Avoid Pitfalls When Investing In Wine

In recent years, interest in wine investment has been steadily rising—and for good reason. Wine offers stable returns when you know how to avoid the common pitfalls. However, with this growing interest comes a host of myths, misconceptions, and questions. To help you navigate the world of wine investment and maximize your returns, we've compiled answers to the most frequently asked questions. This way, you can steer clear of the biggest pitfalls and start making smart investments in wine.

How To Qualify A Wine For Investment?

For a wine to increase in value, it must not only have excellent aging potential but also be produced in limited quantities that cannot be expanded, such as through the acquisition of new vineyards. Additionally, the wine needs to be consistently consumed, with demand expected to rise in the future—driven, for example, by the growing number of wealthy individuals worldwide and the corresponding increase in interest in fine wine.

Depending on the criteria, only about 0.1% to 1% of global wine production qualifies as a viable investment option. Generally, these are the finest, most expensive, and rarest wines from the oldest and most renowned producers, often in well-known areas such as Burgundy, Bordeaux, or Champagne. Remember, you can always find our recommendations here.

Historically, Bordeaux wine has become the cornerstone of classic wine investment, but declining demand combined with increased speculation means that prices today are high and, in many cases, do not match demand—at least not if we are searching for possible future returns.

According to Liv-ex, Burgundy has been the best wine investment of the last 20 years^*, with average returns of more than 10,6% per year. More recently, Champagne and Italian wine have entered the scene, and together with Burgundy, they have become an integral part of modern-day wine investment. If you want even higher returns and a higher risk, one can also add whisky, which historically has outperformed wine, to its portfolio.

Other areas are becoming increasingly popular for wine investment. However, one must remember that investing in new-world areas with no proven track record can be a big gamble.

*Liv-ex Burgundy 150 index in the period 2004 to 2024. 

Should I invest In Small Or Large Amounts?

When investing in wine, it's crucial to keep in mind how you plan to sell the wines later. Without a clear exit strategy, it’s simply a collection, not an investment. Always choose an investment company that offers a strong sales solution globally, as this will provide you with a sense of security and guidance. Focus on investing in quantities that appeal to the professional market—the more potential buyers, the better.

It is also important that the wines are easy for potential buyers to handle, who often consider resale to end-users. This means only purchasing wines in perfect condition, in full cases, and in their original packaging. Buying fewer different wines in larger quantities is better, as small volumes can deter professional buyers or lead them to request discounts.

The exception to this is the world's finest and rarest wines, often referred to as "unicorn wines."

What Does VAT Mean For My Investment?

If you purchase wine with VAT and can’t deduct it—such as when investing with personal funds or through a company without VAT deduction (typically a holding company)—it effectively means paying an additional amount equivalent to your country’s VAT, which you will never recover. Buying wine with non-refundable VAT is similar to purchasing stocks for 120 when everyone else buys at 100 (assuming a VAT rate of 20%).

The only way for a private individual to invest in wine without paying VAT is to store the wines in a bonded warehouse where they are exempt from duties, taxes, and VAT. RareWine Invest operates Nordic Freeport, located north of Aalborg, Denmark, the only bonded EU warehouse that allows private individuals to store wine and spirits free from customs duties, taxes, and VAT. Also, through Nordic Freeport, we provide storage at a bonded warehouse in the United Kingdom. 

How Should Investment Wine Be Stored?

Wine, being a delicate and complex product, requires specific storage conditions. It should be kept at a stable temperature between 11 and 14 degrees Celsius, with humidity levels between 70% and 85%. Furthermore, wines must be shielded from sunlight and vibrations, such as those caused by heavy traffic. Understanding and adhering to these conditions is crucial for preserving the quality and value of your investment.

Most wine investors do not handle storage themselves; instead, they opt to store their wines in an external wine warehouse. These facilities not only provide the ideal storage conditions but also maintain third-party logbooks for temperature and humidity, which is vital when selling wine. Security, alarms, surveillance, and insurance are also essential. Thanks to economies of scale, the cost of using such a facility is often lower than what you would incur storing the wine yourself. Proper handling of the wine is also ensured.

