Raising a glass to your future: How to invest in fine wine

Investment in luxury wines is by no means a new trend. In fact, wine investment is now the fourth most popular luxury investment globally. Also, although wines from Bordeaux in France were long the top choice for fine wine investments, wines from many other regions across the world – including South Africa – are now positioning themselves for investment as quality and demand continue to increase.

Fine wine has become an increasingly popular addition to investment portfolios due to the excellent growth potential it offers investors. According to the Knight Frank Luxury Index, an annual report that details the performance of collectable luxury assets such as art, classic cars and wine, fine wine assets have grown in value by 147% over the past decade, and wine is outperforming many other luxury assets.

One of the main reasons for its growth as an asset class is due to its scarcity factor. The more limited the production, the higher the demand and as each year passes and the consumption of each vintage increases, it contributes to a rarity that is unquantifiable. One such example is De Toren Private Cellar, situated in Stellenbosch, who produces internationally acclaimed fine wine in extremely small quantities. The De Toren Fusion V remains a favourite among collectors.

Investing in wine can certainly be a unique and profitable way to diversify your investment portfolio but, as for any investment, it’s important to do your research and due diligence before taking the leap. Understanding the market, the different types of wines, how to purchase, where to store and how to maintain and exit strategies are key.

There are two markets in which you can buy fine wine for your portfolio: primary and secondary. In the primary market, consumers buy directly from producers or wholesalers. The secondary market involves buying (and selling) through auction houses, exchanges and wine brokers. In South Africa, companies such as Wine Cellar, Strauss & Co Fine Wine Auctions and the Cape Fine & Rare Wine Auction trade in fine wines. If you are unfamiliar with the wine market or a novice investor, it may be beneficial to source your wine from a knowledgeable third party.

‘As with art, the beauty of wine collecting is buying a tangible asset that you can enjoy,’ says Higgo Jacobs, fine wine specialist at Strauss & Co. And, as with art, the dealer plays a vital role in the procurement process, so it’s important to buy from the right merchants. Reputable merchants will be able to assure you of the wine’s authenticity, and make sure that it has been transported and stored properly to avoid spoilage.

Picking the right wine is the next crucial step in building a successful wine portfolio. Speak to wine fanatics, do extensive research, view the latest ratings from critics or consider getting hold of a dedicated wine agent to find out which wines would be the best options for investment. You’ll want to consider things like the rarity of the wine, its region of origin, the vintage, critics’ scores and market demand before purchasing. As Jacobs says, ‘High ratings from reputable wine critics have a big influence on the appreciation of your wine collection.’

Red wines have long been hailed as the true investment choice for fine wines because of the tannins and other compounds in the wine that give it a greater propensity to improve with age. The higher price tag and higher selling price make investing in red wines, such as Cabernet Sauvignon, Shiraz, Merlot and Malbec, an excellent choice, not to mention Bordeaux Blends.

Investors should consider investing in South African wine, which is regarded as a solid choice. ‘South African fine wine has been continually increasing in quality over the past ten to twenty years and as a result some of the world’s leading critics visit our shores annually’ says Johan Malan, Head of Investment and Brokerage at Wine Cellar.

In the same way as choosing the right wines and merchants is vital, the conditions for storing your investment wines must also be carefully considered. Once you have purchased your wine, you will need to store it correctly. Most residential homes are not fitted with a wine cellar to properly store investment wine, which is why Jacobs advises investigating third-party cellaring with a professional. Storage considerations include temperature, light, humidity and position.

When it comes time to sell – assuming you can bear to part with the magnificent wines in your collection – investments should be managed the same way you would manage stocks: conduct proper research, track your wine’s performance, browse through current auctions and stay up to date with accolades. You can then approach reputable merchants or auction houses to sell your wine. An exit strategy is an essential step in the process. As they say, last, but certainly not least.

For both seasoned collectors and first-time investors, fine wines represent an exciting investment opportunity.

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For more information on De Toren, follow them on Social Media via Instagram: @detorenprivatecellar and Facebook: @DeTorenPrivateCellar.