People have been using wine as an investment for centuries. It is hardly surprising, given that many red wines take years, and sometimes even decades, to reach their true potential, that a large number of those who want to buy wines want to do so when it is ready to drink, and not wait for the wine to reach full maturity. Likewise it is fairly obvious that wine growers do not want to have to wait until their wine is at its optimum drinking maturity before they can sell it, as this would further delay the process of getting paid for the production of a bottle of wine, soemtimes for as long as 20-30 years. A market has therefore grown up where investers buy wine as it is produced and trade it as a commodity until it is bought by its final consumer when it is ready to be drunk.
Of course not all wines are traded in this manner, and it has become customary for certain wine growing regions to attract much more in the way of investment buyers than others. It is fairly self evident that a wine which needs to be drunk within the next year and will not last beyond that without turning to vinegar is not going to be a sound investment. Red wine, and some white wine including desert wine, tends to have a much longer maturing period, and this makes it a much more appealing investment. Likewise fine wine which matures for several years, and may last for decades gives an investor plenty of time to be able to sell his wine. One of the other major factors, and perhaps one of the most important, is the ‘brand’ which is associated with a wine growing region and wine estate. Estates such as Chateaux Latour and Chateaux Lafite-Rothschild are renowned for consistently producing some of the best En Primeur wine (wine which is bought as an investment whilst it is still in the Barrel).
Whilst prospective buyers may be easily lured in by past performances of some investment wine (the top Bordeaux wines have consistently yielded around 20% per annum over the last 15 years) and by prospective gains (Bordeaux 2009 is tipped to be one of the finest vintages of recent decades) there are a number of pitfalls which are worth baring in mind before you jump in wallet first. Like all markets there is no such thing as a guaranteed return, and whilst you can follow fantastic advice, any investment may go down in value as well as up and this is a risk which you take on if you invest in wine just as if you invest in stocks and shares. Tax on wine can also have a huge impact on your gains, with VAT and other associated alcohol taxes payable only once the wine is ‘released’. This means any future rises in VAT (for example VAT is set to rise in January 2011) and future rises in alcohol related tax might be unforseeable and outwith the investors control. These taxes combined with Capital Gains Tax, added to any cellar fees and the wine broker’s fee can quickly diminish what looked on paper to be a fantastic bet to a rather smaller return.
It is not all caution, however, and if your wine investment turns out to be a bad one and it is very much a case of In Vino Veritas rather than In Vino Argentum, at least you can look on the bright side: you can’t drink stocks and shares…
