Why invest in wine?

Source : Decanter – www.decanter.com – Section “Wine investment”What are the advantages of investing in wine?The underlying principles of wine investment boil down to the laws of supply and demand. On the supply side, there are relatively few (perhaps only about 75 in total) investment grade labels, whose production levels remain more or less fixed. On the demand side, there are a growing number of high net worth individuals around the world seeking to own and/or drink these wines. Ergo, the only way to ease the pressure is for prices to go up.Investment grade wine is also an improving asset. As fine wines mature they become more desirable and therefore more valuable. At the same time, as the wine ages and comes into its drinking window, it begins to be consumed making it even more rare, which in turn adds yet more upward pressure on prices.Fine wine has seen some astonishing returns, particularly in the last two years – after a period of several years in which prices generally didn’t move very much. Since the start of 2006, The Liv-ex 100 index rose +43.2% to November outperforming other asset classes such as oil, copper and gold, the FTSE and Dow Jones.In the last 20 years fine wine has also outperformed a number of equity and fixed income indices including the FTSE 100. For long term investors (as opposed to shorter term speculators) a well chosen and balanced wine portfolio should provide annualised returns of 10-12% per annum.Wine is less volatile than stocks and shares, making it a less risky investment. Moreover it is not highly correlated with the stock market, which makes it attractive to investors looking to diversify a portfolio.Generally, wine is also regarded as a wasting asset so doesn’t attract Capital Gains Tax. (However, as this area of tax law is complex it is best to take advice from a tax lawyer or tax accountant.) Moreover, if you keep the wine in bond, you also avoid paying VAT and Duty.It’s also more fun than investing in pork bellies. And if the market does crash, you can at least take solace in drinking up your position.

Wednesday, June 29, 2011 by

Suzanne Mustacich, AFP