Why invest in whiskey?
As investors look to hedge their portfolios against inflation risk and market volatility, alternative assets, such as whiskey have been getting mainstream attention. In fact, rare whiskey alone has seen its value rise by 586% over the past ten years, according to the Knight Frank Luxury Investment Index.
It’s doing well on the consumer side as well: U.S. whiskey sales have steadily increased each year, with more than 78 million nine-liter cases sold in 2021. As investors and consumers pay more attention to the quality of high-end whiskeys, these numbers could likely increase. Global Market Insights estimates the market will reach $123 billion by 2032.
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4 ways to invest in whiskey
Whether you already have a small collection of spirit bottles and are looking to expand into other high-end liquors, or you are just curious about adding this alternative asset class to your portfolio, there are plenty of investment opportunities to research. However, there are four main ways to invest in whiskey and other spirits.
1. Invest in whiskey casks (barrels)
Buying a cask is a popular way people invest in whiskey. Whiskey often takes years to develop in its cask, and it can be anywhere from five to 15 years before it’s bottled.
Cask investing is often considered a more stable investment. Prices are likely to go up when the barrel is bottled and investors could get a return of 5%-25%.
However, like any investment, there is some risk and profits are not guaranteed. Plus, it can require a high up-front cost. And there are whiskey cask scams to watch out for. Fraudsters may try to sell barrels that don’t even exist, so do your research on the distiller and seller first.
2. Invest in whiskey bottles
Another way to invest in whiskey and other spirits is to buy a few high-end bottles and store them. For example, let's say that you want to invest in Irish Whiskey. Well, you could purchase younger Irish Whiskey bottles at stores, online, or at auction houses, in the hopes that they increase in value in 10 to 20 years.
Some whiskey aficionados seek out bottles meant to be collected, not drunk. These bottles tend to be at least 50 years or older and are highly sought after. If you decide to go this route, you’ll need to research the distilleries, the type of wood used in the cask, the batches, and the predicted value of the bottles. You’ll also have to worry about proper storage, and you'll have to insure your bottles against any potential damage.
3. Invest in whiskey stocks and ETFs
If you don’t want to buy individual bottles and deal with storage and insurance costs, you can invest directly in distilleries and liquor companies like Boston Beer Company (SAM) and Brown Forman Corporation. This way, you can easily buy and sell shares through your broker and keep track of them like any other stock market investment.
There's even an ETF that focuses purely on spirit companies, the Spirited Funds/ETFMG Whiskey and Spirits ETF (WSKY). The fund has shares of companies like Pernod Ricard (which owns Glenlivet) and Brown-Forman (the owner of Jack Daniels).
4. Invest through a platform
One of the easiest ways to invest in whiskey is through an investing platform. These companies source and buy bottles and take care of storage. Many of them also let you buy fractional shares and liquidate your assets if you decide fine spirit investing isn’t for you.
CaskX is an investment fund that specializes in whiskey casks. As previously mentioned, casks are cheaper to purchase and can be more profitable than individual bottles. CaskX allows accredited investors to invest in young Scotch and Bourbon barrels. The platform takes care of the insurance, storage, and even selling, so investors don’t need to lift a finger.
Rally Rd. is an alternative investment app that allows you to search for and buy shares of high-quality items worldwide, including whiskey. The company securitizes the product and sells fractional shares of alternative assets. It’s a way for investors to start investing in whiskey without forking up a lot of money.
Whiskeyvest is a new whiskey investing platform from Vinovest, one of the leading alternative investment platforms for fine wine. Whiskeyvest authenticates, stores, and insures your casks of whiskey, making it a completely passive investment. You have to reserve a cask currently since it's a new platform, and the entry-level American cask costs $1,200.
Things to keep in mind when investing in whiskey or other alcohols
Usually, the older a bottle of whiskey is, the more it’s worth. Whiskey from shuttered distillers or limited-edition or single-cask bottles can also be worth more.
There are a variety of liquors to invest in, so if you’re new to investing in liquid commodities like alcohol, stick to one, such as whiskey, to start. Some more popular high-end investment-grade brands include Glenlivet, Macallan, and Yamazaki. Don’t just look at Scottish and Irish whiskeys either: American and Japanese whiskeys can also fetch high prices.
Remember that investing in bottles and casks of liquor is generally a long-term investment and not very liquid (meaning you can’t quickly sell it). If you’re buying bottles instead of investing in stocks or buying through a platform, you’ll also need to find appropriate storage to ensure your investment is protected.
Insurance is another thing to keep in mind when investing in whiskey and other spirits. You want to make sure that your investment retains value. For that reason, many investors will take out insurance policies to protect their bottles against things like breakage, water damage, or loss.
Whiskey investment historical returns
If you start poking around whiskey investing platforms, you may find that many of them will glibly state that whiskey has averaged an annual return of 8% to 10%. That sounds pretty great, right?
But we need to slow down. What many of these whiskey exchanges fail to explain is that you typically need to hold your whiskey casks for a long period of time (like say 15+ years) to hit that average rate of return. This article from Mark Littler does a great job of breaking down the math to explain why.
Now there are certainly examples of rare whiskey bottles that have doubled or more in value in just a few years' time. However, it's important to understand that these types of returns are outliers, not the rule.
The longer that you plan to hold your whiskey investment, the more that we tend to think that you could expect to earn an annual return in the 10% range. However, over shorter time periods, your performance could vary widely depending on the cask company that you choose.
As with any investment, it's important to do your due diligence and carefully research the historical performance of any whiskey company that you're considering investing in.
Pros and cons of investing in alcohol
- There's potential for strong returns
- It's an easy way to diversify your investments
- Alcohol sales are recession resilient
- It’s typically a long-term, illiquid investment
- You may need to pay extra for storage and insurance
- It can have an expensive upfront cost
Is whiskey a good investment?
Whiskey has a distinct advantage over other alternative assets such as wine due to its long shelf-life. Someone looking to profit by flipping bottles quickly is likely to find themselves disappointed. However, whiskey prices tend to rise steadily over the long term.
However, just because prices have increased in the past does not mean they will continue to do so. Be cautious about putting all your funds in one fund or investment, and do your research before investing.
More: How to diversify your investment portfolio
The bottom line
- Whiskey and other spirits are hot commodities that can be added to a portfolio for asset diversification.
- The market is expected to expand rapidly and reach $85 billion by 2027.
- Liquors are a long-term commitment; many whiskeys take five to 15 years to mature.
- Investors should be wary of cask scams and properly research distilleries, batches, and projected worth before investing.
Investing in whiskey and other spirits is one increasingly popular way for investors to diversify their portfolios.
You can buy casks or bottles and hold onto them for a while in the hope that they increase in value. Or you can purchase liquor company stocks or ETFs. And for investors who want to invest but don’t want the hassle of buying and storing bottles, there are whiskey and spirits platforms that do all of the work for you.
Regardless of which route you choose, remember that all liquor investments are risky. While they can be a great way to diversify, make sure only to keep a small portion of your overall portfolio in alternative assets life whiskey and other spirits.
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