Alternative investments such as whisky can a great way to diversify your portfolio. You can invest in a range of products like private equity, real estate, art, antiques and more. In recent years, spirits including whisky have become a popular investment.
Whisky investment has risen recently and Scottish whisky, for example, contributes £7.1 billion to the UK economy, according to the Scottish Whisky Association.
In the past, private investors could only buy whisky casks, but that's no longer the case. Private investors can now dive further into the whisky investment market and get their hands on rare whisky bottles.
In this article, I'll explain how investing in whisky works, the pros and cons, what you need to watch out for and how to start investing in whisky.
Why should you invest in whisky?
Aged whisky from reputable distilleries can retain value even during recessionary and inflationary periods and therefore it's a popular option for investors.
Whisky becomes more valuable with time, so even if you start with fairly young bottles of whisky, it may grow in value as it ages. There is a reason whisky is often referred to as the ‘water of life' or ‘liquid gold': a whisky bottle or cask investment can be a tangible asset.
Investing in whisky isn't dissimilar to investing in fine wine but before you start shopping for your first bottle, it's worth remembering that there are no guarantees with investing and you need to be comfortable with that level of risk.
Here are a few reasons why someone might choose to invest in whisky:
- Accessibility: various online investing platforms are available including VCLVinters, Whisky Investment UK, and Whisky Invest Direct. Anyone can invest in whisky, you just need to know the market, and dedicate your time to the investment process.
- Historical performance: within the last decade, some whiskies have seen steady growth. For example, Knight Frank reported that its rare single-malt Scotch whisky index increased by 586%.
- Market growth: in 2022 the whisky investment industry was valued at £7.1B and is predicted to increase over the next decade.
- Returns on investment: the average annual return on whisky is between 10% and 20%
Although the market value of the whisky industry has increased, and rare bottles can earn you a pretty penny, investing in whisky isn't a quick way to earn money.
It's a long-term investment that can take years, especially if you start with young or new whisky bottles or casks. even if you commit to a long-term investment, there are no guarantees you'll make a profit either.
The pros and cons of investing in whisky
To help you prepare for your whisky investment journey, we've compiled a list of all the pros and cons.
Pros
✔️ Lucrative investment: rare whisky bottles can sell for hundreds of thousands of pounds
✔️ Promising alternative investments: the whisky market is growing, especially with rare and collectable whisky, so many investors see it as a promising alternative to traditional assets
✔️ Fun hobby: many whisky investors enjoy collecting and tasting whisky, so investing becomes a hobby
✔️ Low effort once invested: whisky bottles and casks usually become more valuable with age. So, even if you're buying younger whisky, you could grow your investment significantly over time.
✔️ Physical asset: it's often easier to get on board with investing in whisky than assets like cryptocurrency, which you can't physically see
Cons
❌️ Volatile market: like any investment, whisky can be volatile and your investment may fluctuate
❌️ Expensive: rare whisky casks and bottles can be expensive, especially if they're in high demand
❌️ Storage and care: whisky must be stored correctly to prevent deterioration
❌️ Risks involved: you can't predict which bottles will increase in value, and the whisky market is volatile. A return on your investment isn't guaranteed, so only invest money you're willing to lose.
❌️ Scammers: you should be wary of people and businesses selling you whisky with the promise of a guaranteed return, these are more than likely scammers
How does whisky investment work?
Regardless of the asset class, you should always enter investments with a strategy and care.
You need to know all you can about the assets you're investing in, from the market to specific asset details and what to look out for. Investing in whisky is no different.
The typical process of investing is the same: you start buying whisky, you wait some time depending on the whisky, and you can then sell it any time.
The UK whisky market is a great place to start. Once you're comfortable with whisky investment, consider exploring global whisky exports.
Below I have outlined the three main types of investment in Whisky.
Single whisky bottles
Investing in single bottles of whisky is considered the easiest route for new investors. Single bottles are usually easier to obtain and store. You can use a range of indexes to see what's currently on the market, such as Rare Whisky 101, which shows the most highly traded bottles across UK auction houses for single malt whisky.
The best approach to buying whisky by the bottle is to look for limited releases from highly regarded distilleries. A return on investment is never guaranteed, but buying whisky from renowned brands will at least guarantee quality whisky.
Even though single bottles are easier to invest in and to buy and sell, much like cask whisky, they get better as they mature. Regardless of which format you choose to invest in, it will be a long-term investment.
With single-bottled whisky, single-malt Scotch whisky makes up most of the market, and some investors shun blends of malt and grain whiskies.
Casks of whisky
Cask whisky investment is a long-term commitment that requires you to invest directly with distilleries. How you invest varies depending on what they allow. Some distillers allow direct investments from private investors, but most require a broker.
Typically, a broker deals with distilleries or a limited run of casks at a reduced price. The broker then sells the whisky casks and bottles to investors. A broker purchases and stores casks in a suitable warehouse until sold to investors.
For a fee, some brokers will hold the casks for you for the duration of your investment. Brokers like Whiskey & Wealth Club bridge the gap between distilleries and investors.
