The investment and collection of fine wines
Investment in luxury wines, such as the exclusive De Toren wine range, is by no means a new sensation or a fad. Internationally, investment in luxury wines has been around for centuries. The formal trading of fine wines, as a valuable commodity to generate profits, became a more established occurrence in the later years of the 1970s. The tendency existed to buy more wine than intended to consume and to then sell the excess at a later stage to assist in funding the next purchase.
Recently there have been increasingly more articles, talks and debates about investing in premium wines, more specifically South African fine wines, which included the De Toren wines due to the wine making process and ageing potential. This may be due to the fact that we’ve seen a dramatic improvement in South Africa wines’ quality in recent years – world-class quality that can assuredly compete with wines on an international level. Like any other investments, there are risks associated with investing your money in an asset and the equilibrium between demand and supply.
The top wines of South Africa are flourishing and being recognised on an international level and with the global demand increasing. It might just be the perfect opportunity to start building that wine collection, as it may holds long-term financial potential.
This takes passion, dedication and preparation, similar qualities we, De Toren, pride ourselves on. We take a look at where one should start if you are potentially looking to start your own personal fine wine collection..
Understand the Sector
The advantages of investing in wine as opposed to other investments:
- investing in wine is relatively uncomplicated compared to other investment sectors
- globally there is a reputable luxury wine market
- the product you are investing in is tangible
- it is an easily transferable asset
- the quality improves over time
- produced in limited quantities with a vast global demand
- the supply of this asset declines as the wines are consumed over the years, increasing the value of the remaining stock
- the wine sector has continued to perform favourably, even in times of economic downturn
- if all else fails and your investment doesn’t deliver as desired, the wine can still be consumed
The risks associated with fine wine investment:
- like any investment sector one needs to be aware of the possibility of price fluctuations
- the market is not as formally regulated compared to other investment sectors
- regard the investment as a longer term investment (a minimum of 5 years with 8 – 10 years being even more desirable)
Once again, treat this like any other investment, determine the reason for wanting to invest in a fine wine collection and this in return will assist you in purchasing wines that will meet these goals and the additional considerations required regarding your collection. These reason can be varied, for example, are you saving up for something; is it for yourself to enjoy the developments in the wines when aged; or do you want to, in time, enjoy these collector’s items with your closest friends and family? These reasons will guide you in terms of your purchase decisions, slowly but surely developing your personal collection of fine wines.
Some wine investors even select a theme for their collection and use that as a guideline when purchasing wines. These themes vary and can include anything from ‘scarcity’, i.e. only collecting valuable wines that are very scarce or perhaps a 10-year theme, i.e. collecting 10 different vintages of a specific wine or maybe even a theme around regions, thus only collecting wines from that specific region. These themes will also assist in making the collection more desirable for potential future buyers.
Lay the Ground Rules
Investing requires discipline; else it can easily become a gamble. To avoid this, it is advisable to outline these upfront. These can be as detailed and comprehensive as you wish, however give yourself some time to learn and gather enough knowledge to inform these guidelines or set of ‘rules’.
- Of course investment requires capital. It is therefore important to determine the disposable income you have available to invest in your wine collection, upfront.
- The golden rule as in any investment or ‘gamble’ is to avoid using money that you will need for daily living in the short- to medium-term.
- To assist in working within this budget, define the value you are willing to spend before any given purchase and try and stick to this as closely as possible.
In summary, only invest money that you can afford to ‘lose’, because, as with any other investment, returns are not necessarily guaranteed, even though the historic data of wine sales have performed exceedingly well.
Research is an important step in order to define your ‘portfolio of wine investment’ and the diversity thereof. There are some fundamental factors, in conjunction to your theme, to consider when looking investing in the fine wine category, e.g. :
- What are the wine and the producer’s credentials?
