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Ep 6: TNWG Wine Times: Do's and Do Not's of Fine Wine Investing

๐Ÿท๐Ÿ’ต This week, it is all about Fine Wine Investing because a number of you have asked me about the topic and so I thought it might be constructive to give you a full lowdown. It is also a Wednesday instead of a Thursday - so really shaking it up! ๐Ÿ˜


๐Ÿฅธ This is a comprehensive appraisal of the Fine Wine Investment market and why you may consider doing so - should you want further information feel free to reach out anytime. No question is a silly one but I do find that some feel it is a minefield that they do not wish to cross, so here are some thoughts to hopefully aid the process.


๐Ÿ™Œ To be clear on my position too - which is total independence and my own thoughts here, there is no sales pitch or skew. Experience wise, I have previously been a Portfolio Manager for Fine Wine Investing, I invest myself as a personal investor and I have worked in investment markets for over 20 years across numerous asset classes. I am also currently an Ambassador to Vin-X Fine Wine Investment . This though is no advertisement, it is purely my own thoughts on Fine Wine Investing from the experience I have had and want to share. Outlining common misconceptions and a variety of pitfalls to be wary of when considering the asset class.



๐Ÿฅธ Ok so we are going to assume that you, as the investor/client, are interested in thinking about Fine Wine Investing or wanting to know more.


What are the Do's and Do Not's of the industry?


๐Ÿ‘DO's



๐Ÿ“ˆ As with any investment, do assess what you are willing to lose. Markets go up and down in fine wine, just like in stocks, bonds, ETFs, crypto, housing, pensions etc. So be aware, as with all investments, that markets fluctuate.


๐Ÿ“ˆ Look at this as an investment class - do not confuse this with something you are looking to drink. Keep your drinking wine and investment wine separate when considering it.



๐Ÿ“ˆ In my view, you should have no more than 10-12% of your TOTAL assets in 'alternative assets' - this covers wine, art, whisky, crypto, EIS schemes etc - so make sure this is the case to ensure sensible diversification.



๐Ÿ“ˆ Ensure that you understand the process with the broker you choose ๐Ÿ’ฏ% before placing money into fine wine. This is one of the MOST important rules - I would only invest in something if I am 100% clear on the process.



๐Ÿ“ˆ When looking at Fine Wine investing - you as the consumer, as with all investments have the right to shop around - I would encourage you to do so with the wine brokerages / investment houses.



๐Ÿ“ˆ When shopping around, ensure that you fully understand ALL of the charges - what do I mean by this? Some investment houses / brokerages will charge you annual fees for storing your wine in bond; some will charge insurance fees separately to purchase fees; some will take a percentage of your profits when it comes to selling the fine wine; and some will encompass fees all in the purchase price of the wine initially. So be very clear on your charges and that will then allow you to work out what is right for you. Remembering, that this is a MEDIUM to LONG term investment profile (i.e. 5-10yrs) - so annual fees will soon tick up if you are making money over the years held!



๐Ÿ“ˆ Do consult experts in the business. There are active portfolio managers who are there to guide you, who see the markets day in day out. Find out from them the likes of:


  • Where do they look to find more information?

  • How do they price your wine when it comes to being sold or ready to be sold or indeed at your request when held in bond?

  • How active will you be with my portfolio and consulting me on the markets?



๐Ÿ“ˆ On the back of that last question - Think about how active you would like your portfolio manager to be with you? Do you want them to be updating you weekly - if so, then do not be surprised if you receive that email or phone call - or if you prefer longer time frames, then customise it to you as the client.



๐Ÿ“ˆ Ask your brokerage / portfolio manager to give you some information for the fine wine market. This is a MUST. You want to understand more about your investments surely? You wouldn't buy Tesco shares for example without knowing who they were and what their products and target market were, would you and more important why it was a BUY recommendation? So why do it in Fine Wine - Remember - this is an Investment, nothing more or less.



