Sunday, December 29, 2013

How Fine Wine is a Strategic Alternative Asset

The underlying values of investing in wine boils down to the basic law of supply and demand. From a supply point of view, there are very few (about 75) investment grade labels with a production level that remains relatively fixed.
From a demand point of view, there are increased numbers of elevated net worth investors looking to own and drink these wines. Hence, the only way to relieve the pressure is to boost the prices. There was an unusual situation that happened back in 2008 when there were more sellers than buyers – inevitably, the prices had to fall. Investment grade wine is an asset that’s constantly improving it. As the wine mature their value increases because they become a lot more valuable. Furthermore, as fine wine begins to age, people will start drinking it; the variety will diminish and thus its price will automatically increase.
How Fine Wine is a Strategic Alternative Asset Investment

The wine market – statistical facts

From 2005 to 2008, the fine wine market experienced some pretty incredible returns. The Liv-ex 100 Index increased from 120 points to a staggering 265 points and the adjustment happened after a couple of years in which general prices didn’t change much. The global economy crashed in the autumn of 2008, and although the stock market collapsed and most investors were bankrupt, the wine market somehow managed to stay afloat. In the month of December 2008, the Liv-ex index dropped by 12%, which was not that bad compared to Nikkei 225 that plunged by 46%.

We should also point out that in the past 20 years, the wine market managed to outperform an important number of fixed income equities, and that includes the FTSE 100. Long term wine investors could easily experience returns of about 10 to 12% per year; as a matter of fact, ever since the Liv-ex Index was put in place, fine wine has successfully managed to outperform foremost indices in some other markets with a standard return per year of 16%. As opposite to shares and stocks, wine remains the least volatile type of investment, so if you know what you’re doing, you can’t lose. Because of a booming wine fund figure and increasingly more private investors invading the market, it looks likes the wine business is starting to get closer and closer to the stock market.

How Fine Wine is a Strategic Alternative Asset Invest
Wine investments – what do they entail? 

For a wine investment to be considered a good investment, it must entail the following characteristics:
  • It has to involve a renowned brand or label with an extended track record of high prices and excellent quality. 
  • It has to come from an excellent vintage and be appreciated by the most famous wine critics. 
  • It has to consist of a strong, steady demand of previous vintage wines. 
  • It has to hold the ability to improve in value and age for an extended period of time

How Fine Wine is a Strategic Alternative Asset
Are there any disadvantages to wine investments? 

When the fine wine market is not a uniform type of investment, it becomes a lot more pretentious. It demands a lot of knowledge, understanding, and expertise. Simply put, it’s extremely easy to make expensive mistakes if you don’t know what you’re doing. Wine prices are not stable – they increase and decrease based on the principles of supply and demand, and at the end of the day it’s all about proper timing. Bear in mind that the wine business is extremely loose, so as an investor you have scarce protection in case something goes wrong. The counterfeit wine business is not more powerful than ever, and it’s spreading really fast. It’s extremely important for future investors to know the market first, and then start spending money.

Dealing with reputable, veteran companies or experienced merchants is extremely important. They know the business and they’ll be able to offer you the best advice. Independent investors should pay close attention to the storing conditions. You might have the means to store your wine in your own cellar, but if the temperature is not properly set you risk losing your entire collection. As long as you’re patient enough, fine wine can be an excellent investment decision. Whether you’re a wine connoisseur with lots of experience in the field or just an investor looking for profitable assets, in the wine business everything depends on the amount of money you’re willing to spend, and on the amount of time you’re ready to devote to reap the benefits.

Author Bio: The article is written by a freelance blogger and writer Peter Smith. He provides advices on investment and financial issues through his articles. He recommends site if you want to get help in fine wine investment.

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