Considering making the jump in to fine wine investment? Follow our guide so you end up with the best of the bottles.
Wondering how best to invest that £10,000 – or more – you have spare? Fine wine boasts one of the best performing asset classes of the last 20 years. There are risks, of course, but here are some top tips to help navigate around the most common pitfalls.
1. Only invest what you can justify losing … or drink
Most experts agree that in order to stand the best chance of making a decent go of fine-wine investment you should set aside upwards of £10,000. The same rule for any investment, or indeed gamble, applies: do not use money which is likely to be necessary for your living in the short- to medium-term. Only spend what truly won’t be missed. Returns are not guaranteed, however, grade wine is a valuable commodity and sales are increasingly impressive.
An element of that fillip is thanks to the upward curve in interest from Asia, and specifically China. The Chinese have acquired a taste for red wine – in part due to their new urban affluence, and also because of their fondness for a lucky colour (interestingly white is associated with death and funerals, and therefore not as popular) – so much so that in 2013 they bought 1.86bn bottles. Not only did that figure represent a 136 per cent increase over the last handful of years, it also shunted France into second place as market leader. As a knock-on effect this new demand is putting a strain on the already limited availability of these wines.
2. Purchase the very best you can afford
Some would insist you stick to the main châteaux of Bordeaux, and that’s an excellent tip, at least in terms of the likelihood of ticking over a decent, steady profit margin (Bordeaux Grand Cru Classés account for the largest part of the investment-grade market for fine wine at around 75 per cent). Certainly if both the vintage and provenance are good then you are likely to be quids in. The key is to invest in wines with a record, those which have a truly global secondary demand.
For instance, first-growth Bordeaux wines (the likes of Château Lafite Rothschild, Mouton Rothschild, Margaux, Latour, Haut-Brion etc) have provided sound returns for centuries. The top Burgundies and Rhones have performed well over the past five years, as have top wines from Champagne.
So, buy the best that you can afford, and it’s worth bearing in mind that a smaller quantity of the finest wines will serve you better than cheaper cases which will hit you in the pocket when you tot up the annual insurance and storage charges.
3. Always check prices
The cost of investment-grade wines can vary dramatically, by as much as 20 per cent. Therefore, when buying for investment it’s vital to shop around and sniff out the best market price. It is easier to check prices online these days, and websites such as wine-searcher.com can help while Liv-ex, the global market price for fine wine, is an invaluable resource.
Make sure you do your homework, even if you choose to invest with a merchant. Provenance and quality is crucially important to determine – and prove – the value of your investment.
4. Invest for a minimum of five years
Fine-wine investment has almost always produced positive absolute returns in every five-year holding period, ever since the first recorded, back in 1999. When compared with global equities, fine wine outperformed 98 per cent of the time over any given handful of years.
The best investment-grade wines are produced in small quantities (up to a maximum of 20,000 cases) and it’s the demand-supply imbalance brought about through their consumption that drives prices higher over time. There is a finite number of bottles in existence, and for the best returns a medium- to long-term view needs to be taken. As the wines mature and improve they also become rarer and more desirable – which drives prices ever higher.
6. Approach en primeur wines with caution
Commonly referred to as ‘wine futures’, en primeur is the process of purchasing wine while still in the barrel, with bottling and physical delivery likely to occur two or three years later, after the vintage release.
Traditionally this was believed to be the best way for investors and collectors to buy classified growth Bordeaux as it typically offers the chance for collectors to acquire stock at the lowest market price. Such wines also offer the greatest security of provenance, as collectors can deal with the châteaux directly.
However, buying en primeur means committing to the wines are at their youngest – with all the maturing to do, before the final blend and oak-ageing is complete – and is fraught with risk. The actual bottled product may turn out better or worse than then initial barrel samples indicated. As a rule, do not buy en primeur in advance of the prices being published. And if you are going to have a dabble with these young wines, only do so with blue-chip merchants with a good track record.
