Whisky As An Investment: All You Need To Know

Luxuries such as artwork, classic cars and fine wine have long been seen as having money-making potential, and are collectively referred to as ‘alternative investments’.

Now, thanks to some stellar returns, the so-called water of life – whisky – has joined wine as an alcoholic asset catching the eyes of investors.

Last December, for example, a four-decanter lot of Glenfiddich single malt from the 1950s went under the hammer for £830,000 at The Distillers One of One charity event, setting a record for Glenfiddich sold at auction.

More recently, a collector from Asia paid an eye-watering £16 million for a ‘one of a kind’ 1975 cask of Ardbeg single malt Scotch – a world record figure and way in excess of any amount recorded for whisky at auction.

Given these examples, it might be tempting to think there’s a place for whisky within an investment portfolio. After all, we live in uncertain times where traditional assets, such as shares, are enduring a rough patch.

Take the US stock market which, having fallen by 20% since the start of 2022, is now in classic ‘bear market’ territory.

The global economic backdrop does not exactly make for bright reading, either, characterised as it is by soaring inflation and rising interest rates. In the UK, the prospect of recession seemingly  increases by the day.

Tangible assets

Given these circumstances, it’s understandable for investors to gravitate to tangible assets in the hope that they offer less risk of being affected by market fluctuations.

Take gold. For centuries, the precious metal has been accepted as a ‘safe haven’ asset to which investors have turned during times of tumult and volatility. But what about the prospects for alcoholic liquid gold? Does whisky have a place within an investment portfolio?

Whisky Investment Partners (WIP) believes it has. WIP says Scotch whisky has an export value of £4.9 billion a year and represents 70% of all Scottish food and drink exports. It adds that Scottish cask whisky ownership has consistently delivered average returns of between 8% and 12% a year “in recent decades”.

According to the Scotch Whisky Association (SWA), 44 bottles of Scotch whisky are shipped from Scotland to around 180 markets around the world every second – about 1.3 billion bottles a year.

The figures may make attractive reading but, as with any investment class, in isolation they provide no sure-fire guarantee for would-be investors.

Much of the recent rise in whisky trading has been boosted by overseas buyers, especially buying groups based in China, Japan and India who are interested in single-malts.

To be called Scotch whisky, the spirit must mature in oak casks in Scotland for at least three years. An estimated 22 million casks lie maturing in warehouses in Scotland.

Whisky is a specialist area which should only ever account for a fraction of one’s investments. Ideally, anyone considering an investment in whisky should already be in possession of a balanced portfolio, ideally diversified across a mix of assets such as cash, bonds and shares.

Would-be investors should also bear in mind the same rules that apply to all new investments before dipping their toes into an untried asset class for the first time:

• Keep your ultimate financial goals in mind
• Be prepared to ride out market ups and downs.

Potential investors should also ask themselves these questions:

• Do I understand how I’ll potentially make money from investing in whisky?
• Am I comfortable with the level of risk in question?
• What’s my investing budget?
• Can I afford to lose all my invested money?
• Am I protected financially should things go wrong?

There are two main routes into whisky investment.

Buy whisky by the bottle

One can simply buy bottles of whisky with the hope of selling them on at a higher price. The key, of course, is to buy the right bottles – usually from iconic distilleries in limited releases.

Within this area of interest, single-malt Scotch makes up the majority of the market (investors tend to shun blends of malt and grain whiskies). That’s because, while countries such as Ireland and Japan produce a fair deal of whiskey (Scotch is not spelled with the ‘e’), investment interest in these drinks is more limited. 

Rare Whisky 101 publishes data and intelligence aimed at whisky collectors and investors. Updated monthly, its Rare Whisky Icon 100 index charts the value performance of iconic collectables and is designed to track the marker for highly desirable, regularly traded bottles of single malt Scotch whisky.

As Rare Whisky 101 points out, not all names within the index increase in value. But since the beginning of 2013, when the index was launched, the Icon 100 has returned just over 400% till the end of June 2022.

Numerous Scottish distilleries produce whisky, but certain names see their product increase in value at greater rates than others.

The table below shows Rare Whisky 101’s so-called collectors ranking – a league table based on an equal weighting for volume and value sold at auction in the UK.

Table 1: Collectors ranking 30 June 2021

As well as buying into producers with a successful track record, whisky investors tend to favour certain flavours – and this can affect the price that a bottle ultimately fetches. For example, whiskies aged in sherry barrels tend to sell well. So, too, do darker varieties over comparatively lighter ones.

Would-be buyers need to keep an eye out for auctions and private sales. They should also scour distilleries direct for news of upcoming releases of rare bottles.

Buy whisky by the cask

An alternative way of investing in whisky is by buying it by the cask.

The whisky distilling process is both labour and capital intensive. Bearing in mind the minimum three-year maturation rule that applies to Scotch, distilleries cover costs and raise capital by allowing private investors to buy whisky in casks in their store rooms.

The idea is that investors buy a cask with the aim of watching the spirit inside appreciate in value over time. The older a whisky gets, runs the thinking, the more expensive it becomes – thanks to the taste improving with age, and also because of the increasing rarity factor.

Cask whisky investing can be done while the spirit is still in an early stage of the maturation process, and be carried out directly via a distillery, or through a specialist broker or investment club.

A broker typically strikes a deal with a distillery for a limited run of casks at a discounted price. The broker then sells casks, which are then stored in a secure bonded warehouse and insured, to investors.

Take, for example, Whiskey & Wealth Club (W&WC), which claims to bridge the gap between distilleries and investors.

WW&C says it buys premium new-make spirit at discounted wholesale rates from the best distilleries and brands. Once the spirit is sufficiently matured in cask, an investor can decide to sell back his or her holding to the distillery for profit, to bottle it privately, retain it as a whisky collectable, or sell on the consignment.

When buying whisky as a cask investment, check that the broker in question has the required tax licence relating to the country in which the casks are being stored.

HMRC in Scotland and the Irish Revenue Commissioners in Ireland keep a record of who owns and stores each cash in those respective countries to ensure tax is paid when it is time to bottle and sell on the spirit.

Is it worth buying into whisky as an investment?

Investing in whisky should certainly be chalked up at the risky end of the investment spectrum. Ironically, it can be ‘illiquid’ as well: make the wrong purchase and you could end up struggling to find a buyer.

There’s also the scope for being caught up in scams, such as when inferior whiskies are passed off as high-end varieties. It’s also a physical asset, as well, of course: bottles are at risk of being both broken and drunk.

But at least if your prized asset is unable to provide you with unimaginable riches, the option remains of consoling yourself with a stiff drink.