Once you own the casks and later choose to exit the investment, you can sell them to auction houses, investors, or independent bottlers.
With cask whisky, the longer you allow it to mature, the more it will improve with age and typically become more valuable. If stored incorrectly, you could lose your whole investment, so consider seeking professional storage and handling of your cask investment.
You can invest in whisky casks at different stages of maturing; the idea is that you buy the cask to watch the spirit appreciate its value over time. The older the whisky gets, the more potential it has of increasing value for two reasons: the rarity factor increases, especially if you leave it for multiple years, and secondly, whisky taste improves with age.
Whisky stocks and funds
There is a third way to get started investing in whisky. If you're an investor who prefers stocks and shares trading, you can buy whisky company stocks instead. So, you can still invest in whisky without buying and selling bottles or casks.
Using a respected shares investment platform, you could buy shares in some of the most famous whisky brands around the world, such as:
- Diageo: the company has key brands in blended and single-malt whisky, such as Talisker, Buchanan's, Johnnie Walker, Singleton, White Horse, Cardhu, and more. Diageo has shown consistent revenue growth, increased stock price, and a 220% dividend per share increment over the last twenty years.
You can invest in many other famous whisky companies in their stocks. It's essential to remember that stock prices can be affected by product performance, so even if you're not directly dealing with whisky, the risks associated with it are still present.
If you're not so interested in stocks or want to expand your portfolio even further, you can choose to invest in whisky funds, such as:
- Single Malt Fund: the world's first regulated publicly traded whisky fund. The fund invests in rare and limited whisky. The Single Malt Whisky shop was created as an e-commerce platform exclusively offering rare whisky.
How to choose the right whisky investment
When looking for whisky investments, you need to be strategic. Buying anything and everything you find may sound exciting, especially if you're new to the market, but knowing what to look out for could save you money and make you money in the long run.
Consider the following factors when looking for whisky investment:
- Rarity: the rarer the whisky you find, the higher the chance its value will likely increase with time. To find rare whisky, look for limited runs from renowned brands, whisky bottled from closed distilleries, or whisky with unique characteristics.
- Age: older bottles and casks usually sell better than younger whiskies, that's not to say there isn't potential for the younger whisky to grow in value as it matures.
- Condition: bottles kept in their original packaging and well-preserved are more valuable
- Brand recognition: higher-regarded and well-known distilleries can be safe investment options, primarily if they're known for making exceptional whisky.
- Investment potential: there are no guarantees when investing in whisky. Like any investment, it's important to look at historical data and see how it has performed.
Understanding the costs of whisky investments
Whisky expenses will vary depending on which whisky you buy and whether it is in bottles or casks. You're not just paying for the whisky or bottle; there are other costs involved, too, such as:
- Warehousing costs: if you store your cask investments with a distillery or broker, you will incur warehousing costs per cask per year
- Management fees: there may be management fees or dealing commissions when buying and selling investments.
- Insurance costs: you'll need to insure your investments should anything happen to them, especially if they're in third-party storage
- Performance-related fee: should you buy whisky casks and have them stored at the distillery or broker, it may be in your contract that they receive a percentage of the funds if you sell your whisky.
- Duty, VAT, and Tax implications: if you invest in whisky casks, they are exempt from duty and VAT. Once the contents are transferred to a bottle, you must pay duty and VAT. UK Capital Gains Tax isn't applicable to cask whisky as it's seen as a wasting chattel due to angel's share. If you're investing in bottles, you must pay duty, VAT, and Capital Gains Tax.
Six factors to consider before investing in whisky
You will need a strategy before starting your whisky investment journey and expanding your portfolio. It's never a good idea to jump into a new investment without clearly outlining important details.
Consider the following factors before you invest in whisky:
- Your budget: failure isn't guaranteed, but knowing you could lose it should be in your mind. Only invest money you're prepared to lose.
- Long-term investment: if you're looking for a short-term approach to earn profits, there are better ways to go than whisky investing
- Become familiar with significant brand names: learning who the major players are in the whisky market will help you when looking for investments
- Research, research and more research: knowing as much as possible about the product and all that comes with whisky investments will undoubtedly help you along the way
- Find trustworthy sellers: if something seems too good to be true, it may be. Do your research on sellers to ensure they're the real deal before you hand them your money.
- Whisky storage: whoever stores your whiskey should ensure they hold a Warehouse Keepers and Owners of Warehoused Goods Regulations licence. A certificate ensures the business is regulated and appropriate and that your investment is stored appropriately.
Final thoughts
As an investor, investing in multiple asset classes is prudent in case one area of your portfolio fails.
Investing in whisky is a great way to expand or begin your investment portfolio. The market has had an incredible impact on the UK economy and continues to help Scotland's food and drinks industry. Many whisky investors go on to create a hobby out of it, and although this isn't the main appeal of investing in liquid gold, it is an added perk.
However, there are risks to be aware of and you should never investment anything you can't afford to lose. We recommend seeking a financial advisor before making any investment decisions. This article is a general overview of whisky investment, and we recommend further research to help you on your journey.
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