Discover what you should know about whisky casks as alternative investments, and rethink your financial considerations.
The Scotch whisky industry is one of the most enterprising in the world. The whisky casks from Scotland’s oldest distilleries can fetch a high price.
And an increasing number of investors are buying whisky casks as alternative investments.
This is not just because they are attractive to look at, although they certainly are. Many experts and liquor enthusiasts believe that demand for single malt whisky will remain strong for years to come, so there’s no better time than now to invest in these casks.
But before you jump on board with this idea, let’s take a look at what makes investing in whisky casks such an attractive proposition.
In this article, we will take a look at the reasons why the whisky industry could be an attractive alternative investment to add to your portfolio, and all the details that may go towards investing in it.
If you want to invest as an expat or high-net-worth individual, which is what I specialize in, you can email me (advice@adamfayed.com) or use WhatsApp (+44-7393-450-837).
What are alternative investments?
Any type of financial asset that is not classified as a stock, bond, or mutual fund is considered an alternative investment. The usual suspects are equities, bonds, and hard currency.
Alternative investments include things like art and antiques, commodities, derivatives contracts, private equity and venture capital, and managed futures. One common alternative investment is real estate.
Because of the high level of risk, lack of regulation, and complexity associated with alternative investments, the vast majority of these assets are owned by large financial institutions or authorized, high-net-worth individuals.
When compared to mutual funds and ETFs, the minimum investments and fees associated with many alternative investments are quite high.
There is also less of an opportunity to market these investments and disclose performance statistics that can be independently verified.
Due to lower levels of turnover, alternative assets often have lower transaction costs than conventional assets, despite potentially high minimums and upfront investment fees.
When compared to their traditional counterparts, alternative assets are typically less liquid. For investors, it’s much more challenging to unload an 80-year-old bottle of wine than it would be to unload 1,000 shares of Apple Inc.
Due to the rarity of alternative investments and the transactions that include them, evaluating them can be challenging for investors. A seller of a 1933 Saint-Gaudens Double Eagle $20 gold coin, of which only 13 are known to exist and only one may be held lawfully, may have difficulties establishing a fair price.
Due to a lack of oversight, alternative investments are vulnerable to fraud even when they do not involve rare or valuable goods like coins or artwork.
There is typically less of a well-defined legal framework for alternative investments than there is for more traditional ones. Dodd-Frank Wall Street Reform and Consumer Protection Act regulates them, and the U.S. Securities and Exchange Commission (SEC) can look into how they operate.
However, they are typically exempt from SEC registration requirements. Therefore, unlike mutual funds and exchange-traded funds (ETFs), they are not supervised or regulated by the SEC.
Therefore, it is crucial that those considering alternative investments perform extensive due diligence. Accredited investors are often required to invest in alternative offerings.
Anyone with a net worth of at least $1 million (not including their primary residence) or an annual income of at least $200,000 (or $300,000 when combined with their spouse’s income) is considered an accredited investor.
A FINRA Series 7, 65, or 82 licensee may also be considered a qualified accredited investor.
Advantages of alternative investments
Alternative investments may have poor correlations to traditional investments like stocks and bonds due to their distinct characteristics and distinctions from more mainstream markets.
Therefore, alternatives are frequently sought by investors as a means to diversify their holdings and lower their overall portfolio risk.
Investments in alternatives tend to offer better return potential than more conventional options because of the higher risk they pose.
In addition, investors can tailor their alternative investment to their own needs, risk tolerance, and long-term objectives thanks to the wide variety of alternative investments out there. Certain cryptocurrencies may appeal to investors more than others because of the possibility of passive income.
There are alternative investments that promise to shield you against inflation. A real estate lease with automatic rent increases is one such contract, as are contracts for commodities whose prices rise and fall with market conditions.
Some investments, in contrast to others, may rise or fall in value in step with inflation.
It is possible that alternative investments, such those in emerging markets or specialized industries, can open doors that conventional investments cannot.
