Is Whisky A Good Investment? Returns, Risk, And Performance

Last Updated on January 24, 2023

Are whisky bottles and casks a good investment? Is it worth buying a cask of whisky? Is it worth buying bottles of whisky? Alcohol has for thousands of years been a vital part of human culture (whether you like it or not). Whisky though, a result of distillation, was discovered by monks as late as 1100-1300.

In this article, we look at whisky as an investment: Is whisky a good investment? Is it worth buying a cask or bottle of whisky? Could the formulation cash is king be formulated to cask is king? We look at whisky as an investment – how smaller investors like ourselves can invest in the maturing process via whisky in casks, not already tapped bottles, and what to expect in the form of returns and potential risks.

Our conclusion: We prefer to invest in whisky via Diageo – the UK premium whisky distiller.

The article is mainly written to get a better understanding of whisky as an investment. We currently have no investment in whisky, except being shareholders in Diageo (ticker code: DGE.L or DEO).

(Throughout the article, we refer to WhiskyInvestDirect, a service offered by the owners of Bullionvault. We have no affiliation with them whatsoever).

Cask is king?

Whisky as an investment has attracted interest over the last decade, presumably because it has proven to be a good investment since the GFC in 2008/09. Media reports on record sales for bottled whisky, but there is another way you can invest in it: by crowdsourcing casks of whisky as it matures.

This is of course completely different than bottled whisky which is already matured, taxed, and ready for drinking.

Why can you make money investing in whisky casks?

By looking at the process of making whisky, which takes years, it makes sense why you can get a decent return by investing in maturing casks of whisky: it requires a lot of working capital for the distillers, and it takes about ten years to reap the rewards. At the same time, no income is received while waiting. Over the long term, you should be compensated for taking this risk as long as there are people drinking whisky (and as of now, whisky is gaining popularity).

To get a better understanding of whisky as an investment, we looked at the products offered by WhiskyInvestDirect, which offers crowdsourcing of casks at the same terms as the distillers themselves. The company is a subsidiary of Bullionvault, where we’re registered users and owners of some small amounts of gold.

(Just to be clear, we have no connection to WhiskyInvestDirect at all, we’re not even a registered user and we get no referrals from either them or BullionVault.)

Crowdsourcing casks of whisky works like this:

  1. Deposit money into your account.
  2. Do some research, and chose which whisky to invest in.
  3. Buy some barrels/casks/liters of whisky.
  4. Wait, while the whisky matures in the cask(s).
  5. Sell your whisky whenever you want 24/7.
  6. Hopefully, profit as time goes by.

(We write whisky in this article, not whiskey. We’re not native English speakers, but our understanding is that whiskey is the Irish and US spelling, while whisky is the Scottish and UK spelling. Please correct us if we’re wrong.)

How do you find the price of whisky?

Unfortunately, the whisky market is much more fragmented than other regulated markets like stocks, derivatives, options, etc. You’ll not find a single benchmark for the wholesale price of whisky. Because of this, it’s hard to know the price and performance of whiskey as an asset class.

Furthermore, there are different types of whisky (Scotch, for example) and different maturities. It’s easy to get sidetracked and lose the big picture.

How to invest in whisky: bottles or casks?

Up until a few years back, the opportunity to invest in whisky was solely to buy casks or simply buy tapped bottles. Buying casks is not for retail traders. You just don’t go to a distiller, buy one or more casks, put casks in your car, and drive home. How are you going to sell it? If you want to drink it yourself, that is, of course, a different matter.

Perhaps needless to say, buying casks is very impractical unless you are a big dealer. Likewise, buying bottles is kind of another game than the first one because it’s two different products: one processing, the other finished (and already taxed).

Buying tapped bottles is a bit like investing in wine: wait for the whisky to mature some more, and sell it. Especially high-end whiskies are likely to be more valuable as time passes.

How do you invest in casks?

In 2015 the founders of Bullionvault copied their business model from gold to whisky: WhiskyInvestDirect saw the day of light and offers crowdsourcing into whisky casks.

The idea is to make the market bigger by opening possibilities for smaller retail investors. Now you can invest in casks alongside distillers and wholesalers on the same terms using the same storage facilities and warehouses. It’s worth mentioning that they only offer Scotch whisky.

