Investing in Wine – is it a High or Low Risk?

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Photo: PAUL COOPER

This post is sponsored by Octavian

It seems that the fine wine market is in rude health. The first decade of this millennia attracted flocks of investors outside of the ‘usual’. This new and heady supply of investors would arguably contribute to an unheard of 20% rise in fine wine value over 12 months alone, and this performance has continued. The Wine 50 Index stood at 339 points as of March this year, and today continues its steady climb past 349 points.

With positive stats, facts and figures in no short supply, you’d be forgiven for thinking that fine wine is a winning investment opportunity, without exception. Yet, just like any investment, this stellar year shouldn’t belie the fact that there are risks entwined with this market.

Let’s explore the promise of this exciting market, and weigh up the gains that can be made against the risks that must be considered.

The basics… Lack of regulation and no Government-backed guarantee

Unlike traditional savings accounts such as those with mainstream banks, fine wines aren’t backed up by the Financial Services Compensation Scheme, which offers cover for £85,000 should the institution fail.

This area of investment is also unregulated, removing some of the traditional protections that you may benefit from when investing in other areas such as stocks and shares.

The highs and lows of this market

Fine Wine industry reports from Goedhuis & Co make for an illuminating read – with their February edition reporting that:

  • 2016 was an excellent year for investing in wine, albeit coming to a slower closure come the end of the year
  • The Fine Wine Index made gains of 24.8% – a figure that, whilst not rebalancing the previous losses over the last six years, demonstrated a strong performance and significant ground made
  • It was clear that confidence had returned to the market

It’s worth remembering that investments offering potential for healthy returns, come with risks (such is the nature of investing in any market). What’s more, numerous experts argue that the dips in this market are nothing to fear. Philip Staveley, head researcher at Amphora Portfolio Management, notes that it is psychology that determines whether falls are seen as something to worry about or, conversely, something to embrace…

So Amphora continues to be sanguine about prospects for the fine wine market, increasingly so when we see this month’s Liv-ex 50 price action. When markets get really nervous, price declines give rise to uncertainty and eventually to panic. When investors are more relaxed, they see declines as a buying opportunity”.

Peter Shakeshaft goes further still, and puts concrete figures to his argument – unequivocally stating that fine wines are a rock-steady investment that has outperformed many traditional investment mediums over a 100 years +.

In the long term, fine wine still outperforms other assets. Research published earlier this year by Dimson, Rousseau and Spaenjers estimates that after storage and insurance costs, wine returned 4.1% per annum in real terms, between 1900 and 2012, outperforming art, stamps and bonds and close to equities”.

The fraudster who looms large on the horizon

As a further consideration, potential investors in fine wine must be savvy in more ways than one, as fraudulent activity in this industry is undergoing unprecedented growth. investdrinks (blog) is a great resource for the latest insight into the tricks and tactics of fine wine fraudsters.

Post-purchase care of your investment

Unlike stocks and shares, fine wine demands careful consideration as to its care, once that investment is made. For all the prudency in the world, even where you’ve made a wise purchase at the exact right time, all of your work can be undone by storing your investment incorrectly. Furthermore if you thought that this was a matter of simply ensuring a set temperature was met in a dark room, you most certainly must think again.

When we look to a trusted luxury wine storage company, such as Octavian Vaults, we appreciate just how complex a task this is – one that involves not only the right, consistent temperature, but also controlled humidity levels, air quality, light and vibration and security.

Answering the question: Is fine wine high risk or low risk?

Any investment involves risk – that’s simply the nature of the game. Yet these risks can be minimized with the right steps – namely including in-depth pre-purchase knowledge, shrewd selection of your fine wines and the method of investment, and meticulous post-purchase care of your investment. With these in place the balance between healthy dividends and an outlay that never matures, is tipped firmly in your favor.

This post is sponsored by Octavian

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Wine Oh TV contributing writers are comprised of professional food and wine writers, journalists and educators.

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PUBLISHED DATE: August 31st, 2017 | WINE CATEGORY: News & Events
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