A spirited investment! Whisky, that is
In recent years, whisky has climbed the ranks of alternative investments. It’s become a highly collectable asset, with a bottle of 1926 Macallan changing hands for £1.5 million at Sotheby’s in a new world record
But is it profitable for the armchair investor to consider putting money into what the Scots call ‘the water of life?’
NMTBP explores whisky investments, including the pros and cons, in this article
Is Whisky a Good Investment?
The principal reason people invest in whisky is because it’s a tangible asset that usually increases in value over time. Aged whiskies from reputable distilleries command high prices and appear to retain value even during recessions and inflationary periods.
In fact, over the last decade, whisky has proved to be a better investment than cars, first-growth Bordeaux or collectable watches, or any stock market index! The Knight Frank Luxury Investment Index shows 586% price growth for the decade up to 2020 on some bottles of single malt.
With figures like these, it’s common to find whisky described as a ‘safe haven asset’ or ‘liquid gold’ because the price accrual hasn’t been affected by the vicissitudes of the macroeconomy
While this is true, whisky prices have also boomed in response to cultural shifts in how we perceive this ancient tipple. In particular, rising wealth in Asia has increased the marketplace for fine whiskies, as super-premium whisky is seen as a mark of sophistication in countries like China and India
But it’s not just Asian high-net-worth individuals who are fuelling the boom in the whisky economy. Millennials the world over are changing the old-fashioned gentleman’s club image of the drink, and the rise in online investments has made it easy for them to fuel their passion
Certainly, it seems as if the whisky industry will keep on growing for the foreseeable future. But like all investments, skill and diligence are required to pick one that will deliver the best return. It’s a physical asset, meaning casks or bottles can break over time. And because of the current success of the asset class, there are plenty of scams out there where inferior whiskies are passed off as the real deal
In short, most experts say you should only invest in whisky if you know exactly what you’re doing and are working with a reputable brand with an established market. Whisky should only make up a part of your investment portfolio as part of a diversified strategy
The pros and cons of investing in whisky
- Whisky can be a lucrative investment, with some rare bottles selling for hundreds of thousands of pounds
- The market for rare and collectable whisky is growing, with many investors seeing it as a promising alternative to traditional assets like stocks and real estate
- Whisky is a tangible asset you can hold onto and sell in the future
- Many people enjoy collecting and tasting whisky, so investing in it can be a fun and enjoyable hobby
- The whisky market can be volatile, and the value of your investment can go up or down depending on various factors
- Whisky can be risky, as it’s difficult to predict which bottles will increase in value and which won’t
- It can be expensive to buy rare and collectable whisky, especially if you’re looking for a bottle that is in high demand
- Storing and caring for whisky can also be costly, as it needs to be kept in a cool, dark place to prevent it from deteriorating
How does whisky investment work?
There are two main ways to invest in whisky
The simplest way to invest in whisky is to buy individual bottles. This can be done from specialist whisky retailers such as Whisky International Online, or at auction. In this case, the index on Rare Whisky 101 is a good place to start. Their index shows the most highly traded bottles at UK auctions for single malt whisky, meaning you can make a selection based on accurate data
As an example, a wise investor in 1993 might have purchased a bottle of Black Bowmore Aston Martin DB5 1964 for less than £100. That same bottle would now be worth £50,000
When choosing bottles to invest in, it’s important to consider the following factors:
- Distillery: Some distilleries are more popular than others, and their bottles tend to hold their value better
- Age: Older whiskies are generally more valuable than younger whiskies
- Rarity: Limited editions and rare whiskies are more likely to appreciate in value
- Condition: The condition of the bottle is also important. Bottles should be in good condition, with no damage to the label or closure
Whisky By the Cask
Investing in whisky casks is a more involved process, but it can be more rewarding financially. When you buy a cask of whisky, you are essentially buying the whisky in its raw form before it has been bottled. The whisky will then be matured in the cask for a number of years before it’s ready to be bottled and sold
To invest in whisky casks, you’ll need to contact a whisky broker such as Whisky Broker Limited. There are a number of whisky brokers operating in the UK, and they’ll be able to help you find a cask that suits your budget and investment goals
The cost of a whisky cask will vary depending on the factors mentioned above, such as the distillery, age, and rarity of the whisky. You will also need to factor in the cost of storage and insurance
Once you’ve purchased a cask of whisky, you have a number of options:
- You can keep the cask until the whisky is ready to be bottled and sold. This can be a number of years, and the value of the whisky will increase over time
- You can sell the cask to another investor. This is a more liquid option, but you may not make as much profit as you would if you kept the cask until the whisky was ready to be bottled
- You can bottle the whisky yourself. This will require you to invest in bottling equipment, and you will need to find a buyer for the bottled whisky.
