Let’s start with the Bad

While Julius took breaks from his economic freedom march to jump into a van and rest his feet, I have bad news for boys and girls alike; both our favourite means of transport are not viable investments; cars and shoes will only lose you money. Unless, of course, you are buying vintage cars like the classic 1964 Porsche 911; but, in general, cars depreciate after they’ve been taken for their very first spin and, although a necessary indulgence, shoes are just a lost cause in the investment journey. Yes, that’s me stifling a sob.

But now for the Good

There are some fun investment avenues out there, – last week I found myself at the annual RMB- hosted, WineX Wine Festival. The combination of fine wines and one of South Africa’s premier investment banking houses got me researching the feasibility of investing in wine and I was pleasantly surprised; exploring putting your money into fine wine was so much more interesting than the Money Market!

As this is a brand new concept to me, instead of learning the trade from scratch and about which wines offer value over the long term, I found the best way to get to grips with wine investing was to have a look at one of the companies that offers a Wine Index. Investors then get exposure to the investment choices of professionals, much like buying unit trusts through Coronation or Allan Gray. One such company is the UK -based, Cult Wines Ltd, a specialist investment company with both financial markets and fine wine expertise. The great plus about a fund like this, being UK -based is that the greatest risk that I can think would be associated with buying wine, drinking it, is mitigated.

The market works on a simple supply-demand imbalance; with wines that improve with age, relative demand increases as supply decreases. As with any investment, there have been quiet periods but these have been balanced out by periods of sharp growth. In general, the fine wine market has proved to be a low risk investment, (assuming you can keep those corks firmly in their bottles), and one that offers great returns; prices for the best wines have risen around 15% to- 20% per annum over the last 25 years. Performance is good over a shorter time frame too with the Cult Wines Index outperforming the Dow Jones, The FTSE, oOil AND gold over the last two years! So for those investors who don’t want to put all their eggs in one basket and are tired of low interest rates and uncertain stock market performance – fine wine is an option. The big win is that the correlation between fine wine and financial markets is remarkably small, so if markets are tumbling, chances are your wine is still appreciating.

So if, per chance, I have whetted your appetite for a bit of viticulture investment here are a few tips and a perk:;

• If you are dealing with a wine fund or specialist wine investment company, look at their track record. Also check what charges and commissions are involved;
• If you are buying independently for a capital return, stick to investment grade, red Bordeaux from the best vintages. Bordeaux makes up over 90% of the wine investment market but bear in mind that the back vintages, generally offer greater investment potential than more recent vintages;
• Generally, wine does not attract capital gains tax as it is considered a wasting asset by the revenue services, (Luckily for us they a’re an uncultured lot!).

And that is where we shall stop this week, too much drinking and walking is not good for anyone, but first one very last drop in the barrel; remember, like shares, wines can fall in value – but then at least you can drink the negative equity.