Whisky bottles vs. casks

Below are the main differences between investing in bottles or casks outlined:

  • Bottles are more available than casks
  • Bottles are easier accessible than casks (you can do it yourself with bottles)
  • You can store bottles at home, but not so with casks
  • Bottles require less investment outlays than cask
  • Casks are normally insured, and bottles are not
  • If all goes to hell, you can drown your sorrows easily with a bottle of whisky, not with a cask (after all, whisky is for drinking!)

Why invest in whisky?

Whisky has a solid history of long-term appreciation. Maturing and aging whisky is a long-term process and requires substantial cash up-front. Any profits are many years down the road as the whisky matures in casks.

While it takes just a few days to produce spirits, Scotch takes, on average, 10 years to mature. Maturation works when alcohol is put inside the cask and interacts with the wood. This interaction is critical in getting the desired flavor and color of the whisky, thus making any whisky investment very fragmented. Of all the factors which influence the flavor of the whisky, the cask in which it matures is probably the most important.

Warm weather during summer and cooler weather in the winter make the cask expand and contract, thus giving additional flavor.

Furthermore, the location of the casks is also critical, with, for example, whisky from the west of Scotland having a different flavor due to the oceanic salty environment.

Organizing and financing maturation to meet the future demand for mature whiskies is no easy task:

  • Will their brand be in demand many years down the road? A lot can happen during maturation. The distiller usually markets its brand while it’s maturing.
  • The distiller doesn’t know many years in advance how many casks they will sell.
  • The distiller can both under- and overproduce. Both are not desirable, but overproducing is the worst. This increases risk and might, in the worst case, lead to insolvency.

It’s, of course, tough to make sales forecasts for many years into the future. Hence, the risk of over-producing outweighs the potential profit of producing more, and in aggregate, the industry prefers to underproduce, according to sources on the web.

This is where individual investors like you and us come in. Just like insurance, the “outside” investors offer a solution by taking some of the risks while the whisky is maturing.

Investors, put together via an online platform, simply buy some of the alcohol and store it in casks on the same terms as the wholesalers and distillers themselves (the whisky is stored in warehouses used by the Scotch whisky industry).

This way, distillers can cover some of their working capital. When it matures, or even before, you can sell online to other investors, hopefully for a profit. The buyers might be other investors but also distillers (who need more to sell).

Another benefit is that you are likely to be protected from systematic risk in the financial system. You own the whisky outright, and it’s your property.

How can you be sure you own the whisky outright? Once a month WhiskyInvestDirect publishes on the internet the complete register of all its whisky owners (audited) – with each owner listed under a public nickname known only to themselves. WhiskyInvestDirect is your custodian and is responsible for administration and record-keeping.

Whisky as diversification of your portfolio

Investing in whisky can potentially be a great way to diversify your portfolio and potentially make a profit. Whisky is an alternative asset class that has been growing in popularity recently. It can provide investors with a unique opportunity to invest in something tangible and potentially lucrative.

Whisky investments can provide returns from appreciation in value, dividends from shared ownership of barrels and casks, and profits from buying and selling bottles of rare or collectible whisky.

There are a few different strategies for investing in whisky, such as buying bottles for the long term, investing in whisky funds, or trading whisky futures. It is important to note that whisky investing carries a high degree of risk and is unsuitable for all investors. Therefore, you should research the risks associated with whisky investments (and consult a financial advisor before making any decisions).

Whisky is a hedge against inflation

Additionally, whisky should provide a good hedge against inflation. It’s a typical consumer product, and costs can be passed on to the consumer as it matures.

The whisky market is fragmented

Just as the stock market consists of many different companies, the whisky market is much the same with different blends, distillers, and brands. Some trade at a “premium” and others at a “discount”.

What the future return will be is, of course, unknown, and just as with the stock market, it’s hard to pick the winners. You need to diversify among the whiskies offered, or else risk taking on unsystematic risk.

Whisky is no commodity with a common price or market. Due to ingredients, location, and casks, the taste and flavor vary. Currently, at WhiskyInvestDirect you can choose among 31 different whiskies!

