Is Wine Investment Right for You?

Is Wine Investment Right for You?

by JJ Buckley Fine Wines


Bottles of fine wine displayed in a cellarAmong traditional markets, volatility can upend an investment strategy. Fine wine assets, however, have proved historically resistant to financial downturns. There are wine investment pros and cons, but generally, wine investment has provided investors with stable growth, tax-free returns, and steady demand with the backdrop of limited supply. The value of a top vintage isn’t tied to an individual economy and garners strong, upward-trending international appeal, making an original investment far more sustainable — and lucrative — over time.

Why Is Fine Wine an Attractive Asset?

Wine is a passion asset — a tangible, high value item that is valued by its quality, rareness, and esteem to a dedicated community. Passion investments allow for ownership of a desirable physical item, diversification of a portfolio, and garner impressive returns thanks to the fundamental imbalance of its supply and demand.

Even at times when traditional economies and financial markets suffer, passion assets like wine have been shown to be recession-proof. On average, the return on investment (ROI) for fine wine collectors stands at roughly 12 percent per annum since 1988 — and some vintages, like those from Bordeaux, even quadrupled in value between 2000 and 2010.

The emergence and growth of new markets is delivering dramatically increased demand coupled with delicate limits to supply. Whether you’re a seasoned oenophile or adding diversification to your current assets, experts point to the next few decades as a prominent period of growth for fine wine owners.

With any significant investment comes an element of risk, however. Let's dig into some of the pros and cons of wine investment and how successful investors make this part of their portfolios shine.

Advantages of Wine Investment

Wine ownership can add diversification to your market portfolio as a strong tax-free commodity with steady rates of return, providing peace of mind and stability traditional assets fail to offer.

Tax-Free Assets

In the tax world, wines are classed as a “wasting asset.” This term includes commodities with a predictable life not exceeding 50 years — but even if that asset continues to increase in value after this period, its classification will not change retrospectively. This class comes with some serious perks. Upon sale, your wine is not subject to capital gains or income tax, and it is also exempt from inheritance taxes. The only fees a seller would be accountable for are tariffs and shipping costs accrued across international borders.

Consistent Returns on Investment

The availability of a good vintage is finite, meaning its value stands to only increase. The Liv-Ex Fine Wine Investables Index (LVXINV) is an industry benchmark for tracking the fine wine market globally. Based on its data, fine wine has never shown a negative return over a 10-year period, instead averaging a 12% ROI. The LVXINV and its counterpart the Burgundy 150 Index, which tracks only those wines from the Burgundy region, have outperformed both the S&P 500 and FTSE 1000 Equities Index over the last decade. Even in the last five years, the Burgundy 150 grew by 76.95 percent while the FTSE 1000 concurrently dropped by 14 points.

Market Stability

Physical assets like wines give investors full ownership and increased options over their assets while avoiding the whims of the stock market. With demand outpacing supply year-over-year, luxury assets like wine resist market downturns, as wines don’t tend to lose value in a market sell-off. When the S&P 500 dropped by 38.5 percent in 2007-2008, wine owners toasted their muted tumble of about 0.6 percent. The market slip in early 2020 is showing similar trends.

Risks to Successful Wine Investment

Historically, only certain wines have been poised to accrue in value, and those wines will tend to be expensive up front. This price point can lead would-be investors to shy away from the market, but experts indicate that there are some very good investment opportunities cropping up, not only in other French regions outside Burgundy and Bordeaux but also around the world. Working with a reputable vendor can point investors to the right vintage for their strategy while overcoming other challenges to wine ownership.

Maintenance

With physical assets, it’s not as simple as submitting a trade and watching the market. Fine wine stored anywhere but in a professionally managed warehouse is difficult to sell — buyers have no guarantee that a vintage stored in your home has maintained its quality. Trusting your wine to a managed warehouse ensures quality control — while removing an investor’s temptation to dig into a favorite case! Annual storage fees for the service are quite low as well, averaging at about $10-25 annually per case.

Quality Assurance

Part of a wine investor's strategy involves due diligence to ensure verifiable, premium purchases that will mature in quality and value. The fine wine market is not regulated by an agency like the Financial Conduct Authority, however. Some of the market’s foremost merchants have organized the Wine Investment Association in a joint effort to combat fraud, but investors are not protected in the same ways as with more traditional financial products.

Ultimately, buying through a reputable vendor greatly reduces risks like counterfeit bottles and fraud.

Liquidation

You can’t pay your bills with a bottle of 2010 Chateau Lafite, however. Experts advise it can take between 4-12 weeks to liquidate a wine portfolio. So while the assets are physically yours, your wine investments aren’t funds you can access immediately. Building your network as a wine owner can greatly improve your path to an easy sale, forging connections to other wine lovers — your future buyers — and understanding the maturing worth of your investment.

Fine wines are also considered long-term investments, yielding their best gains after five to ten years and beyond. Patience is a virtue in this market to reap its trend of rewards.

Should I Invest in Wine?

There are pros and cons of investing in wine. Long-term collectors with investment experience may be able to source rewarding buying opportunities independently, but most successful investors will work together with an established vendor like JJ Buckley Fine Wines. We offer a personalized consultation service to this end. Dedicated wine specialists help to guide your investment strategy on a whole, working to establish, build, and grow your collection. This relationship also includes arranging professional storage, exclusive offers, and access to options like purchasing Bordeaux futures.

Give us a call to see how you can add value to your portfolio through the age-old appeal of a fine wine collection. Our team can advise on strategies toward your specific goals — and you can you mull over its potential while sipping on a glass of your favorite vintage from the extensive options available at our online store.