For Love or Money

When you decide to invest in wine collecting, the first decision you have to make is whether you are investing for the love of certain wines, to make money, or a combination of both.

Stock market volatility brought on by the current economic climate means that many investors’ confidence in the financial markets is at an all time low. As a result, investors are looking at smarter ways to invest – perhaps through commodity based investments such as fine wine – either as a direct investor or within the boundaries of a fund. Fine wines are now a proven, tax efficient asset class (wine is typically treated as a wasting asset and is therefore exempt from capital gains tax) that has outperformed the FTSE in the last 25 years and dramatically in the past 10 months.

Fine Wine is an established form of alternative investment that can offer impressive returns. The wine market is based upon simple supply and demand economics. Bordeaux has the most stable financial market of all wine producing regions, while in each decade only 3-4 vintages out of every 10 have wines of a high enough quality for investment purposes. A chateau can only produce a unique and finite amount of wine each year. As this is happening the wine is maturing and becoming more desirable, which leads to an increase in demand.

With decreasing availability, comes increasing rarity. In a nutshell, the trouble in the major investment markets makes it an opportune time for investors seeking to diversify their portfolios, to invest in this highly specialist, tried and tested alternative format. The product of wine has extra appeal as an asset class, as wine is classed as a wasting asset and is therefore not liable for capital gains tax. Krunch is already managing a number of funds, while talking to others about the fund he anticipate launching in the new year.

Investing in wine can be a risky proposition, but if you weigh all the costs associated and are prepared to drink what you don't sell, it can be a fun and savvy investment vehicle. Plus, if you fail to pick a winner, you can always toast your loss.