What makes fine wine an ultimate alternative asset?

What makes fine wine an ultimate alternative asset?

Wine has been bought and sold for many years and frequently people may good returns on their investment. However, it has only been within the last few years that fine wine investment has come to be seen as a viable alternative investment asset. There are many reasons why wine has become such an attractive option to investors:

Supply & demand

As with any segment of the market, for it to be a solid investment opportunity the levels of supply and demand must work in your favor. In the case of wine there are surprisingly few investment quality wines. The number of bottles produced of one type of fine wine can be as low as two thousand, although a figure if around twenty thousand is more common.

The result of this low supply of wine compliments the increase in interest in fine wines and makes the demand much higher than the level of supply. This will push the prices of these fine wines upwards as people who have the funds are willing to pay for the privilege of owning a bottle or two.

Historical Analysis

Research and studies into fine wine investment show that the market has shown steady returns over the last twenty years. The market moves in similar cycles to the main stock market although its peaks and troughs are not so dramatic. Studies show that, providing you invest for a minimum of five years you will obtain a good return on your investment.

Expanding Markets

The increase in demand for fine wines has been fuelled by an increased in emerging markets, China is a particularly big player in this scenario. As the Chinese economy has experienced rapid growth it has created many more people with the wealth available to indulge in fine wine investment. This increase in potential investors has made the fine wines available appear even more scarce and their prices have risen accordingly.

Tax Benefits

Wine is a depreciating asset as it has a limited shelf life; this allows it to be taxed at a lower rate than many other investments; which allows you to keep more of your profits. Another benefit is that many countries will not charge the VAT on wine if it remains in bonded storage as the wine has not technically been delivered to its final destination. There are other tax benefits which will depend upon your financial situation and other investments; it is best to speak to a tax advisor to ensure you pay as little tax as possible.

Value of the Top Wines

The finest wines in the world are becoming increasingly rare and this has pushed the prices up to astronomical levels for these particular wines.  For example, one bottle of the Domaine de la Romanee-Conti Grand Cru has been known to go for $188,336!  Whilst these figures are outside of the scope of most investors they do serve to provide a psychological boost as to the value of wine and this helps to keep the prices high.

Wine Funds

For anyone excited by the prospect of investing but a little unsure of the best way to get into the market, there are things called wine funds. You simply pay into the fund the amount of money you are willing to invest and allow the fund manager to purchase the wines. Profits from the returns on these investments are divided amongst the investors.

This process allows those with little knowledge of wine to invest in the market and it can also enable you to start investing with less than the recommended $10,000. It can be a great introduction to this alternative investment market but you must use the services of a reputable broker. Better yet, before spending any money why not consider a managed wine investment fund? There are many companies on the market that can help you make the best decisions.

Believe it or not, fine wine can be a profitable form of investment. But then again, are you prepared to wait 5 years for your initial investment to pay off? It is important to be patient and not rush things through. The more you wait and the more care you take, the better chances you have to see fabulous returns.

By Tsveta van Son
Tsveta van Son is part of Invezz’s journalist team. She has a BA degree in European Studies and a MA degree in Nordic Studies from Sofia University and has also attended the University of Iceland. While she covers a variety of investment news, she is particularly interested in developments in the field of renewable energy.
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