With a very harsh recession still fresh in our minds and other possible financial instabilities coming our way in the near future, it is hard to establish what we should invest in. Even more so when standard investment opportunities like property are reaching bursting point, due to its pricing hyperinflation.

So what can we do to protect and insure a return on our hard earned cash? To some, the answer has been found in wine… Not because the instability of the 21st century has pushed them to drinking, but because fine wines can and have often been a very profitable investment: Especially as they do not generally correlate with equities, making it the perfect investment in unstable economic periods.

As a low risk investment, it is perfect for the cautious investor, interested in the long term. Since data has been collected on this market, it has consistently delivered double-digit returns. It has often outperformed more conventional investment routes, like FTSE and is far more stable than FX.

With the growing economies of the BRICS (Brazil, Russia, India and China), Wine investment has become more and more popular, due to its good return, low risk and simply because it’s an interesting alterative. Viewing the latest figures for the last 20 years of 14.9%, £1,000 invested in 2003 would have appreciated to £4,010 today. Not bad for simply holding onto a few bottles of wine?

Viewing the bigger picture, on average the wine investment market has delivered compound annual return of 11.7% on 5 year investment periods between 1987 and 2007, without a single negative period. To compare, the FTSE lost 24% and Gold lost 43% in roughly the same time period.

So why invest in wine? Well… apart from the reasons above, let’s look at some others. One of the more obvious is that wine gets drunk… eventually. Hence the supply of such an investment is always slowly diminishing, which automatically means that the price will, in kind increase just as gradually. One could suggest that new wines are made each day, which is of course true, however, even in the best vintages with the highest quality grapes, Châteaux are unable to increase production due to appellation controllee laws.

On top of this, with the influence of climate change, investment-grade wine production in the future is likely to be reduced even further, hence my original statement holds true, supply is gradually shrinking.

So, how can one get involved in such an industry? It’s surprisingly simple and does not require the huge amount of investment normally associated with others, like fine art. Also, unlike fine art, fine wine has a dedicated exchange in the form of Liv-Ex, making it surprisingly easy to buy and sell. On top of that you can easily find dedicated wine investment firms like Vin-X, which can do a lot of the work for you.

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