You may have heard that Scotch whisky is a great investment. And it’s true! According to the Knight Frank Luxury Investment Index, rare whisky was the best-performing luxury asset between Q2 2010 and Q2 2020.
Its value climbed a staggering 535%, outpacing the second best-performing luxury item, cars, more than two-fold.
But why is Scotch whisky such a desirable investment?
First of all, there’s the issue of rarity. The number of distilleries in Scotland has been steadily declining for years, from around 200 in the early 1900s to just over 100 today.
At the same time, global demand for Scotch whisky has been on the rise. The market for Scotch whisky in Europe and the U.S remains strong, and new markets are opening up in Asia as well.
All of this has led to a situation where there is simply not enough Scotch whisky to meet demand. This shortage is only going to get worse as time goes on, which means that the value of existing stocks is only going to increase.
Evidence of this can be seen in the rising prices in the fine and rare whisky secondary market. Repeated records have been set over the past few years, with investors and enthusiasts alike willing to pay millions for a single bottle.
The most recent example is the sale of a bottle of Macallan 1926 Fine and Rare 60-year-old for a record-breaking £1.2 million at an auction in Hong Kong. This particular bottle was one of only 40 ever produced, and it is clear that there is a growing appetite for such rare and valuable whiskies.
Low volatility in the market
Investors are also being drawn to Scotch whisky because it is a relatively safe investment. Unlike other luxury assets, such as art or wine, which can be subject to fads and trends, the demand for Scotch whisky is relatively stable.
When markets crashed during the 2008 global financial crisis, for example, the prices of luxury assets such as art and wine fell sharply. But the value of rare Scotch whisky actually increased by 18%.
During the Covid-19 Pandemic, we have seen a similar trend. While the prices of many luxury assets have plummeted, the price of rare Scotch whisky has actually increased by 14%.
This low volatility makes Scotch whisky an attractive investment for those looking to protect and grow their wealth.
Low barrier for entry
Unlike some of the other asset classes on the Knight Frank Luxury Investment Index, such as art or wine, there is a relatively low capital outlay required to invest in Scotch whisky.
This is due to the fact that there are a wide variety of bottles available at different price points. For example, a bottle of Highland Park 12-year-old can be bought for around $50, while a bottle of Macallan M may cost upwards of $20,000.
This means that Scotch whisky is an accessible asset class for a wide range of investors. The ability to buy a bottle of whisky for less than $100 makes it a much more approachable investment than, say, a painting by Picasso, which can cost tens of millions of dollars.
Scotch whisky is also a relatively liquid asset. Whereas it may take months – or even years – to sell a piece of art, bottles of Scotch whisky can be sold relatively quickly and easily.
Investors are also drawn to Scotch whisky because it is a physical asset that can be enjoyed. Unlike stocks or bonds, which are purely financial assets, a bottle of whisky can be opened and enjoyed (albeit in moderation). This makes it a more enjoyable investment for many people.
The cask market
One of the primary things that set the whisky market apart from other luxury asset markets is the cask market.
Whisky sold in bottles goes up in price as its relative rarity and popularity increase. However, it does not age or appreciate in value while it is in the bottle. Once a bottle of whisky is opened, its value begins to decrease as the whisky inside is consumed.
On the other hand, casks of whisky continue to age and appreciate in value even after they are sold. This makes them an attractive investment for collectors and investors who are looking for a long-term investment.
The secondary market
Another key factor that makes the whisky market unique is the secondary market.
In most luxury asset markets, such as the art or wine markets, investors generally have to sell their assets back to the primary market in order to cash out. However, the whisky market has a well-developed and liquid secondary market.
This means that investors can sell their whisky investments on the secondary market without having to go back to the primary market. This makes it much easier for investors to cash out of their investments when they want to.
The future of the whisky market
With the global economy slowly recovering from the Covid-19 pandemic, the future looks bright for the whisky market. Investors are expected to continue to pour money into this lucrative asset class in the years to come.
So if you’re looking for a luxury investment with high potential returns, Scotch whisky might just be the right choice for you.