April has finally arrived, and a new tax year has begun. People across the country are beginning to think about their investments and their personal finances and are considering their options. The average investor is probably looking at the books and wondering what they have to show for their investments. The chances are the majority of people will have a 3% return on their equity investments (if they were lucky!) or their cash ISA may even have managed to beat inflation! Overall, however, people are looking for a way to make returns on their investment portfolios. At this time, the more savvy investors are turning to drink. Or more specifically, investing in fine wine.
With stocks and shares dropping, and bonds and ISAs seeing their interest rates plummet, it's no surprise that people are looking to increasingly diversify their investment portfolios and turning to alternative investments.
With alternative investments, and commodities in particular, there are three golden rules, which must be kept in mind.
The first rule of alternative investments is to invest in physical or tangible assets. These could range from precious metals such as gold or silver or commodities such as oil and coffee alternatively more unusual items such as vintage guns! In fact alternative investments are often labelled "SWAG" - Silver, Wine, Art and Gold.
Like any other investment their value may increase or decrease, tangible assets will never disappear completely. You can go to bed with a bottle of wine in your cellar and wake up the next morning safe in the knowledge that it will still be there. With stocks and shares on the other hand, and the turbulent equity markets, when you go to bed at night it is impossible to know what you will be left with the next day. Even better, is the fact that fine wine purchased through a broker such as Vin-X can be stored in UK Customs controlled bonded warehouses, making them free of VAT and excise duty whilst they continue to be stored "in bond".
The second rule of alternative investments is that a portfolio needs to be diverse. As the old cliché says, "don't put all your eggs in one basket". The more different investments you have the higher the probability of one of your investments increasing in value. In addition, if your assets are too similar and the market drops, then the value of your entire portfolio will be hit.
With wine in particular, it is possible to diversify your investments not just into wine as opposed to other commodities but also within the different types of wine (don't put all your bottles in one Chateaux to continue the metaphor!). This diversity is a rare opportunity within the investment world. For people with large amounts of funds to invest there are the First Growth wines, but for those with less investment capital there are the Second Growth wines, which are still of high investment quality. In addition there are different stages such as En Primeur (in the barrel) or in the bottle, different Chateaux and different vintages, all providing a varied investment portfolio.
The third rule of investment says that the rarity of an investment needs to be considered. Investments in limited resources are of high value and as they are likely to become increasingly rare over time, they also have the best chance of increasing in value. Each Chateau produces on average between 12 to 18 thousand cases per vintage, some less. This means there is very limited supply for a very high demand, and the individual vintages can never be reproduced. With wine in particular, as time passes and more bottles are consumed, the wine becomes scarcer and increasingly more valuable.
Ultimately, with equity becoming a less attractive option, people are increasingly turning to alternative investments or SWAG and of the alternative options wine is one of the more accessible in terms of entry price. Investors can acquire some superb wines for as little as £2,000 a case and wine has consistently delivered double-digit returns over the last 50 years, despite three market corrections in the last 25. Wine is certainly a fine investment option, but gold, silver, oil, and even vintage records or stamps are all suitable investment options, which adhere to the rule of three.
Follow Peter Shakeshaft on Twitter: www.twitter.com/vinxfinewine