๐Ÿ“ˆ Do look at Fine Wine Investing as a diversifier. It is diversifies you from exposure to any one asset - for example in the UK, the fortunate who have property have exposure to the housing market and interest rates and of course inflation. Fine Wine has proven to be a great diversifier in inflationary times, so look at this as a hedge to other assets within your possession.



๐Ÿ“ˆ Do remember this is not housed or stored at home, it is stored in bonded warehouse. Therefore, in the UK, whilst it remains in bonded warehouse - you are exempt from VAT and duty.



๐Ÿ“ˆ Do make sure you can go and see your wines and that the facility that it is being stored in, is accessible to you - it is also a nice option to be able to go and see your 'money in a bottle' in its perfect ageing environment.


๐Ÿ“ˆ Do look at Fine Wine Investing as a demand / supply model. There is only so much wine that can be made every year by a top tiered vineyard (and most of this is regulated too) - so it is a diminishing asset over time. There will be less bottles in circulation, increasing the demand for your bottle!



๐Ÿ“ˆ The largest wine market 'on an exchange' is Liv-Ex do take a look, it is a global fine wine market place, with data, pricing and above all, lots of market reports and information on the fine wine industry.



๐Ÿ“ˆ Do understand that Fine Wine as an investment when sold is typically exempt in the UK from Capital Gains Tax (CGT) unlike for example your second homes. So all the profits made go to you that have been made (depending on the cost pattern of your broker). HMRC sees wine as a 'wasting asset' so therefore, it is completely legitimate to be exempt from CGT (not fortified wines like port).



๐Ÿ“ˆ Do look to Diversify again. What does that mean? Diversify within Fine Wine - ensure you have exposure to different Fine Wine Areas - such as Champagne, Bordeaux, Burgundy, Rhone, Italy, Spain, California - if you look at the Liv-Ex 100 - this is the top 100 Fine Wines - they are the most liquid, tradeable wines on the market typically too.



๐Ÿ“ˆ Do make sure you receive Certifications and Authentications for your purchases. This should be standard in the UK but unfortunately there were horror stories of yester year in Asia especially around ownership. Ensure you own the bottles physically so that whatever happens to your brokerage, you still own the underlying fine wine stored in the storage unit.



๐Ÿ“ˆ Do remember, Fine Wine can be defined differently between brokerages so find out what they are looking to have you purchase. If you are investing truly in Fine Wine, it will be the top 1% of all wine - top tiered houses typically have made the largest returns. You buy Apple in stocks because you know Apple, you do not try and buy the possibility of finding the next Apple - the same should apply for Fine Wine. Stick to the very best top tiered houses.



๐Ÿ“ˆ Do ask your wine broker or brokerage why they are recommending a specific Fine Wine. Why now? Why does it suit your portfolio? Why is the price a good price vs the market?



๐Ÿ“ˆ DO ASK, ASK and ASK MORE QUESTIONS!! This is your money being invested in an asset, if you want to understand more, than you must ask. Do not assume. I don't with anything I invest in, so do not feel rushed or pressurised and Ask!


๐Ÿ‘ŽDO NOT's



๐Ÿ“‰ Do not think that this is going to be a quick win and you are going to make money in 1 year and be able to take out your investment (that's not to say you will be down after 1 year but it is not the investment profile for fine wine investing).



๐Ÿ“‰ Do not, put all your eggs in one basket - i.e. fine wine and also a specific region in fine wine. Diversify, Diversify, Diversify - just like you would in any other asset class. Unsure - ASK!



๐Ÿ“‰ Past performance in any investment class does not mean that you will gain in future performance exactly or on average, how it has performed before. This is the same with any asset class but good to remember.



๐Ÿ“‰ Do not expect there to be an algorithm that you can try to work out, calculate or fathom to find the solution to investing in 'winners' - it does not exist.



๐Ÿ“‰ Do not as mentioned, think of this as an amazing investment where you will be able to drink your wines in the future and make money. If you drink your wine, you will not have any profits to be made. My advice, keep them separate.



