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As New Auction Records Set Are Wine and Whisky Good Investments?

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Over the weekend a new record price for a bottle of wine was set as a bottle of 1945 Romanée-Conti burgundy was sold at a Sotheby’s auction in New York for £424,000. The final price fetched was not only 17 times what the bottle had been expected to go for but also more than doubled the previous record price tag for a standard bottle of wine.

Another bottle of the same wine subsequently sold for £377,000. 600 bottles of the vintage existed at the time it was bottled, with the grapes used the last harvest before the vines were replaced. The record had been held since 2010 by an 1869 Château Lafite Rothschild, also a burgundy, which sold for £177,164.

A new world record for a bottle of whisky was also recently set at a Bonhams auction in Edinburgh. A mystery buyer bidding over the telephone through a representative paid £848,750 for a bottle of 1926 Macallan Valerio Adami – a batch named in honour of the renowned Italian painter who designed its label. Only 12 bottles of the Speyside malt aged in a barrel for 60 years before bottling have existed.

Over 2017, the average selling prices of rare Scotch whiskies rose over 40%. Fine wine prices have also been on a strong upwards trajectory. Over the third quarter of 2018 global sales were up 31% year-on-year. Burgundies led the way with strong support from Bordeaux, with fine wines from the region again in demand after several years in the doldrums.

In both categories, returns over the past couple of years could be considered to have been stronger than would have been the case investing in traditional asset classes such as bonds, equities, property or commodities such as gold. So is there currently a case for those investing online in traditional asset classes to consider venturing into alternative investments such as wine or whisky?

The answer is a qualified one. In the broad sense fine wine and rare malt whiskies have indeed provided very strong returns over the past several years. Higher than would have been achievable via most traditional asset classes. Demand has risen as a result of growing interest, and wealth, in countries with huge populations and developing economies, such as China and India. Rare wines and whiskies are a finite commodity so a new audience of wealthy individuals who appreciate them has pushed prices up.

One way to invest in fine wines or malt whiskies is to buy already valuable bottles with the strategy of reselling at a higher price in a few years. A second is more speculative – buying vintages or casks that are not yet hugely expensive but stand a good chance of becoming sought after by exclusive buyers after several more years. The final option are earlier investments that finance the process. Both fine wine and whisky industries have significant gaps between putting their products in the barrel to age and selling the bottles at a later date. Recently new investment products have appeared that allow ‘off plan’ purchase of a part of batches at a discount. This gives the makers cash flow and the investors, if all goes to plan, a strong profit in subsequent years.

There is, however, significant risk involved in alternative investments such as fine wine or whiskies. Choosing the right bottles requires either expert industry knowledge or a trustworthy and knowledgeable advisor. Also, while demographics appear to be in favour of the industry, there is no guarantee demand won’t drop off in future years. Finally, any prospective investor should be very careful to verify the credentials of those behind investment offers packaged for retail investors. Alternative investments such as fine wines or whisky are not covered by the FCA so investors have little protection if an intermediary goes into liquidation while in possession of their funds.

Alternative investments of this kind are also illiquid and have no fixed market price. You can’t just log into an account and sell a bottle of fine wine or whisky at a set market value as is the case when investing online in the stock market. Fine wines or whiskies have market trends but sell at the price someone is willing to pay at that particular moment in time.

In summary, alternative investments of the kind of fine wines or whiskies should be considered high risk or hobby investments rather than the cornerstone of a retirement investment portfolio. There is no guarantee when they might sell at what price. However, if you’re a lover of the liquid inside the bottle and have a little venture capital to spare, there are worse investment ideas. As long as you’re prepared to content yourself with a luxury and very enjoyable tipple if the investment itself doesn’t work out.

Risk Warning:

Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.

There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

Paul

The author Paul