Investing in Wine

When thinking of wine as an investment it’s important to remember that shares often pay dividends – but there are no dividends with wine, so straight forward comparisons with a share index can be misleading.

Demand for fine wine exceeds supply and is strictly controlled. No wine house in the world will sell directly to the public, so you have to buy through a merchant. The best ones tend to be the most visible and well known. Magazines like Decanter, Wine and Wine Spectator carry adverts from established merchants.

Merchants should not charge you a consultation or buying fee. They will, however, take 10% commission when you come to sell, so factor this in before buying.

Less is more when you're buying to invest, so get hold of the top wines from the top vintages. The usual investment unit is one case of 12 bottles. If you've got £1,000, buy two £500 cases rather than five at £200.

There is limited supply and high worldwide demand for the really top-notch stuff, which is what makes it an investment even in 2010.

Just as your first stock market investments are likely to be FTSE 100 companies, your first wine investments should be Bordeaux. This is the seat of the finest red wines and has a track record for bottling the most outstanding produce. Avoid Californian and other New World wine ‘offers’. Be careful you want to make money, always remember you are investing.

Since 1855, Bordeaux wines have been classified into five ranks. The crème de la crème are the first growths, closely followed by the super seconds; further down come the third, fourth and fifth growths. The better the wine, the longer it takes to mature: first growths will take 15 to 20 years.

Most people store wines 'in bond' in a warehouse. If you store bottles at home you will have to pay an import fee of £13 a case, plus 17.5% VAT on the purchase price. To store in bond you need to set up an account with a broker and pay an annual storage charge of about £6 a case.

Again, factor in this cost before buying. The Inland Revenue views wines as a 'wasting chattel' - an old tax term used to describe something that will ultimately deteriorate in value – so you will not have to pay capital gains tax on the profits you make on your cellar.

Wines are priced at three different stages. The most likely time to make a significant profit is when the wines are first offered for sale before they have even been bottled. This is called selling en primeur.

In Bordeaux this is a long drawn out process lasting from early April to June every year, as the châteaux gradually announce their prices. Wines from 1998 can now be bought en primeur.

Bear in mind that from April 2006, wine can be classed as a pension investment under new pension portfolio rules. Many believe that this will send fine wine prices upwards.

Remember too, that since 1993 thousands of investors have been falling for a succession of drinks investment scams. Anything that seems to good to be true, probably is, and yes the we said that before "The Real Hussel".

For further reading, check out www.investdrinks.org and Premier Vintners.