Investing in wine: 8 things you should know

Fine wine has been pulled into the spotlight in recent years as investors increasingly steer away from traditional investment classes in search for something a little different.

As one of the best performing asset classes in the last 20 years, fine wine investment can even be a ticket to early retirement.

But while the returns are impressive, in a market where demand strictly outweighs supply the risks are equally high.

Here are eight top tips, according to fine wine investment specialist Cult Wines, in order to get the most out of the market.

Buy from the best estates in old world regions

Old world regions of Bordeaux, Burgundy, Italian, Rhone and Champagne give the best returns.

Bordeaux Grand Cru Classés account for the largest part of the investment grade market for fine wine (75 per cent) and is traditionally where most collectors and investors should focus.

Away from Bordeaux there has been increasing demand from the emerging markets in recent years for the top wines from Burgundy, Italy, Rhone and Champagne which has seen strong price appreciation.

Invest for a minimum of five years

Wine investment has produced positive returns in every five-year holding period ever since the first recorded period 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 and rarity that drives prices higher.

Always check prices

Prices for investment grade wine can vary by as much as 20 per cent depending on where it’s bought from, so it’s critical to shop around.

Look for growth potential

Make sure you buy wines which offer both value and growth potential – compare prices across a range of vintages in a particular estate and look at market availability in order to predict future potential for improvement and demand.

Store correctly

Fine wine should be stored professionally and correctly in the right conditions in order to help guarantee the future value of the wine when you come to sell.

Ideally this is in wooden cases in a bonded warehouse which carefully regulates temperature and other factors which might affect the wine.

Approach ‘en primeur’ wines with caution

Commonly referred to as ‘wine futures’, en primeur refers to the process of buying wine whilst still in barrel, with bottling and physical delivery 2-3 years after the vintage release.

This was traditionally the best way for investors and collectors to buy wine at the lowest market offer price, however, buying wine before it has been completed means investors run the risk of ending up with something which is worst than expected.

Use as a diversification tool

Besides outperforming Global Equities in investment returns, fine wine investment also gives diversifying benefits as the correlation of the investment to Global Equities is only 0.19 – a low correlation to wider financial markets combined with low volatility only improves the investment appeal.

Be aware of the tax benefits

Fine wine investment is often advertised as ‘tax free’ as it is exempt from capital gains tax – however, there are a number of key considerations to make and it is crucial to fully explore and clarify legislation.