This might pique investors’ attention, but it would also make it harder for them to sell their investment due to the illiquidity of the market. Investors may view this as a positive because there will be less opportunities for them to sell their shares in a panic or make rash decisions based on their emotions.
Disadvantages of alternative investments
Alternative investments tend to have higher fees and charges than more easily accessible options. High management and performance fees, common in private equity and hedge funds, diminish returns for investors.
Many brokers now allow commission-free trades for a wide variety of stocks and bonds, but many alternative investment products do not.
One possible advantage of alternative investments is that they are typically illiquid. However, imagine a scenario in which a financier desperately needs cash and needs to sell a rare piece of movie memorabilia as soon as possible. They might not be able to sell the thing fast or readily without losing a lot of money or time if there is not a healthy demand for it.
Market data on historical patterns or price may be harder to come by if alternative investments are not widely traded on public exchanges.
Some alternative investments may have a higher risk of fraud, misconduct, and other abuses because they are not subject to the same level of regulatory oversight as public companies, which must comply with many reporting rules.
Alternative investments are riskier than traditional ones, but they also tend to yield better returns.
Likewise, the complexities of alternative investments tend to be higher. There is a higher danger of making poor financial decisions when dealing with investments that have complex structures and agreements.
Some things may be difficult to value because there are no readily available market prices for them.
Should you buy whisky casks as alternative investments?
The term “alternative investments” has been used to describe the practice of investing in non-traditional assets including collectibles, such as art, old cars, and expensive wines.
Scotch whisky is a type of whisky that has been aged for at least three years in oak casks in Scotland. Scotland is home to an estimated 22 million barrels that are currently aging in storage. Scotch is not written with the ‘e’, like those made from other countries.
Whisky is a niche market that should never make up more than a small percentage of your portfolio. Anyone thinking about putting money into whisky should already have a diverse portfolio consisting of at least some cash, bonds, and stocks.
As an alternative investment, whisky casks can be a great choice. The Scotch whisky industry has been around for centuries and has always been at the forefront of popular culture.
This means that you can expect your investment to grow with time as more people discover the joys of drinking fine scotch whisky from its traditional wooden cask containers.
The Scotch Whisky Association (SWA) reported that global exports of Scotch Whisky topped £6 billion for the first time in 2022.
The monetary worth of Scotch Whisky exported in 2022 increased by 37%, reaching £6.2bn. Meanwhile, the quantity of 70 cl bottles shipped abroad rose by 21% to 1.67 billion.
In addition to being delicious, these bottles are also valuable: some single malts go for thousands or even millions of dollars per bottle depending on their age and rarity. The whisky casks from Scotland’s oldest distilleries particularly can fetch a high price.
A four-decanter lot of Glenfiddich single malt from the 1950s sold for £830,000 at The Distillers One of One charity event in December 2018, breaking the previous record for Glenfiddich sold at auction by a wide margin.
Recently, a collector from Asia broke the record for whisky at auction when they paid £16 million for a “one of a kind” 1975 cask of Ardbeg single malt Scotch.
The price of a cask is determined by the quality of the whisky inside it. The older and rarer a cask is, the higher its value will be.
The size also matters: small casks are more valuable than large ones because they have less surface area for evaporation and exposure to light.
It is logical that, under these conditions, investors would seek safety in hard assets, believing that they would be less vulnerable to market swings and other disruptions, such as the economic headwinds and soaring inflation rates facing the world today.
Gold has a long history of being viewed as a “safe haven” investment for times of economic uncertainty. However, how optimistic are we about the future of alcoholic liquid currency? Can whisky be considered a safe investment?
While the numbers are certainly enticing, they do not, by themselves, ensure success for investors in any given investment category.
Before putting money into an unproven asset class, would-be investors should follow the same guidelines they would for any new investment:
- Don’t lose sight of your long-term financial objectives.
- Bear in mind that the market will go up and down.
- These are some questions that prospective investors should ask themselves:
- Do I get the possible returns on a whisky investment?
- Am I okay with this risk?