๐Ÿ“‰ And under the same umbrella, do not invest in Fine Wines just because you like that Chateau or you enjoy a bottle of this and that. It should be independent and looked at from a market perspective. Is it good value? Where does your broker see you getting to in terms of profit levels and over what time horizon?



๐Ÿ“‰ Do not assume that every brokerage is the same - make sure you do your homework with them and continue to ask questions when required.



๐Ÿ“‰ Do not invest in Fine Wine if you cannot lock away your invested amount for ideally a minimum of 5 years. This includes all eventualities with life where possible, so ensure it is something that does not need to be called upon - it is a longer term investment profile.



๐Ÿ“‰ Do not think this is just for the rich and famous. Fine Wine is far more accessible than Vintage or Classic Cars or Fine Art - which require large initial outlays. Whisky - traditionally is a longer holder than fine wine, I look at it is as an asset that is 10+ years - so look at your own personal circumstances and assess your timeframes for money to come back. If it is 10 years, why not diversify in Wine and Whisky? You can also a portion a set amount of money per month and accumulate wine as you earn too!



๐Ÿ“‰ And lastly Crypto - well I do not understand that myself and my golden rule, is if I do not understand it and cannot be told about it in a logical sense, then I do not want to invest in it. I also think there is a large risk of regulation coming in or digital currencies from Central Banks being implemented - which could shock the market dynamic and see immediate value written off.



๐Ÿ“‰ Do not invest in Fine Wine and think that storing it at home will cut the middle man out and make you more money. It won't. Buying by ideally cases of wine is best rather than an odd lot bottle and having it reputably stored in bond, with all the certifications and checks to ensure it is perfect condition on arrival is a MUST for sell on value and target audience for the sale will be maximised as a result.



๐Ÿ“‰ Do not invest in Fine Wine if you feel you are being badgered or rushed into your investment. This market is slow moving, yes there are baskets and packages that are received, there is also En Primeur seasons too, but you have to be comfortable as the client to invest. Ultimately, it is your money, so make sure you are clear on the process.


CONCLUSION - Is Fine Wine Investing the Right Call?


๐Ÿ˜ Hopefully, this has not put you off - that was not the aim!


Purely ensuring that when you undertake any investment, you understand what you are involved in and your time horizon for looking at your investment.



โœ… I do believe in diversifying and I believe in Fine Wine as an investment asset class too. Wine is a tangible asset, which has a track record of strong performance over the medium term and has a low correlation to other markets (i.e. if one goes down like the FTSE or S&P 500 there is not a strong rationale or signal that fine wine also follows suit).



โœ… If you are looking at diversifying, you understand the costs implied with the broker you are using and you have done some reading around the subject, then fully endorse it as a market to be used.



โœ… It is also an investment that you do not need to constantly monitor. The market is not fast moving, it is largely based as mentioned previously, on ageing, demand/supply and market dynamics. So you can place money in the investment and not need to monitor during your busy daily schedule.



โœ… Vantage Market Research in the US in an article last year in Forbes (Nov 23) valued the global wine market at around ยฃ350 billion but expected that to rise to ยฃ500 billion by 2028.



โœ… Also as a side, look at some of the interesting things you can get involved in as an investor in the fine wine world. Many of the brokers offer trips to vineyards, tastings, seeing your bottles in storage and much more - just a little added bonus!



I have added a few links below for those considering investing or wanting to know more on the topic:


That's all from me this week in this 'Special Edition' on Fine Wine Investing.


Next week, it will be back to the regular format and with the Monthly Asset Allocation Piece in tow too as month-end is upon us and rebalancing may well be needed amongst the thought process, especially the debate of equities vs bonds.

Have a good week and enjoy some Mulled Wine over the weekend - I know I shall!

Andy


Follow me on: Instagram for more Wine reviews and Fun Posts. Also found on Facebook and TikTok.

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