Globally, there are only a few warehouses specifically designed for storing wine and spirits, and even fewer that, like Nordic Freeport, hold bonded warehouse status. This allows them to offer wine storage without customs duties, taxes, and VAT, which is crucial for optimal investment. Nordic Freeport’s storage and handling fees are as low as 0.7% of the wine’s value annually, and this also includes insurance, which can often be a significant expense.

What Are The Costs If I Store Investment Wine Myself?

From both an economic and practical perspective, it is generally not advisable to store wine yourself. However, if you are still considering setting up your own storage, you should budget for the costs associated with building a wine cellar or purchasing wine cabinets and ongoing expenses like rent, electricity, maintenance, insurance, and security systems. Depending on your chosen setup, storing a bottle of wine with a purchase price of around €150 in your own "cellar" can cost between 1.5% and 4% of the wine’s value annually.

Many people overlook the risk of sudden and irreversible damage to their wines due to a cooling system failure. To mitigate this, you should install an alarm system that monitors temperature and humidity and maintains a logbook. This logbook could be vital in providing future buyers with proof of proper storage. However, be aware that unofficial logbooks are not always accepted as reliable evidence, as there have been numerous cases where storage data were falsified—especially if the storage conditions were suboptimal for a period of time. It’s also essential to ensure that a technician can be called on short notice to address any issues, even if you’re away.

Finally, consider whether you’re comfortable living above a valuable collection that could increase the risk of burglary or theft. Like most people prefer to keep expensive jewelry and watches in a safe rather than at home, the same logic applies to valuable wine. And remember, if you store the wine yourself at home, you must pay customs duties, VAT, and taxes, which can significantly reduce your profits.

How Long Investment Horizon Should I Expect?

Wine investment is a long-term, low-maintenance endeavor. You should plan for an investment horizon of at least 5 years, with 10 years being even more ideal. Significant price fluctuations from day to day or month are uncommon, so substantial returns should not be expected in the early years.

As the years pass and consumption reduces the available supply, wines become increasingly rare and difficult to find on the market, which typically drives up prices. When a wine reaches its so-called drinking window, it becomes even more appealing to potential consumers. However, it often takes time for wines to reach this ideal stage of maturity, another fact that makes wine a long-term investment. 

Day trading in wine is primarily for professional wine traders who rely more on exceptional merchant skills than on short-term price movements. This makes day trading in wine impractical from a traditional investment standpoint. 

That said, there are occasional opportunities for savvy investors to achieve above-average short-term returns. For example, during certain holidays like the Chinese New Year, demand can spike suddenly, allowing some wines to be sold at prices significantly above the market rate.

Conclusion

When investing in wine, it is essential to make cautious and informed decisions to protect and maximize your returns. While wine is a well-documented and attractive asset with historically solid performance, choosing the wrong solution can be detrimental to your investment. Here are some key considerations:

First, ensure that your chosen partner provides valid and global distribution channels in addition to facilitating the purchase. If the wine investment cannot be easily realized, it ceases to be an investment and instead becomes an expensive collection that you might never enjoy.

Ownership clarity is another crucial factor. You must be sure that the wine you purchase is truly yours. Consider the risks—can creditors seize your wine if your partner faces bankruptcy? Understanding your ownership rights is vital to feeling secure and protected in your investment.

Additionally, it is important to know that you can access your money promptly once the wine is sold. Some investment providers may hold onto your funds for 6-12 months after the sale, which could delay your returns. Ensuring prompt access to funds is crucial for maintaining your investment's liquidity.

Be mindful of ongoing costs as well. High storage fees can erode your returns and reduce the incentive for an effective sales process. These expenses need to be carefully considered when choosing your investment partner.

Proper advice is also essential. Investing too expensively can lead to significant losses, so it is crucial to select a partner who can offer you access to the best wines at competitive prices. This helps mitigate the risk of overpaying and ensures that your investment has the best chance of success.

Set aside personal taste and preferences if you're investing for financial gain. The beauty of wine is that everyone can have an opinion, but there’s no definitive right or wrong. As such, personal preferences should not guide your investment decisions. Instead, ensure your choices are based on data, proven performance, and a strong historical track record. And not a random tasting panel's opinion.

In conclusion, the ideal choice is a peer-to-peer solution that manages every aspect of your wine investment, from the initial purchase to the final sale. This approach provides a comprehensive and secure path to realizing your investment’s full potential.