How 2015 can bring more diversification and attractive opportunities to wine investment

29-Apr-2015

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Wine has always been seen as an excellent choice for investors. It may lack the luster of high risk and potentially high reward stock market trading, but it is a solid investment option which can always be consumed. The last decade has seen many changes in the options available. Wine investment dipped during the globally economic climate but is now experiencing a renewed interest and attracting many new investors.

The wines

Traditionally, Bordeaux has taken the biggest share of the market but the wine crisis in 2011 hit Bordeaux’s hard and the market is now evolving. There is much more interest in fine wines from other regions and countries. Burgundies, Italian wines, Australian, Portuguese and even wines from the USA are now increasing in demand. Some of these wines are seeing increases in sales of between 25% and 50%.  Bordeaux remains the biggest market shareholder but it needs to complete its comeback. The verdict is still out on whether that will be this year or next.

Reasons to Invest

Investing in fine wines is a romantic idea; it may seem a little whimsical or not make sense to the outsider but it is in fact an excellent investment option:

  • A physical asset can be seen and manipulated, sold as necessary and stored for the long term.
  • There is little risk in wine investment. Providing a fine wine is chosen it will rise in value as the years go by. The return is not guaranteed but is almost certain providing you hold the wine for a long enough time. Quality, scarcity and reputation are key attributes.
  • Wine can be tasted and its quality confirmed meaning that if all other options are exhausted it is possible simply to drink it.
  • As a physical asset it is less likely to be upset by market changes or supply and demand issues. A knowledge of wine is required and not an in depth knowledge of stock markets, growths, forecasts and economic predictions.
  • It is more liquid (no pun intended) than other forms of investment. It can quickly be turned from an asset into capital if required.
  • Because it is separate from the stock market and other asset markets it rarely suffers from economic fluctuations. This has historically been shown to be true as wine has the second least amount of volatility in monthly annualized returns within the non-fixed income asset class. The last twenty years have shown an annualized return of 20%.

  • It is not possible to borrow funds against wine stock so there are no associated debt issues. This means the stock and the investors are not subject to currency fluctuations or sudden changes in value.
  • Fine wine production is a limited affair. There are thousands of vineyards around the world but only 250 of them produce investment quality wine. This ensures any fine wine bought will remain in demand.

Who should invest?

Wine investment is something that has been proven to stand the test of time and can be far cheaper to start in than traditional asset investments. Property is one of the other biggest markets in asset investment but this requires a large amount of start up capital.  The fine wine market can be entered with an amount as low as $20,000. This will enable the purchase of a reasonable quantity of the best vintage wines.

It may not be every investor’s choice – there are those who prefer the higher risk and potentially higher returns of the volatile stock market. But, there should be room for this in every investor’s portfolio – a solid performer can assist in times of economic downturns.

Ultimately, for those who can invest in fine wines it can be incredibly satisfying to be able to hold your investment, transport it and if desired, drink it. As for specific wines, you should always start a business with basic wines. Mouton Rothschild for example, is an excellent type of Bordeaux. Why take unnecessary risks when you can keep it safe until your investment start making a profit? After a couple of years, when you’ve gained enough experience feel free to take chances and buy “en primeur”.

 

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