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How does Wine Investment Work?

Two men drinking wine and looking at a laptop

Are you considering investing in wine and want to know how wine investment works? Congratulations, you are just one of the growing number of people who know that fine wine is a top performing alternative investment. Inflation hit 7% in April 2022 in the UK according to the Office for National Statistics (ONS). And it says it’s set to increase. Any serious investor should consider fine wine as an investment.

So, how does wine investment work? Here’s our recommendations:

-Buy with a medium to long-term view. Wine investment’s central idea is that it is an improving asset in diminishing supply. As time passes and the wines become rarer, they will be harder to find. This is why it’s always wise to enter the market with the intention of holding wines for a minimum of five years.

-Choose how much you want to invest and then diversify your wine investment portfolio. Select wines from different countries and regions for a balanced portfolio. We’d advise starting with traditional and well-established regions, such as Bordeaux. Many seasoned wine investors add a range of wines from different countries to their portfolios to create a spread.

-Make sure your wines are stored professionally. Perfect provenance of fine wine secures its value and desirability and is absolutely critical when investing or selling. A wine’s authenticity must be documented and assurance of proper storage should be available. WineCap stores all its wines in government bonded warehouses.

-Be in the know about fees. Some brokers charge an annual fee that’s known as a management fee to handle your portfolio. We pride ourselves on not charging one and also having the lowest brokerage rates.

-Prepare your exit strategy. When the time comes to sell your investment, there are a number of avenues you can go down. As your investment broker, we would advise you on the best route to take based on your wine’s position on the market at the time. Options include selling to wholesalers, private sales and auction houses.

Ready to start investing in wine? Find out more by downloading our free guide.

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Can you Invest in Wine?

Rows of vines in a vineyard

Investing in wine used to be intimidating. It was also considered only for the rich. Fortunately, things have changed. Wine investment is available to everyone and anyone who is looking for a stable alternative investment. It has – and continues to – deliver consistent returns. The category went up +13% from June 2020 to June 2021, according to the Knight Frank Luxury Investment Index. What’s more, only a modest amount of up-front funds are required to begin building your portfolio. While we always recommend speaking to one of our investment experts before getting started, fine wine is considered to hold fewer risks and more advantageous gains than nearly any other financial or alternative asset category.

Our Top Five Reasons to Invest in Wine

One: Fine wine has a low correlation with gold, oil and global financial markets. It has delivered consistent compounded growth of 10% over the last 30 years. By diversifying your overall investment portfolio with wine, you could add a safe investment that could bring stability and profits, regardless of the economic climate.

Two: It’s a tax-free investment with no Capital Gains Tax. Those who leave their cash in UK bank accounts will see their money eroded over time by inflation. Inflation is currently running at 4% in the UK at the time of writing and those wanting to make the most of their savings should seriously consider taking advantage of the tangible investment options out there.

Three: Fine wine is an improving asset in diminishing supply. The more corks that are pulled over time, the rarer the wine is and therefore the harder to find.

Four: Investing in wine is best when held for a mid to long-term investment period. The longer wines are held, the more opportunity you could have for higher returns.

Five: Perfect provenance of fine wine secures its value and desirability and is absolutely critical when investing or selling. Provenance is 100% guaranteed when you buy from us. All our wines are professionally stored in government bonded warehousing.

Find out how to get started investing in wine: download our free guide or contact us.

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How does Investing in Wine Compare to Similar Asset Classes?

Old wine bottles in a rack

Wine is part of a group of investments collectively known as ‘treasure assets’. These include things like art, jewellery, antiques, watches, antiquities, toys and classic cars. Those considering investing in wine as part of their wider portfolio often do so in the context of these other treasure assets, so it’s worth understanding the similarities and differences. While we wouldn’t want to discourage anyone from investing in other sectors, these differences illustrate why we think wine is the best option for most investors when it comes to treasure assets.

Investing in wine: its similarities to other asset classes

Product homogeneity: a homogenous product is one that cannot be distinguished from another and that can be easily substituted. While wine isn’t perfectly homogenous, it’s certainly close. As far as the market is concerned, one case is essentially the same as any other. It’s a different situation with most other treasure assets. The value of one Monet painting will tell you relatively little about the price another will fetch. Even with industrially manufactured products such as classic cars, their condition, mileage and service history can have an outsized impact on pricing and desirability.

Established storage and logistics: while it’s increasingly common for art to be stored in free ports and for classic cars to be kept in professional storage facilities, wine still has an advantage here. There is a long-established global network of affordable wine storage facilities that ensure a wine’s provenance is documented, as well as keeping it in top condition. Should the owner wish to stop investing in wine and drink it, final mile delivery can easily be arranged.

An established marketplace and data: in 2021, data on the performance of wine as a collective and on individual wines is relatively easy to obtain and to track. Thanks to product homogeneity, WineCap is able to provide valuations quickly and easily, allowing investors to know at any point, exactly what their wines are worth. Wine also has well-established marketplaces and a relatively low transaction cost. In comparison, art is usually sold at auction houses which command high fees, 20-30% is not unusual once all costs are considered, or in galleries where markups can be 50% or more. Costs to use online wine trading platforms or merchants such as WineCap are significantly lower.

Low cost: when compared with other treasure assets, even investing in wines that are at the top-end is somewhat affordable. This is one of the reasons why prices are generally robust and unaffected by the global economic climate. Imagine someone who regularly buys investment-grade wine; a financial crash might put them off buying a £20m Ferrari 250 GT LWB California Spider, but will it deter them from taking up their annual allocation of £15,000 Domaine de la Romanée-Conti?

Low cost of ownership: a Ferrari F40 has to have its fuel cells replaced every ten years and the parts alone for that one item could run to £30,000. If the batteries in your Mclaren P1 need replacing, that’s £100,000. A case of wine, regardless of value, shouldn’t cost more than around £15 a year to keep in perfect condition.

An improving asset in diminishing supply: there’s no other asset in this class that both improves and becomes rarer with age. This advantage is unique to fine wine.

Above all, the argument for wine is fundamentally one of investment returns. The graphs above show that, over the long-term, wine has comprehensively outperformed both the treasure assets it is most similar to, as well as more mainstream assets. We believe there is a place for investing in wine in any portfolio.

Want to find out more? Schedule a free consultation with one of our wine investment experts.