Interest rates in the UK have been low for some time and as summer 2016 comes to an end the Bank of England is predicted to cut them even further. Low interest rates are great for people with mortgages, but they are of little benefit to savers. The traditional bank or building society savings account no longer has much to offer in the way of incentives to place money there and those with money to invest, who want to see a decent return on that investment, are turning to other ways of making their money work harder.
Many investors are turning to physical investments where money can be made in a more relaxed and enjoyable manner; art and antiques are two examples.
If you’re looking for an investment opportunity, then it has to be wine. Fine wines have a growing international market which is excellent news for wine investors because demand is outstripping supply and this inevitably pushes up prices and thus investor returns. Furthermore, the supply is limited and every time a bottle is drunk, the value of that particular vintage goes up.
Live-Ex wine investing
The Far East and Russia are keen purchasers of fine wines and their interest is part of the reason that the LIV-EX (London International Vintners Exchange) is in good shape. Yes, who knew wine had its own FTSE 100, but it does! And, LIV-EX at the beginning of August 2016 showed that market gains during July were 3.4%-3.6%, which is a healthy increase, according to the major trade journals.
Watching the LIV-EX ticker display of trades is entrancing. Instead of names like Proctor & Gamble, Microsoft and GSK floating across the screen, I have just spotted a Mouton Rothschild, a Chateau Neuf du Pape, a Mission Haut Brion, a Pomeral and a Latour all increase in price. These are names I know, although I sadly can’t claim to have drunk them all. Plus, LIV-EX has just started trading in English wines, and this young market sector is going to be a very interesting one to follow.
There is a romance about wine that the pharmaceutical industry can’t quite compete with, and the prospect of learning the history of great wines and the reasons for the differing values of vintages is incredibly appealing. This is an investment opportunity with a built-in hobby, indeed, perhaps a new career.
So, what is the best way to get started with investing in wine? Reading the UK’s leading wine expert Jancis Robinson is a good setting off point – Ms Robinson and the USA’s Robert Parker are the two most highly respected wine critics internationally. Their pronouncements have a massive impact on the fortunes of new wines appearing in the spring when the wine is still maturing in the barrel. Robinson and Parker taste and grade new vintages, and those grades influence purchase by investors. Of course, investing in new wines is always a bit of a gamble as you can’t be quite sure that they will live up to their initial promise as they mature.
Once you have engrossed yourself in all the details of the wine market, the next step is to find a reputable broker, because a private buyer can’t purchase fine wines directly. I discovered this handy list of British Wine Brokers where you can search by county, if you want a local broker. Do some due diligence on the broker and make sure they have the experience and integrity required.
When you make an investment in wine, let’s say it’s in one of this year’s new wines that is still in the barrel, the wine is bottled and will arrive in the UK 18 months to two years after its presentation to the critics. Your broker will arrange for the wine to be stored in a bonded warehouse, which means you don’t pay VAT, as long as you don’t remove it from storage. The wines are kept in optimum conditions in specialist warehouses and when you want to sell, the warehouse also guarantees the provenance of the wine.
Wine may not be a quick way to make money as you will have to hang on to it for a few years to make a profit. On the plus side, HMRC won’t charge you Capital Gains Tax on any profits from wine, because it’s classified as a “wasting asset.” I prefer to think of wine as a “tasting asset”, which is why it is just as well that any investment in wine that I might make is kept under lock and key. However, I would enjoy watching my investment grow in value while sipping on something from the supermarket – it’s more fun than keeping an eye on the Bank of England’s base rate!