- Just how much money do I have available to put into alternative investments?
- Am I prepared to lose my entire investment?
- How secure am I financially if something goes wrong?
How do you start investing in whisky?
Whisky can be invested in through one of two major channels.
Whiskey in bottles.
Whiskey bottles can be purchased with the intention of reselling them at a profit. The trick is to stock up on bottles from renowned distilleries that are rarely released.
In this niche, single-malt Scotch is the most popular option (whiskey mixtures are often avoided by investors). This is due to the lower level of investor interest in non-American whiskeys, even though nations like Ireland and Japan make significant quantities of whiskey.
Rare Whisky 101 is a publication that provides information and analysis for whisky enthusiasts and buyers. The Rare Whisky Icon 100 index is designed to follow the marker for highly sought, routinely traded bottles of single malt Scotch whisky and is updated monthly to reflect market trends.
Not every brand in the Rare Whisky 101 ranking appreciates in value. However, the Icon 100 has returned slightly over 400% from its inception at the start of 2013 and will continue to do so until the end of June 2022.
Whisky is produced by a plethora of Scottish distilleries, however some brands consistently outperform others as far as price appreciation is concerned.
Whisky investors prefer various flavors, and this, along with buying into producers with a proven track record, can impact the price at which a bottle is sold.
Whiskies that have been matured in sherry barrels, for instance, are quite popular. Likewise, darker kinds tend to be preferred over their lighter counterparts.
The most sought-after whiskies age in sherry or bourbon casks, but some distilleries use other types as well: wine barrels (usually from France), port pipes, brandy vats and rum puncheons are all popular choices among connoisseurs looking for something special in their blends.
If you’re in the market, keep an eye out for public auctions and private deals. They should also contact distilleries directly to learn of any limited edition releases.
Whisky casks
Buying whisky by the cask is an alternate method of whisky investment.
Whisky production requires a large investment of time and money. Keeping in mind the three-year aging requirement for Scotch, distilleries recoup expenses and raise revenue by selling casks of whisky to private investors.
While there are more opportunities for whiskey barrel investments than ever before, the vast majority of these programs are not available to the general public.
Cask whisky investment options that claim to be open to the public are likely to be deceptive at best or complex ponzi schemes at worst.
Investing in whisky stocks is one of the best and safest options for individual investors to capitalize on rising demand. Direct investments in whiskey casks are not suggested for retail investors, although alternatives abound for authorized investors to add a barrel to their collection.
The best option for an accredited investor to gain access to whiskey casks is through a company that facilitates alternative investments.
The premise is that buyers of a cask will enjoy seeing the value of the alcohol inside rise over time. Many people believe that whisky should increase in price as it ages since the flavor improves and it becomes more rare.
While the spirit is still young, investors can purchase casks of whisky either directly from a distillery or indirectly through a broker or investment club.
A broker will negotiate a cheaper price with a distillery for a small batch of casks. The broker then sells the casks to the buyers, who have them kept in a bonded and insured facility.
Before investing in whiskey casks, make sure the broker has the appropriate tax license for the nation where the casks will be held.
When buying a whisky cask, it is also important to choose a distillery with a good reputation. You should also ask for the cask to be stored in a climate-controlled environment and buy from a reputable seller. When inspecting your purchase, make sure that the cask is sealed properly and check its quality and age.
When it comes time to bottle and sell on the spirit, HMRC in Scotland and the Irish Revenue Commissioners in Ireland each keep records on who owns and stores each currency in their respective countries to ensure tax is paid.
Why whisky casks?
Whisky casks are a rare and unique product. They are made from rare hardwoods, which is hard to come by, and they are used for a single purpose. These barrels will age whisky for years before being sold off as finished products or used as an alternative investment.
Whisky casks are crafted from wood and designed specifically for storing whisky in Scotland’s climate conditions.
Experts believe that demand for single malt whisky will remain strong for years to come.
In fact, the value of whisky casks has increased steadily over the past decade. Demand for single malt whisky has been growing in recent years, and this trend is expected to continue well into the future.
