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There has been a great deal of publicity recently about the potential for wines as an investment in your SIPPS now the regulations are freeing up next year. So, let’s be clear:-
The advantages are that you save income tax of up to 40% on your purchases, and if you have a standard portfolio of investments, it provides a degree of diversification.
{mosgoogle} The disadvantages are that the costs of trading are high (merchants and auction houses can take up to 25% commission), the costs of warehousing and storage can be up to £20 per case per year and the market for wine is currently unpredictable and volatile. Lastly, wine in a SIPP has to stay there or be sold; you cannot drink your pension fund!
True, the long run gain on collectable wines is about 5% per year, and the recent few months in 2005 have seen prices for top wine increase by up to 20%, but you need to be a pretty savvy trader with a good insight into the market to make a wine investment work.
Some tips:-
Buying is critical;
You must buy below market price, otherwise your investment will spend a long time catching up.
Buy only the best and in prime condition; this requires a high degree of expertise, not just listening to a good salesman!
Buy on the bottom of the value cycle or when prices are falling, sell when prices are rising.
Only deal with people you really trust.
In short, I do not really believe wine should be part of your pension fund. There are many more secure and better-regulated investments. However, by all means, build your own collection of wines you like, and will drink, and sell the odd few cases to pay for your pleasure!
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