Investing In Whiskey
Whisky Investment
To many people, investing in whiskey might sound like a joke, but it is real. Whisky investments are nothing new. Whisky is a commodity like any other — classic cars, artwork, or crypto— that appreciates and depreciates over the years. It’s common these days to come across headlines on investing in whiskey. Last December, Forbes reported a whopping 564% increase in the benchmark index of rare whiskies, while gold recorded an increase of 360% over the same period. Whisky investment has proved to be a high-performing asset class, with its prices reaching an all-time high in recent years. However, only the best quality whiskies make a viable target for investment.
Why Invest in Whisky
If you seek alternative investments with great returns, you should consider investing in whisky. Over the past decade, the returns in the whisky market have been incredible. Whisky can preserve or even increase in value during inflationary periods, economic instabilities, and recessions. Even during the pandemic, the demand and prices for whisky have grown steadily. For example, the whisky market exceeded $60 billion in 2020 and was projected to grow at an average annual rate of 5.9% between 2021 and 2027. A bottle of rare whisky can sell for hundreds of thousands of dollars. Below are four compelling reasons to start investing in whiskey:
1. Positive Historical Performance
Historical data indicates that the whiskey industry has recorded stable growth in the past decade. There is a high chance that this trend will continue, meaning that you will reap great profits from your whisky investment in the years to come.
According to Rare Whisky 101 indices, one of the most reliable resources for whisky data, the index tracking for the best whiskies in the market has gone up by around 390% in the past decade. Japanese whiskies, which are much more in demand, have gone up by 570%. Premium whisky brands like Brora and vintage Macallan have gone up by 650% and 370%, respectively.
According to Knight Frank Index, the value of rare whiskies has increased by almost 50% in the past decade.
The world records also indicate an increase in the value of whisky. For example, in 2002, the world record for a bottle of whisky was $50,000. Currently, the work record for a whisky bottle stands at $2 million.
2. Expanding Market
In recent years, whisky has gained immense popularity not only as a drink but also as an investment opportunity. The whisky market was valued at $79.6 billion in 2021 and was predicted to reach $ 109 billion by 2025. The demand for whisky is almost the same in Europe, Asia, and North America. However, there is a special affinity for whiskey as an alternative investment among Asian investors. Whisky investment is particularly popular among young investors who are attracted by its affordable price and high potential for great returns.
Regarding high-end collectible whisky bottles, the price doesn’t just depend on the quality and the taste. Similar to luxury products like classic cars, whisky prices depend mainly on brand perception. In the past 5-10 years, whisky has become a premium luxury good. Rare whisky is becoming as desirable as collectibles like rare watches.
3. High Returns on Investment
The average annual rate of return for whisky investment is 10% for private investors. However, rare bottles of whiskey could have much higher returns.
Consider the following:
· The 18-year-old Macallan Malt Scotch whisky increased in value from $463 in 2020 to $ 1209 in 2022. This is an increase of 161%.
· The 50-year-old 1961 Bowmore Single Malt Scotch Whisky increased from $59,969 in 2020 to $ 96,923 in 2022 — a 61% increase.
Some of the rarest and oldest bottles of whisky could even have seven-figure price tags. For example, during the Bonhams auction in 2018, one bottle of Macallan 1926 sold for more than $1 million.
4. Accessibility
Whisky investments are accessible to both the average retail investors and private collectors, thanks to a few intelligent online investment platforms. If you raise capital totalling a few hundred dollars, you could buy several bottles of whisky immediately. You are not limited to investing in bottles; there are many ways of whiskey investing.
Ways to Invest in Whisky
There are several ways to invest in whiskey:
Invest in Whisky Bottles
One of the easiest ways of investing in whiskey is buying whisky bottles and storing them until you decide to sell them at a profit. However, you should consider several factors when you decide to invest in bottled whiskey. You should learn to:
· Tell between an authentic and a fake bottle of whisky
· Identify promising collectibles and where you can find them
· Identify the batches released and their characteristics
· The fair market value of the whisky you intend to buy and the anticipated increase in value
· How to store the whisky bottles properly— you should have a safe place with optimal storage conditions
· You should understand that whiskey is a long-term investment that will not give you returns immediately
Whisky Cask Ownership
Some best distilleries/whisky companies allow investors to buy whisky at wholesale prices (cask purchase), obtaining full cask ownership. Cask investment is an ideal and affordable investment, especially if you are not sure about which whisky bottles to invest in. However, it’s often riskier to invest in cask whiskey. The quality and safety of your investment barrels solely depend on the distillery. Therefore, you must ensure that your whisky barrels are in safe hands.
Ideally, you should hold the casks for a minimum of three years before you bottle your product. Alternatively, you could sell casks to a distillery, which will blend them with other casks. If you decide to venture into cask investment, you should fully understand the cask investment guidelines outlined by the Scotch Whisky Association. Below are the factors you should consider before you invest in a whisky cask:
· Upfront Whisky and Barrel Fees — you will need to pay an upfront fee for the whisky and the casks in which it will be stored. Different types of barrels come at different prices. For example, the rare European oak is costlier than the American oak.
· Bottling — when you invest in whisky casks, you will incur an extra cost in bottling the whisky and labeling the bottles.
· Storage costs — you will pay a storage fee to the distillery or a bonded warehouse to keep your whisky barrels in a secure location.
· Taxes — cask investment involves paying taxes like VAT and exercise duty tax.
