How To Invest In Wine (2024)

Knight Frank’s Wealth Report earlier this spring confirmed that 2021 was a good year for investing in wine.

Fine wine shared top-billing among ‘alternative investments’ last year, alongside collectible watches, with each producing a return of 16% over the period.

According to Miles Davis of data supplier Wine Owners, which provided information for Knight Frank: “There has been a new wave of investment money coming into the wine market.

“Some of it is led by macro factors, such as inflation worries, with wine being seen as a hedge [defensive investment], but also more localised factors such as supply shortages due to weather conditions, particularly frost, and supply chain issues.”

Last year’s return on wine, although impressive, is not an isolated experience. For example, take the Liv-ex Fine Wine 1000, the broadest measure of the global fine wine market, which is up just over 10% since the start of 2022.

According to Alexander Westgarth, CEO of broker WineCap, wine investors have become used to solid returns for a number of years: “The fine wine market has seen compound annual growth of 8% for the last 15 years, with some sectors, such as Burgundy, returning 12.5% a year.”

Making the case for wine

Given these figures, it might be tempting for retail investors – the likes of you and me – to think about finding a place for fine wine within our investment portfolios.

After all, we live in uncertain times, where traditional asset classes, such as stocks and shares, are experiencing a rocky patch.

Take the US stock market which, having fallen by 20% since the start of this year, is now in classic ‘bear market’ territory.

The global economic backdrop hardly makes for dazzling viewing either, characterised as it is by soaring inflation and rising interest rates. In the UK, the prospect of recession is rarely far from the lips of forecasters.

Given these circ*mstances, it’s understandable for investors to gravitate to tangible assets in the hope they offer less risk of being affected by market fluctuations.

But is that in itself a strong enough case to invest in wine?

Tom Gearing, CEO and co-founder of Cult Wine Investment, believes it is. Why?

“Because, simply, it’s a smart investment choice, particularly in the current turbulent economic climate.

“Wine is a tangible asset with a track record of reliable returns and low market correlation [not performing in line with other assets classes]. It offers a degree of stability during market turbulence.”

What’s more, says WineCap’s Alexander Westgarth, “wine is a low-stress investment that doesn’t require constant attention, or frequent trading in and out of.”

A key attraction of investing in wine is that, unlike shares or buy-to-let properties, investors do not need to pay capital gains tax (CGT) on any realised profits.

As James McNeile, a partner at law firm RWK Goodman, explains: “HM Revenue & Customs considers most wine to be a ‘wasting asset’, in other words, a commodity that has a predictably useful life of less than 50 years. This is despite fine wines often appreciating quite considerably in value within that time.

“This means that if an investor were to sell that wine for a profit, they would not have to pay CGT on those profits. With tax rates up to 28% that can represent a significant saving.”

Would-be investors, however, need to consider carefully what bottles to add to their collection.

“Fortified wines, such as port and madeira, and spirits usually do not qualify,” McNeile points out. “The private collector who paid £16 million earlier this year for a ‘one of a kind’ cask of Ardbeg scotch whisky could face a steep capital gains liability if they try to sell and make a tasty profit.”

As we’re always keen to reiterate at Forbes Advisor, there are simply no guarantees from any form of investment and, despite some attractive-sounding returns, wine is no different. Wine is a highly specialist area that should only ever make up a fraction of one’s investments.

All investments are speculative and your capital is at risk. You may not get back some or all of your money.

Investment planning

Earlier this year, Vantage Market Research in the US valued the global wine market at around £350 billion, being projected to grow to £500 billion by 2028 as wine-drinking continues to increase in popularity.

Ideally, anyone considering an investment in wine should already be in possession of a balanced portfolio, ideally diversified across a mix of assets, such as cash, bonds, stocks and shares.

Would-investors should also bear in mind the same rules that apply to all new investments before dipping their toes into an untried asset class for the first time:

• Keep your ultimate financial goals in mind
• Be prepared to ride out market ups and downs.

Potential investors should also ask themselves these questions:

• Do I understand how I’ll potentially make money from investing in wine?
• Am I comfortable with the level of risk in question?
• What’s my investing budget?
• Can I afford to lose all my invested money?
• Am I protected financially should things go wrong?

John Derrick, managing director at JP Morgan Private Bank, says: “First and foremost, wine is a consumable good. It is important to make sure you focus on this as the main objective when you consider purchasing and/or investing in wine.

“You should always be prepared to drink every bottle that you buy or, if you are feeling even more generous, give them away as wonderful gifts on special occasions.”

How to invest in wine

Wine is sold in primary and secondary markets. In the primary market, wine typically moves from producer to consumer via wholesale distributors and retailers.

The secondary market is where most collectors and investors buy their wine. In this market, collectors, oenophiles (wine connoisseurs) and investors sell wine through merchants, auction houses, online exchanges and brokers.

Auction houses tend to be the most reliable and trustworthy sources for fine wine in the secondary market, offering a broad selection of producers and vintages.

According to Cult Wine Investment’s Tom Gearing, when considering what wines to invest in, investors should weigh up three main factors: “First, age-worthiness is very important. The wine needs to have the ability to mature and reach its optimum-drinking over a 10 to 20-year plus time horizon.”

Next comes the task of choosing wine of sufficiently high quality: “This may seem somewhat obvious, but investors should consider if the producer and wine itself is well regarded by professional critics and consumers alike,” Gearing advises.

