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The Ultimate Guide to Investing in Whisky
Disclosure: Our content does not constitute financial advice. Speak to your financial advisor. We may earn money from companies reviewed. Learn more
Last Updated on: 2nd September 2021, 06:06 pm
Believe it or not, investing in whisky is a good idea. Over the long term, the savviest of investors can easily exceed an annual return rate of 10%. In fact, there is one investment fund in Europe that recently exceeded 21% returns over the last few years. In some parts of the world (namely Scotland), whisky is called by its other name, liquid gold. Not to be confused with the gold bullion or digital gold we normally talk about here at Gold IRA Guide. The challenge with investing in it is, the world of whisky comes with its own language. Even people who have been investing in it for a long time may struggle understanding of some of the concepts, processes and points of difference that give a bottle of whisky its value.
While the age of a particular bottle of whisky is a major factor in determining the value, it’s far from the only one. Also, contrary to popular belief among people that are not connoisseurs of whisky, a bottle doesn’t age once it’s in the bottle. Aging only counts when it’s in the barrel (aka cask). The way the whisky is aged, the flavour profile and of course the supply of whisky available are all factors that contribute to the long-term price.
There is a lot to learn and a lot at stake when investing in this particular commodity. This ultimate guide will give you everything you need to know. Just be aware that becoming a true connoisseur of this time-tested unique blend of alcohol takes true dedication and decades of real passion for the product, both as a consumer and investor.
Investing in Whisky: The Basics
There are three basic principles to investing in whisky that you must know about. We’ve already touched on them above a little bit. They include:
- The age of the whisky.
- The way the whisky is processed.
- The supply available.
Let’s go over each of the three basics.
Aged Whisky Equals Profit
A 50-year-old bottle of Glenlevit whisky can sell for as much as $25,000. That’s a lot of money and if you invested in a barrel of whisky that produces a few hundred bottles, you could be filthy rich. But of course it will take you 50 years to get there, and that $25,000 isn’t necessarily all profit. Keep in mind that in most parts of the world as much as 40% of the price of a bottle of alcohol is just money being paid out to the government in the form of taxes and duties. That’s partly why so many Canadians stop at duty free store on the way back from the United States. Tax-free alcohol. Nevertheless, we’ll get more into the expenses later. Also keep in mind that selling a bottle of whisky for $25,000 is probably the best case scenario. Most-well aged bottles of whisky that connoisseurs would buy cost a few hundred dollars.
The Way Whisky Is Made
There are so many factors that affect how a good glass of whisky tastes, and thus, what investors and connoisseurs are willing to pay for it. Most connoisseurs want to drink whisky that is made in a clean cask/barrel. Many brands of whisky are made in casks that have already been used. Sometimes these casks are cleaned with a special kind of alcohol that can also affect the taste people experience when they’re drinking it.
What’s also important to consider is that sometimes whiskies are diluted with water. This can actually add to the taste and bring out the aromas, so it’s not necessarily a bad thing. But somebody who knows a lot about whisky, whether they like to drink it or invest in it, will want to know about these things.
Another thing that needs to be considered is that large alcohol brands can afford to produce whisky on a mass scale, so they get the benefit of economies of scale. Investors who want to put money into the actual product itself and be a part of the whole whisky making process will likely have to invest with smaller producers. These smaller producers will charge higher fees because they can’t afford to charge less. Investors looking to get really hands-on than will be paying a premium for the experience.
The good news is there is another way to invest in whisky that’s a little bit more practical. Investing in mutual funds that invest in whisky. More on that in a moment.
The Whisky Supply
One of the advantages of the fact that whisky need such a long time to age and thus be valuable in both the investing market and the consumer goods market is that it takes a long time to build up the supply of whisky. That means over the long run, the value of it should go up.
There is a caveat to all of that however. Most people buy whisky to drink it, not to store it as an investment. While alcohol brands certainly make money charging a premium rate for their best bottles, they are producing it according to what the market demands. This means that a long-term investment in whisky can certainly yield while above the 10% clip that the traditional stock market offers year-over-year, but there is risk involved.
