As with all investments, the laws of supply and demand are paramount. Investment grade wine is in the enviable position of having a limited supply and growing demand. Production levels at the roughly 75 investment labels are more or less static, whereas there are a growing number of high net worth individuals who are becoming interested in fine wine, which is a primary reason for the abundant growth we’ve seen in the sector.
Fine wine (should) improve with age and the price (generally) goes up accordingly. More importantly, as time goes on more of the wine is consumed, thereby reducing the overall supply. Over the last 20 years, fine wine investments have had a markedly superior performance when compared to other market indexes. The Liv-ex 100 index for example has returned 16% per year since 2001, with much less volatility than shares, indicating that fine wine investing could also be viewed as somewhat less risky.
Without a great deal of knowledge or guidance however, the novice investor could make expensive mistakes, and should be sure to do research and/or consult with a seasoned professional before taking the plunge. For example, it is important to note that fine wine does not provide an income with dividend payments in the way that good value shares should, so any portfolio decisions must take that into consideration. In addition, fine wine must be stored under very specific conditions to protect its future value.
As with other investment vehicles, there are costs associated with selling fine wine that can eat into profitability. If you work through a broker, for example, you will have to pay nominal fees (typically around 10%), or if you sell at auction there are associated fees that must be taken into account.
Finally, it is important to recognize that wines are sometimes re-rated after they are bottled. This can affect the prices for these bottles, both negatively and positively. And finally, since the international wine investment market is largely unregulated, it is essential for investors to do research, consult with experts, and to truly love fine wine in order to experience the most all round satisfaction.
Tags: Fine wine investment