sought from a professional wine broker if appropriate.
Please remember too that the value of wine can go up as well as down – albeit if prices do fall at least you do have the potential to drown your sorrows by opening a bottle or two!