We, as someone with practically no knowledge of whisky, we’re at a loss of what to invest in. If we invested, we guess we would choose a basket and diversify into all whiskies.

If you invest in stocks or real estate, it’s relatively easy to find relevant information. Prices and valuation are for both asset classes transparent. For whisky, you need to spend more time finding relevant information due to the fragmentation.

The same goes for liquidity. If you are wealthy, investing in a diversified group of stocks or real estate is easy. For whisky, it’s not. The market is much smaller.

Stocks and real estate give you “income” along the way in the form of dividends and rent. If you invest in whisky, you can only invest capital if you are happy with receiving nothing for many years. It’s solely based on capital gains. (We assume taxation of profits is somewhat different from country to country.)

What can you expect in return when investing in whisky or casks of whisky?

WhiskyInvestDirect set up three real accounts in 2015 and provides a summary of the performance from inception until July 2020 on their webpages. Their charts indicate that even whisky prices were not immune to the Covid-19 debacle: the price of whiskies witnessed a 10-20% fall in March 2020.

We also see that the CAGR between the three portfolios varies a lot: the best has 10.8%, while the worst has 5.8%. Just like stocks, you need to pick the right whiskies, which is not an easy task.

One of the main reasons to invest in whisky is diversification in an asset that is uncorrelated to stocks and real estate. But the performance during Covid-19 shows that whisky is not immune to shock in the real economy. (Diageo, the UK distiller, warned that earnings would fall substantially as long as Covid-19 limits bars and restaurants.)

WhiskyInvestDirect claims whisky has beaten both the FTSE-100 and the London property market since the GFC in 2008:

Whisky returns and performance

They even make a bolder statement by looking at the stats over the last 40 years since 1979:

That’s why, according to the four decades of trade-broking data, maturing Scotch bought new and sold at 12 years old has never yet lost money after all costs. And as the industry has consolidated over the last 20 years or so, more cautious production means prices have become more stable and seen steadier appreciation.

Whisky inflation

If we look at the bigger picture, what can we expect of the price appreciation of a bottle of whisky?

According to the U.S. Bureau of Labor Statistics, the price of bottled whisky has grown at 1.9% annually since 1952, which is lower than the CPI of 3.5%.

Here are the annual price increases:

Whisky investment price

Notice that during the high inflation years in the 1970s, whisky didn’t manage to increase prices on par with the CPI.

Whisky historical prices and performance

Because of the fragmented market, you must always be careful when looking at historical prices. For example, look at the chart below:

Whisky historical prices and performance

Just one of the many whisky markets is listed (rare whisky). Additionally, the time period is short – only a decade.

The costs of investing in whisky

There are three costs involved: storage, evaporation, and insurance. For WhiskyInvestDirect the cost is currently £0.15 per liter (minimum £3 per month), including insurance. Buying and selling are charged a 1.75% commission, thus, you need to be a truly long-term investor.

The risks of investing in whisky:

The most obvious risks are these:

  • Your choice of maturing whisky might fall in price and demand. After all, this is a consumer product and taste changes. However, the market has consolidated, and this risk is decreasing.
  • It can mature too old. Timing is important. If matured too long, the alcohol proportion can drop below the minimum 40% requirement and become worthless.
  • You have no control over the storage, which is outsourced. It can be damaged, leaked, or even stolen. However, insurance should at least cover what is presumed to be the market price at the moment of the accident.
  • Platform risk (if crowdsourcing). There is a risk of WhiskyInvestDirect’s insolvency.
  • Crowdsourcing fraud: The British p2p lender Lendy went belly up in 2019 due to mismanagement (which is an understatement). There is nothing to guarantee from fraud/mismanagement.
  • Evaporation: whisky evaporates at a rate of 2% annually, sometimes more. You have no control over the quality of the casks. Casks can leak.
  • The whisky market for investors is still young. This might distort market prices, trends, and even business models.
  • WhiskyInvestDirect is about Scotch whisky. More than 90% of Scotch production is sold abroad. If the Scotch brand gets impaired, of which you have no control, this might influence the investment.