A 4-year -old whisky barrel can give up to 50% return on your investment after all the costs. However, the profits you realize from your cask whisky investment will depend on both the whisky and the barrel quality. Barrel quality really matters because the barrel is what gives the whisky its unique qualities during the maturation process.
If all this seems overwhelming, you can entrust your whisky investment to one of the industry insiders who will take care of authenticating, purchasing, storing, and insuring your whisky casks. By doing this, you can access some of the best Scotch, American, Japanese, and Irish whisky casks. All you need to do is relax and enjoy the returns of your whisky investment.
Investing in Whisky Stocks and Funds
Perhaps you would want to invest in whisky, but you prefer sticking to traditional stocks. You can invest in stocks of whisky companies instead of investing in actual whiskey. Below are some publicly traded companies that own some of the renowned whisky brands:
· Diageo — Talisker, Buchanan’s, Johnnie Walker
· Pernod Rocard — Jameson
· Brown-Forman — Old Forester, Jack Daniel’s, Slane
· Remy Cointreau — Bruichladdich
· Constellation Brands — High West Whisky
However, while investing in the stock market, you should be aware that the stocks will be affected by both the company’s performance and the fluctuations in the whisky market. You could also consider investing in whisky funds to mitigate the risk. Whisky funds include:
· Single Malt Fund — this is the first publicly-traded whisky fund, allowing private investors easy access. The minimum investment is $1245.
· Platinum Whisky Investment Fund — this was among the first whisky funds ever created. However, you can only invest in this fund if you are a high-net-worth individual or an accredited investor.
Collectible Bottles
Collectible bottles are rare whiskies that are esteemed by collectors. These whiskies are in short supply and prized. They contain older whiskies that have matured for years. A good example is the 78-year-old Macallan, whose prevailing market value is $120,000. As more bottles are consumed, and the supply shrinks, the value of these collectible whiskies increases. Leading collectible whisky brands include the following:
· Bowmore
· Macallan
· Yamazaki
Despite their high returns, the main disadvantage of collectible whisky bottles is the high costs involved in getting started. You also have to arrange for proper storage and insurance.
Flipping Bottles
Flipping whisky bottles is more like flipping sneakers. Distilleries issue limited releases that are not easy to get your hands on. Flippers are constantly monitoring new releases to ensure they are the first to purchase. They can then sell these limited whisky bottles in the secondary market for an instant profit. You only need a few hundred dollars to get started with flipping bottles. The only disadvantage of this mode of investment is that it is an active approach that requires time and commitment.
Factors to Consider Before Investing in Whisky
You should consider the following factors before you get started with whisky investment:
a) Whisky Investment is a Long-term Investment
Whisky investment might not be the best option for you if you seek a short-term investment with fast returns on investment. The typical return on investment for whiskey is around 10% per year. However, you should carefully consider the type of whisky to invest in and its past performance. Check whether the projected returns on investment meet your investment goal or purpose.
b) Consider your Budget
How much do you intend to invest in whiskey? It’s always wise to diversify your investment. Therefore, do not commit all your funds to whiskey investment. For example, if you are investing in whisky bottles, you could start with a few hundred dollars. However, your initial investment could be around $20,000 for a cask investment.
c) Know the Major Brand Names
If you intend to invest in whisky bottles, you should go for brand names that have a history of performing well in the whisky investment market. Macallan is one of the best whiskies to invest in. Japanese whisky like Yamazaki and Karuizawa is also gaining popularity, with returns as high as 40%.
d) Research Widely
Before you venture into whisky investments, you should ensure that you understand the whiskey basics:
Alcohol content — if whiskey has a higher ABV, it has better aging potential and will have a high chance of increasing in value
Whiskey tastings — you must understand the key qualities of good whiskey, including the smell, color, and flavor
Company background — before you pick a whiskey company, you should ensure that you understand the company’s performance and plans. For example, bottles currently held by companies that intend to rebrand or close could have a higher value.
e) Work with a Trustworthy Seller
Ensure that you work with a reputable retailer, especially if you are a whisky enthusiast who is just getting started in whisky investment. With an established whiskey seller, you are assured of authenticity. Reputable sellers also have competitive pricing.
The Pros and Cons of Whiskey Investments
Leading Pros of Investing in Whiskey
· Diversification — an alternative asset like whisky can be a great way to diversify your investment portfolio
· Return potential — over the past years, whisky has delivered strong returns on investment
· Resistant to recession — even if whisky is not entirely immune to recession, it is recession-resilient. Alcohols and liquors are classified as recession-resilient, making them an ideal investment to explore during tough economic conditions.
Cons of Investing in Whisky
There are certain hassles and risks associated with whisky investments:
· Establish authenticity — it can be challenging to determine whether a certain brand of whisky is authentic, especially if you are just getting started with whisky investments
· Storage — you must secure proper storage for whisky barrels or bottles to keep them in perfect condition
· Insurance — you will incur an extra cost to insure whisky against risks like theft and fire
· Liquidity — collectibles, including whiskies, cannot be sold as fast or easily as stocks
· With whisky, you could fall prey to whisky investment scams, whereby whisky sellers sell casks that do not even exist
The Bottom Line
Rare whiskey has become a lucrative investment option for many investors. However, one must make the right investment choices to get the most out of one’s investments. Despite its high returns on investment, whisky can be illiquid. If you make the wrong purchase, you might struggle to find a buyer. Everything regarding whiskey investment is underpinned by quality. Rarity is another factor; as people continue to consume vintage whisky, the remaining bottles are both scarce and highly sought after. The whiskey market is buoyant for the right bottles but punishes the wrong bottles.
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