Liquid Assets: How to invest in wine

Looking to buy a bottle or two to put away? Read on...

“The old rule with wine used to be that you’d buy two cases, drink one, and flog the other,” says Hugo Thompson, Senior Wine Advisor at Berry Bros. & Rudd. “But nowadays, buyers are treating wine like an asset class in its own right – and they’re taking their investments very seriously.” 

It’s not hard to see why. Of all the luxury asset classes – from watches to paintings to shotguns – fine wine offers some of the most promising returns, second only to classic cars. Indeed, in a ten year period, if the Knight Frank Wealth Report 2016 is to be believed, a well-curated cellar will soar in value by 241%. Here’s how to drink your way into an early retirement. 

Liquid Assets: How to invest in wine

1. Purchase the very best you can afford

The general rule is that you should only start investing in wine with sums of £10,000 or more. At this level, you’ll be dealing in wines of sufficient quality to guarantee a solid investment.

“When we’re putting together a portfolio, we suggest around 50 – 70% Bordeaux, with the bulk of those being blue chip names” (Chateau Palmer, Lafite Rothschild, Latour, Pichon-Longueville, etc) Thompson explains. “The rest is a mix of red Burgundy, Champagne, Northern Italian reds and some bits from the Rhone.”

When we’re putting together a portfolio, we suggest around 50 – 70% Bordeaux, with the bulk of those being blue chip names

“Red Burgundy is very much the vogue product at the moment. Burgundy productions are tiny compared to those of Bordeaux, so certain houses can increase quite significantly in value.” says Thompson. Of that genre, the investment advisor notes the wines of Henri Jayer as having been especially good to their investors. 

“Henri sadly died in 2006, and was making very, very good wines. So now the supply has been curtailed, and certain vintages have been put on a very high pedestal.” At the end of 2015, Henri Jayer Richebourg Grand Cru was selling at an average bottle price of $15,195 at global auction. It is still rated as the most expensive wine in the world.

Liquid Assets: How to invest in wine

2. Check your provenance

Wine fraud is on the up and up, thanks in part to an inexperienced Asian market desperate to get their hands on big name houses and an increasingly sophisticated set of swindlers happy to meet their demand. As such, the provenance of a each case has never been more important. Thankfully, you don’t have to be trained in the art of carbon dating to prove you’ve got the real thing. 

A wine collective known as the The Bunch –  a loose coalition of merchants which includes Adnams, Berry Bros & Rudd, Corney & Barrow, Lea & Sandeman and Tanners – will do the bulk of the detective work for you. With a millennium of collective experience up their sleeves – and a handful of Royal Warrants to boot – these old hands are never going to flog you a moody bottle. 

Liquid Assets: How to invest in wine

3. Play the long game

Fine wine investment has produced positive returns in every five-year holding period since records began in 1999, and outperformed 98% of investment asset classes. This miraculous performance is due to the relative small quantities in which the truly exceptional vintages are produced, and the demand-supply imbalance that ensues.

As such, a wise investor waits until the scales tip even further in his favour, as more and more of that year’s crop is swallowed up or glugged down. And as the wines mature and improve, they add a further cachet and prestige to the investment, pushing valuations even higher. These unique characteristics mean that fine wine should be invested in for a minimum of five years. In other words, play the long game and your patience will be amply rewarded.

Liquid Assets: How to invest in wine

5. Store in bond

Fine wines perform best as an investment asset when they are stored properly – which is to say in unmixed, sealed cases made of original wood. What’s more, storage conditions must be finely calibrated to ensure the longevity of the precious nectar inside the bottle. “The best thing to do is to store your wine ‘in bond’ says Thompson.” 

A bonded warehouse is a duty-paid storage facility that ensure the perfect temperature, humidity, microclimate and security measures for your precious cargo. Berry Bros. provide an excellent option here, as do Octavian Vaults and Smith & Taylor. Best of all, bonded wine is exempt from duty and VAT until someone wants to crack it open, which may or may not be you. 

Liquid Assets: How to invest in wine

5. Invest in wines you actually like

“My fundamental advice is always buy something you love to drink first and foremost.” says Thompson. “The investment will be all the more sweeter if it pays off after that.” And, more to the point, if all comes to naught – and that bottle of Screaming Eagle plummets desperately in popularity –  at least you’ll have something nice to serve up with the beef Wellington. 

Further Reading