Pensions and Wine Investment

There have been reports in the UK press that people who are about to draw down on their pension savings are being approached by unscrupulous "investment advisers" to put their money into fine wine. Some of theses advisers are fraudsters. Recent changes to UK pension rules allow individuals more flexibility to access their funds.

http://www.bbc.co.uk/news/business-33804578

Apart from market risk where the price of wine falls there are a number of other risks that potential wine investors should beware of:

1) The people you are dealing with. Perhaps this is one of the most important dangers. To mitigate this risk you need to assure yourself that you are dealing with honest and respectable advisers and brokers, who will advise you on the best wines to invest in and how to keep your wine safe and insured. Before you invest it is best to meet the people who you are trading with rather than simply deal over the 'phone or the internet.

2) Title to the wine is important; it is best to actually own the wine rather than buy a wine contract. If you decide to buy a wine contract, where you do not have title to the actual wine, then you should make doubly sure that you are dealing with an honest trader who is financially stable  and who will not renege on the contract.

3) Real wine: be sure that the wine that you are buying is not fake; it is best to trade only with a reputable supplier.

4) High rates of return represent higher risk of losing your money. If you are attracted to a higher rate of return then you run the risk of losing some or all of your money. This principle applies to all investments. It is essential that you are wary of investment advisers who offer you higher rates of return than the market in general offers; such advisers could be incompetent or worse still dishonest.

Prospective pensioners should be aware that you can only benefit from a wine investment as the result of a capital gain. Wine investment does not generate dividend or interest income. The same is true  of  investing in gold, paintings or fast cars etc.

It is probably best to spread out your investments across savings accounts, ISAs, annuities  and trust funds etc. These types of investment generate interest or dividend income. Do not put all your eggs in one basket.

If your wine investment does not live up to expectations in the middle to long term then you could always cut your losses and sell. You can only do this , however, if your wine actually belongs to you or you have invested in a safe contract. If your wine is fake or has been stored badly then you will lose everything and it won't even taste good if you decide to drink it.

Buyer beware.