Holding a cask for decades is not uncommon. If you are looking for quick returns, whisky casks are probably not the best investment for you. You may need to wait several decades before selling your cask at a profit.
When you are looking for a cask to buy, the most important thing is to make sure that it is in good condition. Casks that have been used for a long time will be more valuable than those which have not been used for very long.
The quality and age of the whisky in a cask also affect its value. Single malt whiskies tend to be more expensive than blended ones and therefore casks used in their production will typically be worth more money as well.
If possible, try to find out what distillery produced the whisky that was matured inside your chosen barrel before buying one or several. This information may help increase its price since collectors often prefer casks made by famous distilleries such as Glenfiddich or Macallan.
What other considerations are there before investing in whisky?
The practice of investing in whisky casks is growing in popularity, but not all barrels are created equal. There are some barrels that offer a substantially higher return on investment than others.
There are no guarantees in investing, but maybe these considerations will point you in the right direction.
Take note of the time investment and how old you age your whisky
Whisky investors know that the older the cask, the higher the price. Cask investment, however, is not something to consider for the short term.
Scotch whisky is only recognized by law if it has been aged in a cask for at least three years. The need for additional aging is heightened when newly filled casks hit the market.
One issue is that there just are not enough casks of a younger age to justify the higher costs that would be justified by their rarity.
Meanwhile, buying older casks can be just as risky, as they become both extremely expensive and time-consuming to maintain once they reach the 20-year mark.
This occurs because more whisky evaporates into the air and is absorbed by the wood as time passes. This can be problematic in regions where whisky is required to have an alcohol by volume (ABV) of 40% or greater in order to be recognized as Scotch whisky by the Scotch Whisky Association (SWA).
Be sure to check the alcohol by volume (ABV) if you plan to store for a long time or if you buy a used cask. The longer a cask will keep if the alcohol content is 40% or greater.
There are benefits to using an old cask, but by that point, you are really just talking to collectors or people who want to bottle it.
Consider the distillery you acquire your cask from
The distillery the cask came from is the next consideration. There have been numerous reports of massive sales of casks in the millions.
These barrels, however, represent the pinnacle of the industry; they are the Maseratis and Rolls-Royces of the barrel world.
They are out of reach of most investors without extensive wealth and strong personal connections.
Many well-known distilleries still produce bottles that have the potential to fetch a high price at auction.
It is not uncommon for distilleries to sell their casks onto the secondary market in order to generate cash flow between new releases.
Peated or unpeated, Highlands or Speyside, there is an infinite number of variations because each distillery has its unique history and processes.
There is a common thread among the auctions that set records: The sold casks each come with their own special history.
Several distilleries in the middle of the market are winning more and more awards and acclaim, giving them a better chance of breaking into the ultra-premium segment of the market.
Casks from well-known distilleries or those prized by collectors can be a smart investment. Casks from smaller or more artisanal distilleries may seem like a good deal at first glance, but you should know that your investment is far more at risk.
Keep in mind the quality of the casks themselves
The cask has a significant role in imparting taste to the scotch. Ex-bourbon cask or sherry cask are two phrases you may have heard, but what do they mean?
Scotch is aged solely in used casks from the aging of other spirits. Scotch distilleries, for example, are pleased to buy used American whiskey casks from the bourbon industry because the bourbon sector only allows new casks to be used in the aging process.
Because the cask’s wood has retained much of the flavor imparted by the bourbon, some of those bourbon flavors are transferred to the whisky when the scotch is added.
Ex-bourbon barrels, which are readily available, seem to be the most popular choice because they provide for the most range of flavor profiles.
Ex-sherry casks are the second most prevalent type of cask, although they are still somewhat uncommon, thus they sell for a higher price.
More and more casks with unusual finishes, like those used to age tequila or rum, have started making their way into the secondary market recently.
However, the contents of these casks would not have qualified as Scotch whisky under current regulations regarding the types of casks that can be used in the finishing process.
