With the UK economy likely entering into a recession in late 2022, your investments need to be in secure and reliable industries. Today we will be covering why whisky is one of the safest and most valuable physical assets you can own.
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The stability of investing in whisky
With the cost of living crisis and looming fears of recession, many are viewing the next few years as a time to be frugal. However, by making smart investments, you can rest assured knowing that your current means can only improve. As it stands, whisky is one of the most stable physical assets on the market, with Bloomberg going as far as to call it “liquid gold”.
On average, the annual return on a cask of fine whisky is 12%. This staggering number means it only takes 5 years to come back to the invested price and 6 years to make a profit. However, the best thing about whisky is its value will continue to grow as the whisky distils or the bottles increase in rarity.
Currently, the demand for whisky sits at the top of the spirit industry. By reading the Investors Chronicle’s article on “Why Scotch Whisky is piquing investors’ interests”, we know that scotch whisky “is the world’s number one internationally traded spirit with exports worth almost £4bn annually.” So even if its exports fall slightly, it will still be the leading figure in the spirit industry. However, with exports of whisky rising by 19% in 2021, we are unlikely to see this figure drop.
The industry expects growth
Recently we covered a piece that looks into the predicted growth of the malt whisky industry. To keep it short, the malt whisky market is expected to grow by 55% within the space of a decade, from 2021-2031.
In addition to this, previously untapped markets are showing an increase in demand too. With whisky casks being classed as a wasting asset, they are not subject to capital gains tax. This lack of capital gains tax is relieving for any seller.
What do you need to consider before investing?
There’s a good chance that if you are looking to invest in physical assets like whisky, you will be familiar with trading in stocks or bonds. Therefore, you will be used to working around the trading hours. With whisky, you do not have the luxury to see immediate results. To effectively invest in whisky, you have to be willing to wait multiple years for your investment to come to fruition.
The only chance you have of making immediate returns is stumbling across rare bottles owned by individuals unaware of their worth. Finding rare bottles below market value is highly unlikely to happen.
How to invest in whisky?
There are two ways of investing in whisky, bottles and casks. Both hold their own unique benefits and flaws.
Making bottles your asset
Making whisky bottles your physical asset can be beneficial for these reasons:
- Lower initial investment cost
- More bottles are available on the market than casks
- Easier to access bottles since there’s no need for a broker or whisky agent
- You can store them on your property
Making casks your asset
Making whisky casks your physical asset can be beneficial for these reasons:
- Potentially huge returns
- Casks are usually insured against theft and damage
- Exempt from the capital gains tax
However, there are overlapping benefits between both methods of investing. Oliver O’Donovan, European sales director at UKV, covered these benefits in an article produced by The Times. “Whisky is a tax-free return and it’s a better alternative investment than a classic car, for example, that can be very capital intense and is less easily traded. We’re also likely to see a surge in demand because import duties are currently being dropped all over the world.”
Additionally, since you can start investing in bottles with only a few hundred pounds, you can build a bigger portfolio than you could for other physical assets like property, vehicles and land.
Don’t forget to check out our investment guide: Whisky investment guide
How is whisky valued?
The price of whisky is determined by several factors, including the brand of whisky, the age of the whisky, and the rarity of the whisky.
Well-known and established brands will almost have a cult level of interest. Brands like Macallan, Laphroaig, Glenfiddich and many more have been around for over a century. Over this period, they have garnered an impressive amount of attention. Therefore bottles from these brands are always likely to stir interest due to their heritage.
The next point at which we value a whisky is the length for which it has been distilled. This means how long the whisky has matured in a cask. This is significant as over time, the cask will mature the flavours within the cask. Usually, this will improve the taste and make it smoother to drink, making the spirit more desirable.
Finally, we have the rarity. Rare whisky can be any cask or bottle that was made in limited quantities or is no longer being produced. Prices for rare whiskies can range from a few hundred pounds to more than a million per bottle.
When buying whisky, it is important to consider all of these factors to get the best value for your money.
Why is whisky a sound investment?
Conventional assets are currently struggling. Assets, such as stocks, bonds, and real estate, have historically been seen as safe and stable investments. However, in recent years there has been increasing evidence that these assets are not as safe or stable as they once were. For example, the stock market has become increasingly volatile. Publications like Yahoo Finance don’t believe there will be a full stock market crash in 2022. Despite this, they have been quick to point out that “The first six months of 2022 were the worst the stock market has had in more than 40 years”.
Alternatively, investing in whisky is a safe investment. This is ”because casks are stored in a government-approved bonded facility, in the unlikely event a distillery or facility goes bust, it has no bearing on the investment. The cask is also fully reinsured annually against theft and accidental damage in line with the increase in value.” Compare this to stocks that are worth nothing after the company you invested in liquidates and you can see how safe this style of investment can be.
UKV International AG’s primary business centres around acquiring, supplying, and selling bonded whisky.
We supply for consumption and or investment depending on our client’s requirements and offer a brokerage service for those who wish to sell investment-grade whiskey held in UK-regulated bond.
We are here to assist you with choosing which whisky to invest in and to guarantee your cask is put away accurately and safely. Regardless of whether you will drink, gift or sell your whisky.
To find out more, contact us here.
