Can you guess how much 12 bottles of Le Pin 1982, which cost €280 the year it was released, are worth today? The answer is €108,456. That’s a gain of over 387 times the original investment in 34 years. Previous best vintage years include 1959 and 1961. Naturally, not all wine investments perform as well - but over the short, medium and long term a well-chosen portfolio of wine should produce excellent returns. In 2005 Live-ex.com, a stock exchange for the wine industry, grew by 18.7%. During the last decade, Decanter.com, another index that measures market performance, has shown an average annual return of 20% and over the longer term 15% profit a year is feasible. Profit is not the only reason why wine makes such an attractive investment. Even if you aren’t an oenophile it is a fascinating subject to study. What’s more, if your investment fails to make you money, you can always drink it!
The first step to investing wine is to understand the market. The best wines mature once they have been bottled and carry on improving with age. Every year the greatest producers can only create a finite supply. As that supply is consumed so availability becomes limited and prices begin to rise. To maximise your gains you may choose to buy your wine ‘en primeur’ – in the summer after the harvest and a full 18 months before it will be bottled. The safest and most secure investment option is to buy French wine – the top performers historically have always been the leading 30 chateaux in Bordeaux. Some Spanish and even New World wines could well appreciate – but the risk is substantially higher. It is worth remembering that how much a wine costs is not automatically an indicator of its quality. Fashion often pushes prices up. In the 1960s, for instance, German Liebfraumilch became popular and prices rose. Mass production and poor quality control meant these gains were short-lived.
The most influential wine commentator in the world is almost certainly an American called Robert Parker. Recently he described the 2005 Bordeaux vintage as ‘the finest vintage in memory’- a Chateau Haut-Brion will set you back c. €500 a bottle... released in 2008 the price increased by as much as 1000% to 1500% or even more. Not everyone believes that a well-trained palate such as Parker’s is required to spot a potential winner. Orley Ashenfelter, an economist at Princeton, has analysed the market going back many years and found that the average temperature during the growing season, rainfall in August and September and rainfall the previous winter are actually the key factors in determining price. On this basis the 2005 vintage, which could cost anything up to €4,000 a case when ‘en primeur’, did not produce such large gains as other vintages.
Disagreements over the investment potential for any particular wine highlight the need for expert advice. Experienced buyers may choose to purchase at auction, but for anyone else it is more sensible to purchase via a wine merchant. You can check whether a wine merchant is reputable, incidentally, by visiting www.investdrinks.org (Jim Budd’s drinks investment site ) and you can check prices by signing up for the professional version of www.wine-searcher.com. Your merchant can also arrange storage for you. This must be in a temperature-controlled warehouse. When you come to sell your investment it will be worth considerably less if you don’t possess documentation to prove it has been stored properly. Thanks to the creation of the Euro zone, by the way, it may make more sense to buy and store your wine in France where both supply and demand are stronger than here in Ireland.
If you are attracted by the idea of investing in wine you may like to bear in mind the following tips:
- It is possible to buy wine without having to pay duty or VAT until such time as you either take delivery or sell the wine on. This is called buying ‘in bond’ and your wine will be kept in a ‘bonded warehouse’. Clearly, this saving will maximise your gains.
- Buy complete cases (never mixed cases). A case will be more valuable if it is of the original wood and unopened. If you can afford it, buy more than one case of the same wine, as this is what purchasers are often looking for. You shouldn’t automatically buy just the famous names – there could be more profitable investments to be made.
- Don’t economise on insurance. Make sure that your wine is covered at the market price and not just the price you paid for it.
- Make sure you know the provenance and storage history of any wine you buy. The trade attracts a certain number of unscrupulous so-called investment advisers. Only deal with actual wine merchants.
- Wine is a generally considered a medium to long-term investment. You probably shouldn’t consider selling for at least five years.
Wine is an alternative investment. For this reason you should only consider it if you have already bought property, equities and bonds. Under such circumstances, however, it is not unreasonable to have grape expectations.
John Lowe, Fellow of the Institute of Bankers, is founder & managing director of Providence Finance Services Ltd trading as Money Doctor and based in Stillorgan Co Dublin. He is author of The Money Doctor 2016 – 100 Ways to Save Cash (Gill ) Tel +353 278 5555, email firstname.lastname@example.org or web www/independentfinancialadvice.ie. Follow John -Twitter(@themoneydoc) Pinterest,Google+, Linkedin & Facebook.