How to Invest in Scotch Whisky

Wine connoisseurs are already well catered for when it comes to being able to invest in their favorite vintage and there are plenty of us who take our whisky tasting duties just as seriously.

An alternative investment market concentrating on scotch whisky is now starting to mature and if whisky investors can come close to matching the returns that have been achieved on wine investments over the last few decades, then there will be some of us experiencing a warm glow of satisfaction that is not just down to the “wee dram” you are tasting.

Readymade market

A specialist consultancy called Rare Whisky 101 who claim to be the home of rare whisky, have compiled a Rare Whisky Icon 100 Index that has tracked the value of a collection of the most sought-after bottles of single malt scotch whisky since 2008, and that index has demonstrated a steady rise throughout the entire period.

Taking a starting value of 100, the index has risen by 208% in the seven-year period that they have been tracking prices, although you need to be aware that these are estimated values as well as actual auction values and are meant to represent the value of a basket of collectable bottles, although it does give you a representative picture of how scotch whisky is performing as a collectable investment.

The figures do also provide plenty of encouragement that there is a readymade market of whisky enthusiasts who are almost always prepared to pay a fair price to acquire the particular scotch that they are interested in.

On the list of luxury items

Just as fine wines and art are established luxury items that are traded regularly at auction, scotch whisky is definitely emerging as a more than viable candidate for joining the list of sought-after luxury items.

The auction house Bonhams has a head of whisky called Martin Green to provide valuations and oversee sales at their regular auctions and he was recently quoted as saying that “interest in whisky has been growing steadily for many years”.

There has always been a hardcore of whisky enthusiasts and investors who are entranced by the history as well as the taste of scotch and the growth in the number of potential investors has been further fueled by the fact that there are more wealthy investors from the Far East than ever before, who now have the money to match their enthusiasm for the gold in the glass that is whisky.

Getting involved

If you take Bonhams as an example, they now have four dedicated whisky auction dates in their calendar and this has changed from when the bottles used to be combined with wine and other spirits.

Whisky is now considered prominent and important enough as an investment to not share the stage with any other types of liquid-based buying opportunity and the fact that about 90% of the items to be auctioned are successfully sold, confirms the level of interest there is.

There are physical auctions that you can attend to buy some whisky or you could bid at an online auction if you prefer. The fundamental difference between the two is that you might pay up to 25% of the value of the whisky in charges if you buy at a physical auction, whereas it might be as low as 10% at an online auction.

Experts are almost unanimous in stating that the key to buying whisky at an auction and in general, is to try and identify limited edition bottles of whisky that are expected to rise in price once they are sold out.

Investing in whisky is no different to the investment strategy you could apply to other luxury items. Reputation, exclusivity, rarity and scarcity are keywords that you need to keep in mind when considering an investment in something like whisky.

If you find a bottle that ticks all of those boxes, there is a fair chance it seems that the value will rise, although there are certainly no guarantees of that.

Buy into a fund

If you are a novice and unsure which whiskies represent a worthwhile investment, you might want to consider buying into a fund.

There are funds available to invest in such as the Platinum Whisky Investment Fund which is based in Hong Kong and others like it, but you should carry out your own research and be aware that most of these funds are unlikely to be regulated.

Another option to consider is Whisky Invest Direct, which promises to open up the previously inaccessible world of scotch whisky maturation to private investors. They have created in effect a private exchange that allows you to buy quality whiskies produced by the top distillers, and at wholesale prices – typically much less than half the cost of traditional cask ownership. Economies of scale mean your whisky will be stored at exceptionally low cost, in the original distiller’s bonded warehouse. Its safe storage there is evidenced every month by an independent audit.

Distillers and blenders have been the primary beneficiaries up to this point when it comes to profiting from the increase in value that can be achieved when a whisky reaches maturity.

The fund offers you the chance to for private investors to invest at previously unavailable wholesale prices, allowing you the chance to share in the benefit of seeing your whisky mature and fetch a higher price when it is ready to be sold.

The working capital required to lay down a significant amount of whisky for ten years or more is not normally with the reach of individual investors, but this fund aims to try and open up that opportunity thanks to the collective buying power of a number of individual investors all contributing to the fund.

Wealth warning

Whilst some of the most sought-after whiskies have soared in value, there are also plenty of bottles that have suffered steep declines in their value.

Overall, the average fall of the worst performing bottles was in the region of 9% when you look at an index of 1,000 different whiskies but there are of course some individual items that have performed far worse than that, so you should always be aware that not all of your investments will prove profitable, unless you get good advice or have a talent for spotting the winners.

Charges for investing in whisky can sometimes be quite prohibitive and when you factor in storage costs on top, your whisky investment will need to perform well in order to achieve a positive return.

Another fundamental point to consider is that whisky is not an investment that generates any income or earnings so you have to rely on price fluctuations to generate a return on your cash.

As an alternative investment whisky has an obvious appeal but shifting tastes and the prospect of some brands going out of favor means that you should always consider committing only a small part of your cash to this opportunity.

Although the upside if things don’t go to plan is at least you have a stiff drink to hand if you decide to liquidate your asset.

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Elizabeth Goldman is the editor of AlternativeInvestmentCoach.com. She has written for Investing.com, Bullbearings.com and many others.