Make money from booze!
That bottle of plonk doesn't just taste nice - it can make you money too!
I don’t have a great track record with investment. I’ve only ever bought shares on one occasion, back in 2008 when HBoS shares were tanking. Cue the shotgun marriage with Lloyds, and my shares never quite made it back to the level I bought at.
However, there is a far more exciting way to invest money than boring old stocks and shares, and it might just get you a better return – fine wine.
14 months of gains
While the last couple of years has seen huge turbulence for investors, wine investment has been the model of consistency. May marked the fourteenth straight month of increases on the Liv-ex, the main fine wine index, which tracks the value of the 100 most sought-after wines.
Indeed, in May the value of Liv-ex rose 4.4% from April, taking the increase in 2010 so far to 23.8%, while year-on-year it’s up 37.15%.
Wine is clearly something of a success story for investors.
Why wine is a good investment
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For example, while investments in other areas lost up to 70% of their value during the horror show that was 2008, the investments made by The Wine Investment Fund, an investment manager in wines, lost just 5%.
There’s also the supply and demand side. The wine produced is finite – no matter how good the vintage of the wine you’ve invested in, the quantity can only decrease over time. What’s more, as the wine matures, the demand actually goes up, as the wine is improving!
That sounds like the holy grail of investing to me!
What’s more, there are even tax benefits associated with investing in fine wine. Because it is classed as a wasting asset – in other words, something that would not have a useful life beyond 50 years – it is not subject to Capital Gains Tax should you choose to sell it on.
So it’s a low risk, high return investment, and you it boasts tax breaks too!
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There are a few downsides though. For starters, you don’t tend to get to drink the wine!
Indeed, for many, you won’t even get to keep it in your home. If you want to keep wine in your cellar, you’ll have to stump up an import fee of £13 per case, as well as shelling out VAT on the purchase price. Given the prices that many of these wines go for, that will soon be 20% of an awful lot of money!
Instead, most investors will pay to keep their wine in a warehouse, ‘in bond’, which will generally cost between £7 and £13 per case each year.
Wine investment is also not exactly cheap – if you want to invest in a fund, you will tend to commit to a minimum investment of between £5,000 and £10,000.
Investing with experts
If you decide you do want to start investing in wine, there are a few options open to you. If getting the best possible return on your money is your ultimate aim – and with investment, that does tend to be the case – then you might prefer to put your money in the hands of a wine investment manager.
Recent question on this topic
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These managers will then invest your money for you in the wines they believe will deliver the best possible return. There are plenty of firms that will provide this service, including The Wine Investment Fund, Premier Cru and Wine Asset Managers. However, it is worth doing your own research on the firm’s background, and what you can expect from them.
With the Wine Investment Fund, for example, you can expect regular newsletters to keep you abreast of developments, while you can check the performance of your portfolio online, with the figures updated on a monthly basis. There is even an annual dinner where you can get together with your fellow investors and have a chinwag about wine.
Do it yourself!
The alternative is to handle your investments yourself. This is obviously far more risky, as you are taking a more hands-on role, but is arguably more fun.
You won’t be able to buy the wine direct from the producer, but will instead have to buy via wine merchants, so it pays to only deal with reputable merchants. As the market is unregulated, there are cowboys out there who will happily part you from your cash and offer you little in return.
If you do want to go it alone, be sure to follow these tips.
- Only deal with established and reputable brokers and merchants. It also pays to develop a good relationship with them – not only will you then get better advice, but you are more likely to get preferential treatment when it comes to highly sought after wines.
- Shop around. The prices offered by different brokers can vary, so don’t limit yourself. Two good sites to use to compare prices are Wine Searcher and the Vintage Wine Fund, while subscribing to one of the Liv-ex products is also a good idea.
- Buy your wines ‘in bond’. That way UK Duty and VAT are avoided.
- You should try to buy in unmixed sealed cases, and be sure to check the condition and provenance of the wine before you buy it. You also need to put thought towards where to keep the wine – if you want it to mature properly and predictably, it needs to be stored in perfect conditions, with the right temperature and humidity, as well as lack of light and vibration.
- All investments should be viewed as long-term moves, and wine is no different. Expect to invest over a minimum five-year period. Wine doesn’t tend to go up in value in a linear fashion, but rather tends to experience short periods of increases.
- How much you invest is really down to you, but this is not a cheap hobby – according to wine merchant Berry Bros & Rudd, you will need to invest at least £10,000 for serious returns.
- Pick the right wine. Investing in wine can me a difficult balancing act. You don't want to just stick to the big names, as they may offer less profit potential. However, you might not want to risk going for wines without much of a reputation. Either way, it's important not to just buy the wines you like.Your own taste in wine is irrelevant when it comes to making an investment decision.
- Make sure that the wine is stored and insured in your name.