Is fine wine a good long term investment?
|Investment | Commodities
Asked by renaissance, submitted
02 December 2009.
Is fine wine a good long term investment?
Answered by Justin on 03 December 2009
Investing in wine is, like most forms of investing, a gamble. And the less you know about wine the greater the likelihood you’ll lose money, not make it.
The three big decisions when investing in wine are what to buy, how much to pay and where to store it.
Unless you’re something of a wine expert then choosing a wine that’s likely to increase in value is a lottery. You could consult a wine dealer (merchant/broker) for advice, but how can you be sure they have your best interests at heart? They may simply try and sell you whatever they have in stock, regardless of investment potential.
Wine dealers also mark-up their prices above the ‘trade’ price to make a profit. How do you know whether the prices they quote are fair or a rip-off? If you pay too much then your chances of ever seeing a profit are slim. And even a modest dealer mark-up of 10-20% is still another obstacle to investment returns. Remember, when you come to sell you’ll be offered a trade price, not retail (just like cars).
Storing wine at home is usually best avoided, as it can prove costly. Even if you resist the temptation to drink your investment, the wine could deteriorate if not kept at the correct temperature and humidity. You’ll also have to pay VAT and excise duty, further reducing the likelihood of profit. A more attractive alternative is to store wine ‘in bond’. This means keeping it in a ‘bonded’ warehouse, which avoids VAT and duties. Most wine dealers can arrange this for you, including insurance, but expect to pay around £8 - £10 per case a year for the privilege.
A nifty tax benefit of wine investing is that it’s not usually subject to capital gains tax (CGT). Provided a wine has an expected life of less than 50 years then HMRC classes it as a ‘wasting asset’, which is exempt from CGT. Even if not a wasting asset, because wine is classed as a ‘chattel’ you can sell a single bottle (or ‘set’) for up to £6,000 without having to include the sale on your tax return.
Before buying, always try to establish the trade price of the wine you’re interested in. The simplest option is to phone a wine dealer posing as a seller and ask what they’ll offer. You could also see whether the wine has sold recently on www.bidforwine.co.uk, an online wine auction site, or use www.wine-searcher.com to compare the cost at various wine dealers. While the latter shows retail prices, it does at least help ensure you’re not paying through the nose. If you’re serious about investing then a subscription to www.liv-ex.com, an online wine exchange, could be worthwhile as you’ll be able to see how much dealers pay at auction and on the Liv-ex exchange.
Putting aside these potential pitfalls for a moment, does wine generally rise in price? One of the best measures is the Liv-ex 100 Fine Wine Index, which tracks the price of 100 (mostly Bordeaux) fine wines traded on the Liv-ex wine exchange each month. The Index has more than doubled over the last five years, impressive. But over the four years to July 2004 it only increased by 9% and it fell by 22% over the second half of 2008 - maybe not as volatile as stockmarkets, but unpredictable nevertheless.
Wine prices, like fine art and other collectibles, tend to be linked to global wealth. When people are flush with money then wine receives its fair share of investment interest, pushing up prices. In leaner times there are usually more sellers than buyers, pulling down prices.
If you do your homework, choosing and buying wine very carefully, then there’s probably a reasonable return to be made longer term. But as wine selling/investing is an unregulated industry there’s a lot of cowboy dealers and brokers hell bent on making sure that they end up with a fat profit, at your expense.
Tread very carefully and if a wine dealer or broker starts talking about guaranteed or sky high returns then run a mile, they’re a phoney salesman and not a serious investment professional.
Remember, if your investment does go wrong you’ll have very little comeback. Wine dealers are not regulated by the Financial Services Authority so you’ll be on your own and the chances of getting compensation if you’re ripped off almost zilch unless you can successfully press criminal charges.