We believe the main risk is platform risk if you are into crowdsourcing. We’re no lawyers, but it’s paramount that you read the T&C before you make any investment. You might be covered if WhiskyInvestDirect should go belly-up, but administration costs in case of bankruptcy are astronomical. UK lawyers charge £500 and more per hour, and they are not modest in summarizing time spent.

However, if it all goes down the toilet, you can at least take delivery of the whisky and drown your sorrows, but at a cost (bottling, excise taxes, etc.).

FAQ whisky as an investment

Let’s try to answer some FAQ about whisky as an investment:

Q. How safe are whisky investments?

A. Whisky investment is generally considered to be a safe investment overall. As with any investment, there are risks associated with whisky investment, such as potential fluctuations in the market, storage costs, and the potential for counterfeiting.

However, since whisky is a relatively mature market with a fairly stable demand, it is generally considered a low-risk investment. Additionally, whisky is less likely to be affected by external economic factors such as recession, currency fluctuations, and other market forces.

Q. Which investment companies offer whisky investment?

A. We can list a few crowd-sourcing alternatives: WhiskyInvestDirect, Hackstons, WhiskyPartners, WhiskyWealthClub, and BraburnWhisky. However, this is in no way a recommendation, make sure you do your own due diligence.

Q. What is the best whisky to invest in?

The best whisky to invest in depends on several factors, including what type of whisky you prefer, how much you are willing to invest, and what type of return you expect. You also have to ask yourself why you’re investing in whisky in the first place.

When it comes to whisky, there are many different types and brands to choose from. Single-malt Scotch whisky has been known to increase in value over time, making it an attractive option for investors. Popular brands like Macallan, Highland Park, and Glenfiddich are often sought after and can be expected to increase in value. Additionally, some rare bottlings from lesser-known distilleries can also be a good investment, as they can be hard to come by and can be sold at a premium.

Bourbon is another type of whisky that can be a good investment. Many of the well-known brands, such as Maker’s Mark and Buffalo Trace, have seen their prices and demand increase in recent years. Some rarer bottlings have also been known to appreciate over time.

Japanese whisky is also a popular option for whisky investors. Brands like Suntory and Nikka have seen significant price increases recently, making them attractive options for investors. Additionally, some rare bottles from lesser-known distilleries have also seen appreciation in value.

The best whisky to invest in depends on your individual preferences and investment goals. If you’re looking for a safe bet, single-malt Scotch whisky is a good option, as it has been known to appreciate over time. However, if you’re looking for more aggressive investment, Japanese and bourbon whisky can be a good option, as their prices have significantly increased in recent years.

Q. What is the best whisky cask investment?

A. Whisky cask investment is an excellent way to diversify an investment portfolio, as it offers investors a unique and potentially lucrative return on their investment. Whisky cask investment offers the opportunity to invest in a product that has the potential to appreciate over time, as well as provide a reliable income through the sale of the whisky itself.

Whisky cask investment involves purchasing a cask of whisky, typically from a distillery. The cask is then stored in a bonded warehouse, and the investor can monitor the progress of the whisky’s maturation over time. This maturation process can take up to twenty years, during which the whisky’s flavor, aroma, and color will develop, and its value will increase.

Whisky cask investment provides investors with several key advantages over other investments. Firstly, the whisky cask is a tangible asset that can be easily bought, sold, and transferred without needing a third party. Secondly, whisky casks are a rare and unique asset, meaning that there is a limited number of casks available, thus increasing the potential for long-term appreciation. Finally, whisky cask investments allow investors to benefit from the tax advantages associated with owning a cask of whisky, such as the ability to defer capital gains tax on the sale of the whisky.

When considering whisky cask investment, it is important to remember that this type of investment requires patience and a long-term view. The whisky’s maturation process can take up to twenty years, and the value of the whisky will depend on several factors, such as the rarity of the whisky, the age of the whisky, and the cask used to store it. Furthermore, it is important to note that the whisky must be stored in a bonded warehouse and monitored by an experienced broker.

While whisky cask investment can be a lucrative and rewarding venture, it is vital to research the market thoroughly before investing. It is essential to understand the risks associated with whisky cask investment, as well as the potential rewards, in order to ensure that the investment is suitable for your individual needs.