The level of recognition of the brand can give quite a clear indication of the track record of a wine. This in addition to reviews by wine critics, both locally and internationally as well as the upward pricing trend of the wine is indicative of the longer term potential of the wine due to the balance between the supply and demand. Read more here on the results of our prestigious Fusion V 2005 vintage at the Nederburg Auction.
- What kind of wine is this?
Some wine types and styles have a better reputation than others when it comes to accruing value – be sure to investigate this and seek advice.
- What is the provenance of the wine?
More often than not, the provenance of a wine and the quality goes hand in hand and it can play an important role in evaluating your investment and its future potential, e.g. Bordeaux wines have delivered financially sound return on investments throughout centuries. South Africa is delivering wines of the highest quality it has in years and again, there are specific areas in the country known for producing better quality wines of a specific cultivar – already a guideline when purchasing the wines for your collection.Read more here on the sense of place a great wine reveals
- How young or old is the wine?
If a wine is very young, one must be aware of the extended period of investment as the value of wines, especially red wines, increase with maturation.
- Does the vintage have a good reputation?
Some vintages in their specific regions have been acknowledged as superior harvests due to more desirable climates during those seasons, resulting in more promising wines.
- What is the ageing potential of the wine?
Wines with a great reputation for its ageing potential will over time become some of the most desirable commodities in the fine wine investment market and is guaranteed to deliver a most profitable return. The reason is that the quality of these wines improve with maturation, if cellared correctly, and as time goes by, the older vintages you have collected over the years, will become very limited, making the wine more alluring. Read more here one the ageing potential of De Toren wines
- How many of this wine is produced?
The quantities of luxury wines are usually quite restricted due to the extreme selection process of the grapes, the intense labour and the intricate processes invested in producing these wines. These techniques and the invested interest in the production of these wines are already a good indication of a sound investment. Further to this, as the supply of the wines shrink due to consumption over the years, the monetary value will increase due to the imbalance between the rising demand and the decreasing supply.
- What format or size bottle does the wine come in?
The standard-sized bottles tends to remain the safest investment option, but in order to diversify your wine portfolio and attempt to increase the value even further, it might be a good idea to invest in the bigger bottle formats, such as the 3l, 6l or 9l from renowned wine estates. It is important to note that premium wines are generally offered in wooden boxes containing six bottles, but more luxurious wines may only be available in single bottles.
- What is the price of the wine?
The price of investment wines can diverge quite substantially, it is therefore very important to do your research, shop around and perhaps check prices online when planning to purchase a certain product. Establish a price benchmark for the luxury wines in your country orthe regions you are purchasing from – this is merely a yardstick, but South African fine wines prices for example start at about R250 – R300 per bottle.
When putting so much effort and money into starting your own fine wine collection, it is of the utmost importance to ensure you have a safe place to store your collection. This will also allow your wines the essence of time and the ideal environment to age gradually and gracefully and prevent it from losing any of its beautiful aromas or flavours.
A temperature controlled room set at the right temperatures with the right humidity is of the utmost importance. These rooms generally also have low or no lighting which along with the desired temperature control prevents any spoilage. Another important element to take into consideration is a space that has minimum disturbance or vibration as well as sideways storage to keep the liquid on the cork, preventing it from drying out.
If a personal wine cellar is not an option, you can investigate the option of storing your wines with a fine wine merchant or cellarer in your area that have specialised, temperature-controlled cellar facilities to store your wines.
A fine wine collector whose wines are not properly stored or don’t have the required documentation to prove the cellaring process, will not be able to sell his wines amongst other investors, as the wine quality and worth will be questioned.
Through all the research that we’ve done and with this all said, it is once again important to be aware of the risks attached to investing in fine wines, as with any other investment, however over the past decade wine has reaffirmed its status as a profitable long-term investment – key word here, long term. South African wines, especially, are on the rise and the future opportunity seems promising. The key is to ensure you invest in the right wines, wines with a good track record, great ageing potential, wineries that don’t take any shortcuts, which invest time, effort, best practices and most importantly care.
Ready to start that fine wine collection?