Five questions to ask yourself before investing in fine wine
Building a wine collection – whether for pleasure or future profit – takes patience, skill and a good sense of timing. You don’t need to be an expert to get started, as there are many wine investment companies out there that can help and guide on the process (get in touch with the advisors at Cult Wines here). However, as with all investments it is beneficial to have a reasonable understanding of what it is you’re parting with your money for, and what the long-term impact of doing so will be. As such, here are the five questions you should ask yourself before investing in fine wine.
1. Does this purchase align with my goals?
As with any type of investment, it’s helpful to approach wine fine with a goal in mind, no matter how generic. Are you hoping to make a significant return on investment? Are you building a collection for enjoyment, or for a future occasion? Perhaps you’re in it for the thrill of collecting and are curating a cellar that will offer a little bit of both. In any case, before making any purchase you should consider whether it works in favour of your eventual objective, lest you end up with bottles you won’t enjoy or can’t resell.
2. Is the timing right?
This is where the advice of a reputable investment company can prove invaluable. ‘Buy low and sell high’ is the age-old advice, but the fine wine market – like any market – is subject to peaks and troughs, with some wines affected in by fluctuations in their own unique ways based on a variety of factors. That said, fine wine is not subject to the same volatility as other markets and tends to hold steady and perform well even during periods of economic uncertainty.
As such, bar the hive of activity that surrounds events such as En Primeur or very high-profile releases, it can be worth your while to wait for prices of a particular wine to come down – wine investment is a long-term undertaking, after all.
There are numerous free resources available that will help you track the market, but enlisting the help of a trusted advisor is always recommended as they’ll have in-depth knowledge of a wine’s historical price performance and are best-placed to comment on the optimum time to buy.
3. Can I justify losing this investment?
As mentioned, the fine wine market is relatively free of volatility and consistently performs better than the stock market or other assets such as gold – but there are never any guarantees with any type of investment. Top wines are a valuable commodity and returns are often both impressive and consistent, but you should steer clear of spending beyond your budget, or with the view to making big money in the immediate future. If, in the absolute worst case (and unlikely) scenario you were to lose your investment (or end up drinking it) and it would cause you significant financial troubles then you should re-evaluate whether that investment is really the one for you.
4. Does this investment help or hinder my portfolio’s diversification?
As with all investments, diversification is key. When it comes to a portfolio of equities, spreading individual stocks across multiple sectors helps to mitigate risk, and the same applies to wine. For the sum you’d spend on, say, six bottles of Romanée-Conti, you could have a variety of wines from several vintages and regions of the world – the former is clearly a higher risk approach than the other.
Some investors are prepared to take this risk in the hopes of making a large ROI, but again, the successful individuals taking this approach often have comprehensive knowledge of the wine market. Speaking to a reputable fine wine investment advisor can help you understand whether a particular investment is right for both you and your portfolio.
5. Can I ensure optimal conditions for my investment?
Whether you’re purchasing a wine for future enjoyment or as an investment, you need to make sure it retains its quality and integrity, otherwise both pursuits will be a flop. For the everyday or casual collector, storing wine at home can be acceptable under the right conditions, but if you’re parting with a significant sum of cash then it pays to have your investment professionally stored in a bonded warehouse, especially those purchased for investment, where they will be exempt from duty and VAT. Learn more about professional wine storage here.