What are the benefits of investing in fine wine?

Fine wine has numerous investment benefits that distinguish it from other assets. More than just a passion investment, fine wine provides stability and substantial financial returns. Below we examine seven of the reasons why fine wine makes a good investment.

High-performing asset

Fine wine has been one of the best-performing assets over the last 30 years, meaning that its value has been increasing over time. The compound annual growth rate since January 1988 has been 12.6%. During the Covid-19 pandemic, leading fine wine indices registered double-digit increases in contrast to the extreme volatility experienced in financial markets. 2021 was a record-breaking year for the fine wine market, which outperformed mainstream equities. In the past year, the broadest measure of fine wine prices, the Liv-ex 1000 index, has risen 24.6% versus 4.2% for the FTSE100, and declines of 2% for the S&P500 and 11.7% for the tech-heavy Nasdaq index.

Tangibility

Wine is a tangible physical asset, which only adds to its allure. While stock markets can crash and share prices can collapse overnight, tangible assets do not cease to exist (unless, in this case, they are drunk and enjoyed). Fine wine can be compared to real estate but without the high maintenance costs and without being reliant on a single economy. It can also be traded internationally.

A stable, low-risk investment

Physical assets are stable sources of value in uncertain times. Fine wine is an effective hedge against inflation and recession. Its performance has proved that it can successfully weather rising prices and economic downturns. As a low volatility investment, fine wine delivers stability and consistent returns.

Finite supply and rising demand

Investment-grade wines are finite as they are both physical goods and vintage products. Supply is limited due to the strict conditions under which they are produced and as the wines enter their drinking windows and are consumed. This, plus rising demand from a growing global market and new wealth from emerging economies guarantees stable price appreciation over time – a phenomenon relatively unique to fine wine.

Portfolio diversifier

As an alternative asset, fine wine has shown very little correlation to mainstream markets. When traditional markets fall, fine wine tends to hold steady. This makes it a popular alternative to more traditional investments, such as bonds and stocks. As a portfolio diversifier, fine wine reduces the overall risk of an investor’s portfolio, protecting wealth and providing returns.

Tax exemption

Fine wine is a tax efficient investment. As a ‘wasting’ asset – an item with a life span of no more than 50 years – most fine wine is exempt from Capital Gains Tax when it is sold. Although wine can be drinkable some 60 years later, most wine sales would not give rise to a potential tax liability, meaning that investors can enjoy more significant returns.

Passion investment

Last but not least, fine wine is a passion for many investors. There is a growing trend for people who profit from what they might consider their hobby. Buy, sell or drink, fine wine allows you to simultaneously grow your passion and profits.

Ready to get started now you know more about investing in wine? Speak to one of WineCap’s investment experts to discover the next steps on your wine journey.