In our tiny red dot, wine investing is infamously known as an object of scams and fraud. But just like stock investing and art, buying the best of the bottles can give you astonishingly good returns – and any wine connoisseur should consider this alternative investment in their portfolio. If you’re passionate about your drinks and dollars, here’s what you must know to make a profit and avoid falling prey to a crime.
1. Fine wine investment (FWI) offers an ROI of 12 to 15% per annum on average
Fine wine is one of the best performing asset classes in the last 20 years, driven by increasing demand and a finite supply.
Investment-grade wine currently accounts for only 1% of total wine production and can no longer be increased. The scarcity of supply, coupled with a growing demand, are pushing prices up.
“Over time, a rare bottle of fine wine ages and improves, increasing its both prestige, desirability, and value.”
For example, a bottle of Domain de la Romanée-Conti (DRC Burgundy), regarded as one of the most sought-after wines in the world, is currently priced on average at US$13,092. In an auction at Christie’s Hong Kong in 2013, a case of DRC 1978 vintage fetched US$476,000 or US$39,700 per bottle. In 2015, Sotheby’s auctioned off 114 bottles of DRC for US$1.6 million or US$14,035 apiece.
A less prestigious wine has great potential returns, too. Cult Wines, a fine wine investment company, sold a bottle Masetto 2006 at 63% ROI. This bottle was purchased in 2011 at US$5,893; then sold after two years for US$9643. They also sold a bottle of Mouton Rothschild for 457.8% ROI; purchased in 2003 at US$3013 and sold ten years after for US$13,795.
2. Fine wine has several advantages over alternative investments
Fine wine is now the best-performing luxury investment, according to Knight Frank Luxury Investment which tracks the price growth in major collectibles. In October 2017, wine prices surged 25% over the past year and 61% over the past five years, trumping cars, jewellery, and art. On the other hand, Live-ex reported that fine wine has also outperformed gold and FTSE in 2017.
There’s a real, live market for wine, with real bid-offers. This global marketplace is called Liv-ex or the London International Vintners Exchange, which also tracks the most “investable” wines in the market.
Wine tends to remain robust than other investments even in times of economic downturn. According to Liv-ex data, fine wine outperformed 98% of the time over any 5-year investment horizon since December 1999.
Wine can be consumed and enjoyed if it falls in value; whereas an intangible asset can only be sold at a loss if it doesn’t perform as expected.
The global fine wine exchange, Liv-Ex, is consistently less volatile than stock or commodities.
3. Only invest if you can spare US$13,500 or £10,000
Like any investment, only put money that you are willing to lose. Do not invest money you need to live for the short-term to medium-term.
The most prestigious wines are usually sold in cases of 6 or 12 bottles, with each piece consisting thousands of dollars or pounds. Experts agree that US$13,500 or £10,000 gives you an excellent chance to make a decent profit on fine wines.
4. Buying your investment
There are two ways you can invest in fine wine. You could buy your wine and build your portfolio, or invest in a fund that specializes in investment-grade wines.
If you are buying your own wine, this would require you to select and purchase at least a case from a wine broker. This route is recommended for someone who takes pleasure in drinking and growing their knowledge.
But if you are not much of a connoisseur, a less risky option would be joining an investment fund for fine wine. Let fund managers and experts help you.
Either way, always double check prices and check out the market price. Winesearcher.com and Liv-ex are the best sources to do your own homework.
5. Buy the best bottle your money can buy
99% of wines are meant to be consumed within five years – and not all bottles are meant to be kept, aged and make a profit.
There are only 250 wine producers who make investment-grade wine, mostly produced in Bordeaux, France. The Bordeaux “Big 8” chateaux are the blue chip of fine wines, recognized for bottling the best wines.
There will always be a market for top-quality wines, especially from the “Big 8”. Hence purchase the bottle that has the most potential to be sought-after in the global exchange.
6. Safeguard your assets
After you’ve bought an excellent bottle of wine, don’t go storing it in your bomb shelter! Most people may not have the storage facilities at home to store fine wines. It needs to be handled with utmost care. You can choose to store the wines with a professional cellar such as the Singapore Wine Vault, or buy a wine fridge or build your own cellar in your home.
Insure your fine wine against accidents and stealing. Make sure the cost of insurance is at replacement value.
7. You have to wait it out
You need to hold on to your wine for at least five years to allow it to become rarer and appreciate in value. During this waiting period, any investor would have zero dividends and returns