What returns can I expect from whisky?
Returns on whisky investments can range from modest to substantial, depending on the investor’s level of expertise and the specific bottles or casks acquired. According to some reports, high-quality, rare whiskies have seen annual returns of around 10% to 20%, although this should not be considered a guarantee. It’s crucial to note that these numbers are historical averages and may not necessarily reflect future performance
Investing in whisky casks can also be profitable but tends to require a longer-term commitment
How safe is whisky investment?
The whisky investment market should be entered into with caution and with sound professional advice. While returns can be impressive, the online market for whisky investments has its fair share of scams and con artists, with unremarkable whiskies sold off as super-premium and fine-print technicalities that put your money at risk
If you’re assessing a particular whisky investment, you should:
- Avoid any distiller or broker that promises an unrealistic percentage per annum.
- Beware anyone offering you a ‘guaranteed return’
- Ensure you understand the legalities of Scotch whisky cask ownership. In particular, you’ll need a Delivery Order, a contract between the cask seller and buyer addressed to the warehouse keeper who is storing the cask. The DO confirms the transfer of ownership. Without it, you won’t own the cask
- Cask whisky investment isn’t regulated by the UK’s Financial Conduct Authority, meaning you won’t be liable for compensation in case of a scam
Watch this video first
Is whisky investment tax-free?
Whisky cask investments are free of Capital Gains Tax (CGT) because they are classed as a wasting asset, i.e. assets with a predictable life of 50 years or less
Whisky bottle investments are subject to capital gains tax because they could last longer than 50 years. If you sell your whisky bottle for a value exceeding £6000 per item, you will then pay CGT
What are the costs of investing in whisky?
It is possible to invest in a cask of whisky for as little as £1000, depending on the distillery, age and the size and style of the cask. But the initial outlay is not the only cost you’ll need to factor in
Whisky cask investments typically come with an annual cost to store your goods in a bonded warehouse. This is typically £40 pa per cask
While some warehouses provide damage insurance, others require the investor to get this in addition. This cost will vary depending on the value and location of the goods insured
Duty, VAT and Bottling Costs
If the cask is eventually bottled, duty and VAT will have to be paid on it. If you merely sell the cask on to another investor or a whisky wholesaler, this won’t be an issue you’ll need to worry about
Whisky Investment for Beginners
As a recap, here’s NMTBP’s total beginner’s guide to how to invest in whisky
- Start with Research: Begin by conducting comprehensive research on whisky brands, types, and market trends. Familiarise yourself with the key players in the industry—Scottish distilleries are often a good starting point, given their long-standing reputation. However, don’t overlook emerging markets, such as Japanese and American whiskies, which have garnered significant interest in recent years
- Initial Investment and Budgeting: Determine the budget for your initial investment. Starting small is advisable; you can always scale up as you gain more knowledge and confidence. Consider investing in bottles initially, as casks require a more substantial financial outlay and come with additional responsibilities like storage and insurance
- Authenticity and Provenance: The authenticity and provenance of the whisky are of paramount importance. Always purchase from reputable sources and ensure that the bottles come with appropriate documentation. This will not only guarantee the quality of your investment but also make it easier to sell in the future
- Storage Conditions: Proper storage is critical for preserving the quality of your whisky. The investment could be compromised if the bottles are exposed to fluctuating temperatures, humidity, or direct sunlight. Professional storage facilities, although an additional expense, can offer optimal conditions for whisky ageing and preservation
- Diversification: Although whisky can be a rewarding investment, it shouldn’t be your sole focus. Diversification is crucial in any investment portfolio to mitigate risks. Whisky investment can serve as a valuable component in a diversified portfolio but should be balanced with more traditional investment vehicles
- Legal and Tax Considerations: Before making any investments, acquaint yourself with the legal and tax implications in your jurisdiction. In some cases, the sale of alcoholic beverages may require special permits or licenses, and profits may be subject to capital gains tax
- Consult Experts: Finally, seek the counsel of financial advisors and experts in the field of alternative investments. Their insights can offer valuable perspectives and help you avoid common pitfalls