A four-decanter lot of Glenfiddich single malt from the 1950s sold for £830,000 at The Distillers One of One charity event last December, setting a new record for the best selling Glenfiddich at auction. An Asian collector recently paid £16 million for a "one of a kind" cask of Ardbeg single malt Scotch from 1975, setting a new record for the most ever paid for a bottle of whisky at auction.
After reading this, it's easy to see why whisky could be a good addition to a diversified investing portfolio. Given the current uncertain environment, where traditional assets like shares are faltering, this is especially true. For example, the US stock market is in the traditional 'bear market' category after falling by 20% since the beginning of 2022. Inflation and interest rates around the world are on the rise, which is a worrying sign for the global economy. The potential for a recession in the UK appears to be growing daily.
In the current climate, it is only reasonable for investors to look for stable assets that are not as vulnerable to market swings. Gold, for example, has a long history of being trusted by investors as a "safe haven" in times of uncertainty. But should whisky be considered for a portfolio?
Investment firm Whiskey Partners (WIP) says yes. Scotch whiskey, according to WIP, is worth £4.9 billion annually in exports and accounts for 70% of all food and drink exports from Scotland. Furthermore, it states that "in recent decades," the average returns on investments in Scottish cask whisky have been between 8% and 12% annually.
Around 44 bottles of Scotch whisky are exported from Scotland to around 180 countries worldwide per second, for a total of around 1.3 billion bottles annually, as reported by the Scotch Whisky Association (SWA). But, like with any type of investment, these numbers on their own are no assurance of future profits.
The recent rise in whisky commerce has been spurred by interest in single malts from overseas customers, particularly in China, Japan, and India. But, in order to be labeled as Scotch whisky, a product must be aged in oak casks in Scotland for at least three years. There are around 22 million barrels currently aging in Scottish warehouses.
Whisky is a niche market that should only make up a small part of your overall investment strategy. Whisky investors should have a diversified portfolio that includes liquid assets like cash and fixed ones like bonds and stocks.
Before taking the plunge into an unproven asset class, would-be financiers would do well to recall the universal principles that apply to all new investments. For example:
Maintaining focus on long-term financial objectives.
Having the fortitude to ride out market fluctuations.
In addition, prospective investors need to consider the following issues:
Do I understand the possibilities for return on investment in whisky?
Can I handle the potential consequences?
Where do I stand financially speaking?
Am I prepared to lose everything if my investments fail?
Are I protected monetarily if something goes wrong?
There are essentially two ways to put money into whisky.
Buy whisky by the bottle
There are two primary avenues for whisky investment. The first strategy involves acquiring whisky with the intent of reselling the bottles at a profit. The trick is purchasing bottles from renowned distilleries in small quantities. Rare Whisky 101 distributes facts and intelligence for collectors and investors interested in single-malt Scotch.
It tracks the price fluctuations of highly sought-after and often traded bottles of single malt Scotch whisky through its Rare Whisky Icon 100 index. Since its inception in 2013, the Icon 100 has returned well over 400% through the end of June 2022, albeit not all names within the index improve in value. Whisky from certain Scottish distilleries tends to appreciate in value more quickly than that of other brands, so savvy investors should keep an eye out for auctions, private sales, and new releases of rare bottles.
It's important to remember that not all whisky investments will be profitable, and that consumers should be ready to ride out market fluctuations. Investors need to know how their money will make money, how much they can afford to lose, and how much risk they are willing to take.
Buy whisky by the cask
Whisky can be bought by the cask as an investment option. Whisky distillation requires a lot of time and money. To offset expenses and acquire much-needed funding, many distilleries sell barrels of whisky to individual investors.
Investors purchase casks of whisky with the expectation that the value of the investment will rise over time as the whisky within the cask ages. Whisky's value increases with age and rarity in part because the liquor tastes better the longer it's stored.
In the early stages of maturation, cask whisky can be purchased by investors through the distillery, a specialized broker, or an investment club. A broker will negotiate a discounted price with a distillery for a specific quantity of barrels, and then sell them to buyers. The barrels are kept in a safe, insured bonded warehouse.
Whiskey & Wealth Club (W&WC) is one of many brokers that can get you the best deals on premium new-make spirit from the best distilleries and brands. Whisky investors have several options once their stock has reached the appropriate level of maturity in cask: sell it back to the distillery for a profit, bottle it privately, keep it as a collectible, or sell it on consignment.
Be sure the broker selling you the whisky casks has the appropriate tax license for the country where the whisky will age before investing. The Scottish HMRC and the Irish Revenue Commissioners
Is it wise to put money into whisky?
Whisky is a high-risk investment, so keep that in mind if you're thinking about buying some. There may also be difficulties with liquidity if it is hard to sell specific bottles. Con artists pose another threat since low-quality whiskies may be falsely labeled as more expensive varieties.
The fact that whisky is a consumable good means that bottles can be lost or destroyed. Whisky investing can still be profitable despite these challenges. Even if your investment doesn't pay out as planned, you can always have a drink on me.