The SWA amended the requirements so that distilleries may branch out, but the new territory is uncharted territory for cask whisky investors.
Most of these casks reached the three-year threshold last year, so we can track their development to see if they are a tasty curiosity or a worthy investment for whisky connoisseurs.
Should I invest in cask whisky?
Whisky investments are extremely high-risk and should be treated as such. The irony is that it can also be illiquid if you make a poor acquisition and then have trouble selling.
It is possible to fall victim to cons, such when cheap whiskies are labeled as expensive ones. It is also a tangible asset, and thus are susceptible to physical risks such as broken and defective bottles.
Investments in whisky casks are speculative, meaning that you may have to wait a long time for your investment to pay off. The risk of losing money is real and should be considered carefully before making an investment decision.
If you are considering investing in whisky casks, there are several things to keep in mind:
You will need patience and fortitude. It takes many years for a cask of whisky to mature into something drinkable–and even longer for it to reach its peak quality. If you are looking for immediate returns on your investment, this is not the right choice for you.
Because cask investments can take years before they are ready for sale and consumption, they may not align well with other goals or timelines that might require cash flow sooner rather than later.
It is recommended you seek the advice of professional financial advisors before you invest money into whisky or any other alternative investments.
There are also some risks involved in investing in whisky casks to keep in mind. The whisky industry is highly regulated, and there are many regulations in place to protect consumers and producers alike.
The Scotch Whisky Association (SWA) sets the rules for what can be called “Scotch.” They also set standards for production practices, labeling requirements, advertising guidelines.
In addition to these general rules of thumb for producing quality products and selling them responsibly, there are specific laws that apply specifically to cask-matured whiskies.
Besides the obvious distinctions between investing in Bourbon and Scotch casks, the original distillery, age, volume, and local taxes are the primary determinants of a whiskey cask’s price.
Whiskey from well-known or reputable distilleries commands a higher price tag than its less illustrious counterparts. Casks from smaller, less well-known distilleries are riskier bets, but they tend to be cheaper and offer more room for growth.
The age and size of a whiskey cask are two crucial characteristics. Simply put, the volume of a whiskey barrel refers to the total amount of whiskey stored there. Investors should take attention of the volume variation, which might be anywhere from 200 to 400 bottles.
Next, when discussing whiskey, “age” usually refers to how long it has been aging in the cask, and there is a direct proportion between age and price. Investors might use the suggested bottling date provided by distilleries as a benchmark for estimating the optimal investment period.
Large tariffs on whiskey and other alcoholic beverages are common in countries with large whiskey-producing regions. It is vital to understand how tax will affect your investment, as many distilleries already factor it into the wholesale price of their whiskey when selling by the case or barrel.
American investors, for instance, should be aware of local sales and excise duties in each location before purchasing barrels of Scotch whisky, Irish whiskey, or Japanese whisky. Foreign buyers of whiskey casks must also factor in the cost of customs clearance in their country.
However, if you are serious about investing in whisky casks as alternative investments, they can be interesting tangible assets to add to your portfolio.
Tangible assets like whisky means that you can physically touch what you purchase, feel it, and consume it if you are so inclined. As such, they are not as liquid as stocks or bonds. It will take time before your investment starts seeing any returns, but you can hold onto them as long as physically possible.
Whisky casks have been used as an alternative investment for centuries due to their ability to appreciate in value over time. A whisky cask can be bought for a relatively low price compared to other tangible assets like gold or land, and can be held for decades before selling at a profit.
A whisky cask from a famous distillery can be a good investment if you are willing to be patient and wait for the payoff.
If you are looking for an alternative investment in tangible assets, whisky casks may be a good choice. They can be expensive at first glance, but if you have the patience to hold onto them until they appreciate in value over time, then the payoff could be worth it.
Pained by financial indecision? Want to invest with Adam?
Adam is an internationally recognised author on financial matters, with over 760.2 million answer views on Quora.com, a widely sold book on Amazon, and a contributor on Forbes.