Investing in smaller mutual funds that represent smaller whisky brands means that investors don’t necessarily know which brands are going to be popular in 10 or 20 years. Or even 50 years. So if an investor is investing in a particular company hoping they will be selling $25,000 bottles 20 years from now, it will be impossible to predict that even with the best educated guess.
While the turnover rate for a good bottle of whisky can be multiple decades which is a good thing, the downside is the prices can sometimes be volatile. All it takes is one big liquor company to come out with a new brand that’s popular and they decide to produce more and more which drops the price overall.
Still, like many other forms of investing, the long term outside of investing in whisky is fairly good.
Top Whisky Investment Funds
Recent years are seeing several top investment funds launch that specifically revolve around investing in whisky. It really is becoming a popular niche investment. Here are some of the most notable investment firms and the space and a bit about their approach to investing in whisky.
Sentant Management AB
Sentant is an asset management company based in Sweden. They launched the first publicly traded whisky investment fund in 2018. Their Single Malt Fund AB was specifically created to invest in rare brands of whisky. They raised over €25 million. Over the last 10 years the returns of their funds range from anywhere between 6-10% per year. This fund is not the first one in the whisky game, but it is the first publicly traded fund to invest in physical bottles of whisky and not at the earlier stages of the production process. This means investors get the advantage of being involved with a finished product that is going to sell. The emphasis is more on collecting interesting bottles as part of the portfolio rather than investing in the beginning of the process where things are a bit more uncertain. Of course as with any investment, there are risks involved in investing in whisky no matter what stage of the game the production processes is at.
The Platinum Whisky Investment Fund
The Platinum Whisky Investment Fund is based out of Hong Kong China. The fund started with just 50 investors pulling together $12 million in 2014. Today, the fund owns more than 9000 bottles of rare whisky. In the first four years of its existence, The Platinum Whisky Investment fund shows a track record of yielding an average of 17% annual returns. The average return on the stock market is about 10% year to year. An extra 7% makes a huge difference over years or decades. That can be worth millions even to an individual just focus on their long-term retirement goals.
What to Look for in a Whisky Investing Opportunity
Investors ready to take the plunge and start pouring money into whisky need to look for six different things when choosing an investment company to work with.
Make Sure They Store Whisky Safely
If the investing company changes only the ownership of the whisky when it is bought or sold and does not actually physically have to transfer it, the investor’s investing costs and the commissions they pay out are going to be lower.
Make Sure They Provide Liquidity
Investors need liquidity so that they can buy and sell as much whisky as they want. Since whisky is a niche investment, finding liquidity has to be part of the vetting process.
No Minimum Holding Period
Some investing companies make investors hold onto their shares/bottles for a certain time period. Try to find companies that don’t do that. It gives the investor more flexibility.
Get Competitive Pricing
Understanding all of the fees and buying into a particular investment opportunity is a basic step anyone can take. Finding out whether or not the investing company or whisky company is getting wholesale prices on investing opportunities ensures that the retail investor gets the best deal possible.
Access 24/7 Trading
Both traditional currencies, cryptocurrencies and many commodities trade on the open market 24 hours a day, seven days a week. The more trading time investors are allotted, the more they have access to liquidity and to buy and sell orders.
Some companies offer investors the opportunity to get into and out of the whisky market within 24 hours. Being able to enter or withdraw from the market in a short amount of time is certainly advantageous. The more flexibility there is available, the better it is for the investor.
Find Good Whisky Investments Today
RareWhisky101.com teaches investors about the basics of investing in whisky. The site ranks distilleries and different indexes related to the beverage and offers detailed evaluations of investment opportunities to those that are really interested. Each year, the site produces two different reports. One every six months. They detail everything currently going on in whisky investing.
While it does take many years to produce the world’s finest bottles of whisky, it’s not nearly as difficult or time-consuming to get involved as an investor. That’s true whether you want to invest during the brewing stage, the aging stage or through buying shares of the fund. Just like the world’s finest distilleries, played a long-term game when it comes to investing in whisky.
Feature photo by Joost Crop on Unsplash.