The Ultimate Liquid Investment

Another alternative investment which has gained popularity over the years, especially after the financial crisis and the ongoing sovereign debt crisis is fine wine investment.

There are 2 major rationales behind investing in fine wine are:
Firstly as an investment for future consumption, buying young wines at the initial release price, with the assumption that this when mature, would be much more expensive to buy and tastier to drink.
Secondly as a financial investment, buying wines with the sole intention of reselling later for a profit.

For investors who keep a cellar, both factors will influence investment. The overall demand for fine wine, which is produced in very small quantities, has increased enormously over the last several years. The demand is set to go up as more and more people join the millionaire club especially from emerging markets (the BRIC countries). The Liv-ex 100 Fine Wine Index has outperformed the FTSE 100, Dow Jones and other indexes over the last few years offering significant returns without the volatility of the stock market.

The essentials to wine investment are to focus on the top wines from the best vintages because only a small percentage of wines produced will increase in value over time. The second most important aspect is storage of wines under proper temperature control.

To be regarded as a good investment, a wine requires the following qualities:
A. It must be an instantly recognized brand with a long track record of quality and consistent high prices.
B. The wine must come from a great vintage.
C. The label must have strong consistent global demand.
D. The wine must have the ability to age and improve over a long period of time.

Bordeaux represents about 91% of the wine investment market and therefore should take the corresponding share (more than 90%) in any wine portfolio.

The disadvantage of wine investing is similar to that of gold investment and art investment i.e., there are no interest payment, dividend payments or rental incomes. Moreover, there are the costs of storage and selling which have to be factored in and these brings down the profitability.

Typically, a broker will work on a 10% margin while selling wine. Selling at auctions will also have consignor fees to be considered. These generally begin at a maximum of 10% depending on the quantity and quality of wine on offer.

Unlike in art, the amount of investment can be as little as £500 (approx INR 34,000) in a case of wine, although a minimum investment of £10,000 (approx INR 674,000) is considered optimal to create a more balanced portfolio so that the risk is spread at least across a few Chateaux and vintages.

There are quite a few wine investment companies and wine investment funds who accept a minimum of £10,000 (approx INR 674,000) for investment through them. One has to be careful about the charges when dealing with any such company as some of them charge as high as 25-30% upfront. Before choosing a investment company, the track record and charges are to be considered.

Wine should only be a small part of an investors total investment portfolio as a diversification ploy and is to be considered riskier than bonds, gold, equities.