Is a Whisky Investment Better Than Wine?

Whisky investment has come to the fore in recent times. When the drinks industry gets excited about a 50 year old whisky being priced at $35,000, it is time to take notice. Although investing in wine has been around for decades, the interest in whisky investment has increased dramatically in the past 10 years. As a result, it is still possible for beginners to strike it rich before investing in whisky becomes as popular, and competitive as wine investment. 

Takeaways

• Is whisky a good investment?

• What whisky investment solutions are there for you

• The risks of investing in whisky

Why has whisky investment come to the fore?

It is impossible to say exactly why, but 2015 does seem to be the start. Both auction houses and insurance brokers started to see a spike in investors wanting to buy and insure their whisky collections. Chinese investors are also  seemingly very keen on whisky.

These give whisky to their business partners. Indeed drinks maker Diageo has spoken about the premiumisation of its drinks offering in emerging markets. The growing middle class likes luxury items, such as premium whisky. If whisky investing were to benefit as much as luxury retail from Chinese interest, then we may only be at the beginning of its price appreciation.

It is also possible that the increase interest in investing in alternative assets in the West, has created an increased interest and demand in Whisky. Alternative and eclectic assets such as coin collecting and stamp collecting are now seen as bon-fided investments, alongside traditional areas such as art investing.

Is whisky a good investment?

chart attributable to www.rarewhisky101.com

There are claims that whisky can return 10% a year net of fees. Rare Whisky 101 has even created an index of the 100 most valuable whiskies. The performance of this index can be seen in the picture and the growth in value is impressive. The growth would suggest that whisky is a good investment. It should be noted though this is against a backdrop of quantative easing. All asset prices the world over have benefited from extraordinary growth. As a result, the long-term return of whisky should be also be measured against a period of instability. If whisky is able to grow in value during a recession then it would be a worthwhile investment.

How do I start investing in Whisky?

Read around the subject and decide what is most appropriate for you. Different investors will have different aims with differing amounts of capital.

Invest in valuable whisky

What is referred to as "investment grade" whisky has appeared regularly at auction in recent years. Investment grade whisky is one which is expected to rise in value over time. This value is also derived from the rarity and the quality of the whisky (Much like wine). Other influences in the price of the bottle is the wood used in the cask it was held in during the maturing process, and whether the bottles are from an extinct or "silent" distillery. This is a distillery which has closed increasing the value of its whisky substantially.

Due to many investors focusing on this strand of the market, it can be hard to source such whiskies. As a result some serious networking at industry events will be required to get hold of such whisky.

Investing in the whisky maturation process

Another option for investors is to buy a large amount of whisky to sell on. This 'wholesale' approach requires substantial financial investment, more than buying individual bottles. This kind of investment will require some knowledge of the industry, as you will need to know who will be willing to buy such a large quantity of whisky.

Typically, due to the increased cost and insurance of storing a large amount of whisky, many investors choose to hold their whisky in a "bonded warehouse". This type of warehouse is where whisky can be stored without paying any tax or duties on it. Only when the whisky leaves the warehouse (after you have sold it on) do you pay any tax. Due to the administrative demands of monitoring whisky holdings like these, bonded warehouse are often secure locations.

Buy your own distillery!

This would be too costly for most and would require a long-term commitment. Yet this is not impossible. There are listed companies such as Diageo and Pernod Ricard who derive some of their profits from whisky sales. You should be aware that these firms also have exposure to other drinks too. As a result, your investment will not only be focused on whisky. For those who are not so knowledgeable about investing their own money directly, you could also buy a fund.

Is it safe to invest in whisky?

As with any investment there are risks investing in whisky, not least the higher cost of insurance. Apart from the premium you will have to pay to insure your whisky collection, you will face another problem. You may find the insurance company undervalues your whisky, as they will claim it is difficult to verify its value.

You will need a dark, cool and temperature-stable room. If you do not, then you will need to be able to pay to store your whisky. Remember it takes 5-10 years for you to gain a return. In the meantime there will be costs to bear.

There is also always the risk that whisky goes out of fashion and prices drop substantially. With demand being so strong in China, a country not necessarily known for it economic stability, any systematic risk could derail demand.

Conclusion

Investing in whisky also requires understanding how you will profit. Anyone starting will probably focus on buying valuable single bottles. As a result, an understanding of the secondary auction market will be important, as it has become the main route to sell whisky.

For investors with deeper pockets or who do not want to necessarily educate themselves to the ins and outs of whisky, buying shares of whisky selling companies would be a good idea. Do not forget, that as with any investment, if you do not put the work in to understand what you are buying, you will not reap any reward!