Thirdly, he says, consider if there is a secondary market for the variety in question: “Successful investors typically determine that a wine has a track record of re-sale through these channels prior to investing. If it’s difficult to re-sell, then you might struggle to see your gain in the first instance.”

Focus on quality

Mr Derrick at JP Morgan adds: “The principles are very simple for buying fine wine – buy something you will be happy to drink and ensure you buy the best quality from a reputable merchant you build a relationship with based on trust and knowledge.

“The best merchants will tell you what to buy, but more importantly, should be telling you what not to buy.”

Mr Westgarth at WineCap says: “The best way is to buy whole cases of wine and store them professionally in a government-bonded warehouse.

“Consider using a reliable investment specialist that can build a portfolio for you, manage storage and insurance, keep you updated with valuations and advice and eventually manage the sale of your investment.”

Being stored ‘in bond’ provides a duty-free zone that allows would-be investors to buy and hold wine without paying duty and VAT.

Idina Glyn, senior associate at law firm Forsters LLP, points out that there are an increasing number of opportunities for investors in the wine market: “No longer do investors simply buy the wine itself to hold for themselves in bond. An increasing number of funds are being formed to buy vineyards and wineries and ultra-high net worth individuals are investing in specific projects that allow more indirect investment in wine.”

Many of the latter may be framed around the tax-efficient enterprise investment scheme (EIS) status, a government arrangement that allows smaller, higher-risk companies to raise finance. However, as Glyn points out “investing purely on the basis of tax relief is not the best reason to invest”.

Be patient

Tom Gearing advises newcomers to the wine market to invest with patience: “Don’t expect to buy one bottle or a case of wine and automatically generate 10% returns per annum. As with your wider investment portfolio, you need to spread your capital. For the best returns, expect to wait an average of around three to five years.”

When you’re planning to invest in wine, you should first consider which wines are best for providing a return on your investment.

Steve King, managing director of wine gift company Bottled & Boxed, says: “If you are starting out, you’ll most likely want to create a fairly safe wine cellar for your portfolio initially, so it’s a good idea to look first for wines that are fermented in oak barrelling and have both a high acidity and some residual sugar.

“This ensures they will age well, meaning they will fetch a higher price in the years to come. Nebbiolo [a grape variety used in the production of Italian Barolo wines] is extremely acidic and best enjoyed when aged for two decades, while Bordeaux is a classic choice for aging as it can also be kept and aged for 20 years or more.”

He also recommends that a wine collection should ideally contain some variety in terms of age: “This means you will have younger wines that will provide a return on your money in decades to come, and some that are already aged and will bring a return in a shorter time frame.”

Just for the wealthy?

Asked whether investing in wine is a preserve for only the seriously wealthy, Cult Wine Investment’s Mr Gearing is unequivocal. “Not at all. Wine investing is an option for anyone with capital. Our accounts start at £10,000 as this allows our clients to achieve optimal returns and diversification. However, if you want to start slower, you can experiment with investing in individual cases on your own.”

He recommends building diversification into a portfolio: “It might be that fine wine from Chile will have a massive spike. Or, as we have seen over the last year, Champagne prices start soaring. Simply investing in Bordeaux first growth will stifle your returns.”

WineCap’s Mr Westgarth agrees that investing in wine can be done with relatively little outlay: “Most people will start investing with something between £5,000 and £25,000. Even at the lower end, that means you can start building a portfolio with exposure to different wine regions”.

How to store wine

Mr King at Bottled & Boxed reminds would-be investors about the importance of proper storage: “Collections need adequate storage in order to give you both a return on your investment, and the enjoyment that a great wine collection can bring.

“Make sure to store your wines away from heat and sunlight that can affect the quality of your wine. You might want to store your collection in a home cellar, or you might pay for specific storage that is temperature controlled to perfection, so you can rest assured that your wines will age correctly.”

Mr Gearing adds: “We’d always recommend ensuring wines are stored ideally in a professional warehouse, in the right temperature and humidity, and that you have title and ownership of the underlying asset.”

Steve Moores, client direct at insurance broker Aston Clark, says: “Many good home insurance policies include cover for a small wine collection as standard. But a wine collection of four figures or more should generally be added to home insurance cover under a separate listing.

“An ‘all risks’ policy will cover most wine claims, including theft, accidental damage and fire and water damage but there is usually no cover for ullage [loss by evaporation or leakage], cork-fly or climatic conditions.

“Underwriters may also require that the wine be kept off the floor to prevent possible water damage, known as a stillage clause. Premiums vary, but are always lower if kept in professional, secure wine storage.”

Is it worth buying into wine as an investment?

As with any alternative investment, there’s a danger of being bowled over by the perceived glamour surrounding the commodity concerned – whether that’s high-end wines, or luxury cars designed to set the petrolhead’s pulse racing.

Ultimately, there’s little doubt that investing in wine occupies the riskier end of the investment spectrum. There’s also scope for being caught up in scams and, being a physical asset, bottles are at risk of being damaged, stolen or drunk.

JP Morgan’s John Derrick says: “Do your due diligence in terms of who you are buying from – speak to the people and companies concerned and research them just as you would if you were buying another high-value item.”

After all that, if your prized asset is unable to provide you with untold wealth, the option remains of cheering yourself up with an enjoyable drink.