Fine Wine Investment
Fine Wine Market
The fine wine market has reached many new investors in recent years due to the demystification and opportunities. The secondary market for fine wine is currently around $5 billion.
To understand how the fine wine investment market works, it is essential to know about the wine indices, for example, Liv-Ex Fine Wine 1000. This index tracks 1000 wines from across the world. It comprises different sub-indices, in total, they are seven:
- The Bordeaux 500 (50 top Bordeaux chateaux);
- The Bordeaux Legends 40 (40 Bordeaux wines from exceptional older vintages, from 1989);
- The Burgundy 150 (15 white and red Burgundy, including six Domaine Romanée Conti labels);
- The Champagne 50 (most recent vintages for 12 Champagnes);
- The Rhone 100 (the ten most recent vintages for five Southern and five Northern Rhone wines);
- The Italy 100 (ten most recent vintages for the five Super Tuscans and five other leading Italian producers);
- The Rest of the World 60 ( the ten most recent vintages for six wines from Spain, Portugal, the USA, and Australia).
Less than 1% of the wine produced globally can be considered fine wine.
In the past, storage was the main issue regarding the investment in fine wines. Most fine wines were made to age and increase their complexity through the reaction performed among acids, phenolic compounds, and sugars. The fine wines for investment increase their price with time till they reach the top of valorization by many factors (quality and scarcity, for example). For that, they have to be stored in a safe place, in a good position, and under perfect and constant conditions of temperature, light, and humidity.
Storing fine wines under adequate conditions is not enough. It is highly recommended to protect these valuable items with insurance. An investment that occurs through specialized fine wines companies is usually directly covered by insurance.
For wine lovers who wish to keep their precious wines in the comfort and safety of their cellars at home, companies specializing in the insurance service for valuable assets should be considered to protect the investment made.
To whom can I sell my wines? To make a profit, you have to sell the bottles. In recent years, interest in fine wines has increased, and new companies have also come into the fine wine market, making it easier to invest in wine.
However, the main point of the liquidity is the time to carry out the sale of the asset due to the specificities of each wine. Some of them can be sold in a week as for others, it can take months. Thus, one important thing to keep in mind is not to invest in an amount you may need in the short term (less than three years). Fine wine investment is like extraordinary wines. You have to be patient to enjoy it at the best moment.
Main Factors that Influence
Fine Wine Prices
Not all the vintages are exceptional. Even if the producer has a tremendous level of excellence, the laws of nature do not allow producing extraordinary wines every year. In addition, one of the characteristics to be considered a fine wine for investment is the potential to evolve over the years and decades, letting the time pass slowly till the best moment to be appreciated.
It is impossible to go back in time and recreate more bottles of a specific vintage. The amount of wines produced in a determined year is finite. That remarkable vintage of Petrus 1982? It has a limited number of bottles that will never be reproduced again.
Following the natural order, the wines will be drunk at some point then fewer bottles of that vintage will rest to be appreciated. We can apply the basic rule of supply and demand to assume the valorization of that specific vintage. In the top of fine wines indices, the assets with the highest performances have one thing in common: they are produced in low quantity.
The scores of wine critics play an important role in the fine wines market. In a classic example, in 1982, one of the most acclaimed wine critics, Robert Parker, gave high scores to Pomerol wines, increasing, even more, the region’s reputation worldwide.
Along with other factors, getting a high score can skyrocket prices. With the spread and increase of wine critics, this barometer is even more complex and influential.
Thus, the evaluation of internationally renowned experts such as Jancis Robinson, Antonio Galloni, James Suckling, Jane Anson, and Neal Martin is awaited every year.
Indispensable perspectives to consider
The liquidity of the fine wine market does not work exactly like other conventional markets. For example, in the stock market, it is possible to finish your position and sell your assets instantly in the price market. It takes time to sell the assets in the fine wine market, even at the market price. For that reason, be sure that the amount invested will not be needed in the short term not to have to lower the price to liquidate the assets quickly.
However, investment in fine wines has proved in the last decade (Liv-Ex reports) to be an excellent investment alternative with less risk than in a market as volatile as the stock market. Thus, 3 to 5% is the amount you should consider investing from your savings when considering the fine wine market.
Think medium-long term. Reports show that the best returns in fine wines occur after five years. However, to achieve the best results, it is essential to wait until the perfect wine maturation window, when the wine values reach their valorization peak. Before investing in the fine wines market, consider if you are willing to wait for your investment to mature and achieve the best moment to be enjoyed. Just like great wines, your portfolio needs time to optimize returns.
Over the last ten years, the return on investment in fine wines has been around 12% per year. This means that some wines performed well above the average, and others did not reach the annual average. This scenario demonstrates the importance of portfolio diversification. When building your portfolio in fine wines, try to add renowned brands and bet on brands that can be skyrocketing in the future. Plus, think about the importance of diversifying across regions. For example, Bordeaux, Burgundy, and Champagne can be considered traditional regions due to their history and reputation over the centuries, thus providing stability and security to the portfolio. However, reports point to the growth of other regions that are arising as great opportunities.
In recent years, several companies entered the fine wine investment market, increasing competition and bringing innovations to the segment (Apps, innovative systems, accessible data). Frauds in the wine sector are ancient, so it is essential to analyze who will manage your portfolio carefully. Some companies charge an annual percentage (around 2 to 3%), and others charge at the time of selling your wines. It would be best to analyze what each of them has to offer and whether they meet your expectations.
Be aware of companies that make unrealistic claims about the returns you can expect from their wines. There is no guaranteed profit. The value of your wine can go up or down. The global scenario is favorable, and statistics point to positive performance in recent years, but there are always risks like any other type of investment.
It is essential to evaluate the tax applied to your investment. Profits from wine investment are not necessarily tax-free. It depends on each country. Thus, it is necessary to have tax advice to know precisely which tax laws on wine apply to your case.
Important notice: wine has a limited shelf life. It cannot age indefinitely. After reaching the peak of maturation, the value declines. Thus, wine is considered a "wasting asset" in several countries, such as the United Kingdom and France. What does that mean? In other words, wines with investment potential in these countries are exempt from capital gain taxes as long as their shelf life expectations are under 50 years.
The best performances of 2020
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