Q. How is whisky valued?

A. Whisky is valued based on many factors, including its age, rarity, distillery, and quality.

Age is one of the most important aspects of valuing whisky. Generally, the older the whisky, the higher its value. As whisky ages, its flavor profile changes due to the interaction between alcohol, wood, and air. The longer a whisky is aged, the more complex its flavor profile becomes, making it more desirable to whisky connoisseurs.

Rarity is also an important factor when assessing the value of whisky. Rare whiskies are often highly sought-after and can fetch very high prices. Many rare whiskies are from limited edition releases or distilleries that are no longer in production.

The origin of a whisky can also affect its value. Whiskies from certain distilleries tend to have more prestige and demand higher prices. For example, single malt Scotch whisky from well-known distilleries such as Macallan or Glenfiddich are usually more expensive than other whiskies.

The quality of whisky is also a factor when determining its value. High-quality whiskies tend to be smoother and more complex than lower-quality whiskies, which can make them more desirable. The purity of the whisky is also important, as whiskies with fewer impurities are considered to be of higher quality.

Overall, the value of a whisky is determined by its age, rarity, distillery, and quality. Collectors and connoisseurs are willing to pay a premium for rare, high-quality whiskies from well-known distilleries.

Q. Can you invest in whisky ETFs or funds?

A. To our knowledge, there are no whisky ETFs around. However, you can invest in AIF funds. For example, the Single Malt Fund AB is a regulated Swedish entity with shares listed on Nordic Growth Market, Stockholm. The fund is still young, though, and is, to our knowledge, the first regulated investment fund.

Q. Are there fraudsters in the whisky market?

Of course, it is! As with all investments, any hype attracts fraudsters, and the whisky market is no exception. If you do a Google search, you get many articles to read.

Is Whisky a better investment than gold?

Whisky cask investment might be a way to diversify an investment portfolio, as it offers investors a unique and potentially lucrative return on their investment. Whisky cask investment offers the opportunity to invest in a product that has the potential to appreciate over time, as well as provide a reliable income through the sale of the whisky itself.

Whisky cask investment involves purchasing a cask of whisky, typically from a distillery. The cask is then stored in a bonded warehouse, and the investor can monitor the progress of the whisky’s maturation over time. This maturation process can take up to twenty years, during which the whisky’s flavor, aroma, and color will develop, and its value will increase.

Whisky cask investment provides investors with several key advantages over other investments. Firstly, the whisky cask is a tangible asset, meaning that it can be easily bought, sold, and transferred without needing a third party. Secondly, whisky casks are a rare and unique asset, meaning that there is a limited number of casks available, thus increasing the potential for long-term appreciation. Finally, whisky cask investments allow investors to benefit from the tax advantages associated with owning a cask of whisky, such as the ability to defer capital gains tax on the sale of the whisky.

When considering whisky cask investment, it is important to remember that this type of investment requires patience and a long-term view. The whisky’s maturation process can take up to twenty years, and the value of the whisky will depend on several factors, such as the rarity of the whisky, the age of the whisky, and the cask used to store it. Furthermore, it is essential to note that the whisky must be stored in a bonded warehouse and monitored by an experienced broker.

While whisky cask investment can be lucrative and rewarding, it is vital to research the market thoroughly before investing. It is essential to understand the risks associated with whisky cask investment, as well as the potential rewards, to ensure that the investment is suitable for your individual needs.

But when all is said and done, gold has a much longer history, and we regard gold as a better hedge than whisky.

Whisky as an investment – conclusion:

Is it worth buying casks of whisky? This article has explained the pros and cons of investing in casks and bottles of whisky.

We believe whisky as an investment is mainly for whisky lovers. We will certainly stay away because this is a product and market that require some interest and knowledge. Our knowledge is limited – clearly way out of our circle of competence. While investing in bottles resembles more “speculation”, investing in casks of whisky is less so due to the maturation process.

Investing in casks, either via crowdsourcing directly on your own to make money on the slow and natural price appreciation on the same terms as distillers, might sound tempting, but keep in mind that the whisky business has had problems in the past, for example in the early 80s. This is no way of getting rich quickly.

Our personal opinion is that it makes more sense to invest in public distillers like, for example, Diageo. They know the market much better than we do.

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