Investing in Wine Could Be the Way to Go in 2011

by David Redmond on 30 Mar, 2011

Given the continued uncertainty of the financial markets, many investors are looking for safer alternatives to the traditional indices such as the FTSE 100.

There is always gold, the prices of which tend to sky-rocket during times of uncertainty due to its reputation as a safe investment. But there is also wine.

The wine index, the Liv-Ex, has consistently outperformed the FTSE 100 over the last three years due to dramatic changes in the market. This is primarily due to the entry of China.

China has had an unparalleled effect on the wine market as a result of the staggering rise of millionaires in the country, fond of luxury brands and conspicuous spending. Fine wine fits in nicely with this ideal, and the Chinese brands of choice reflect this – hence the popularity of Lafite Rothschild as a recognisable luxury brand, leading to its staggering success in 2010.

The consequence of such increase in demand is a corresponding surge in prices, making huge returns for investors. It is simple supply and demand economics.

Fine wine is a finite resource, with the top 5 growers producing only 100,000 bottles a year for global distribution. It is not the sort of product that can readily increase supply, and as such, any increase in demand will simply create an upward trajectory in value. As long as the Chinese appetite for fine wine continues, so will the price of fine wine, and that makes for a good investment.

Even without the entrance of the Chinese, fine wine is a relatively secure investment. Fine wine reaches its peak value around 10 to 15 years from bottling, coinciding with its peak in taste. A decade or more is a long time to keep from drinking a lovely bottle of wine, and so by the time the wine is at its most valuable, the finite supply of it is even more so, thereby pushing the price up even further.

Having pushed up the price of the traditional First Growth and lafite wines over the past few years, even members of the ‘super-rich’ are unable or unwilling to stump up the cash for these. This means that the Chinese fine wine market is likely to broaden out, with some analysts predicting this to start in 2011. This will have the same effect on less prestigious (but equally fine) wines as was seen on the traditional brands.

The trick then, is in identifying these wines and buying them before anyone else. It’s that specialist knowledge that makes wine an investment that demands professional advice. Be careful though, as the market is not regulated by the FSA.

Still, if you’ve got the cash to spare, wine could be the best investment you make all year.

About the Author

David Redmond

David Redmond is a Partner of Don Gilliard Finance Group. He is a fee-only, independent financial advisor and financial planner. For over 15 years, he has been helping individual investors and their families realize their investment goals.