In the current world of borrowing to pay, buy-now and pay-later practices have changed particular market niches and business operations. More gold is bought and sold than it is physically present worldwide. People buy and sell stock of companies they never use or see, and people invest in things and have someone else keep it for them.
Why? Well, because it is easier. That is as simple and complicated as it should get, but of course, it does get a bit more complex than that. Buying spirits at a rare whiskey auction will get you an expensive bottle, but doing so as purely an investment will have many different considerations.
Investing in Wine, Whisky, and Fine Spirits
Investing in wine, whisky, and other spirits with no plan to consume or keep them for personal enjoyment is often done for the potential financial returns. This type of investing falls under the category of alternative investments. It can be attractive for several reasons, but the primary reason is that it is an expensive item with high resale value. Something like a vehicle is simply not an asset because it depreciates over time, with only the most well-cared-for vintages having a value in their vintage status than the car itself.
Appreciation Potential and an Asset Class
Some rare and highly sought-after wine and whisky bottles can significantly appreciate over time. This is especially true for limited edition releases, vintage bottles, or those from well-known producers. This appreciation is due to their rarity and not their age. Spirits only age in a barrel, and once they are bottled, they stop ‘aging’ in that sense. So, a ‘vintage’ you bought ten years ago would be aged the same ten years later if you purchased a bottle.
They can be tangible assets, though not often used as such. Unlike stocks or bonds, wine and spirits are tangible assets you can physically possess and store. This can appeal to investors wanting to diversify their portfolios and hold something outside of traditional financial instruments. However, modern spirit investment opportunities depend on purchasing and keeping bottles in refrigerated vaults via third-party companies or storage contractors.
An Alternative for Investment Opportunities
They allow investors to diversify their portfolios. Wine and spirits can be a way to diversify an investment portfolio, spreading risk across different asset classes. This can be particularly appealing when financial markets are volatile, as slow, guaranteed appreciation is considerably less risky and helps preserve or retain total asset value if other investments depreciate due to market conditions. If you are holding spirits as assets, you have the risk of the bottles themselves breaking or damage being inflicted, but if cared for, they can keep their value.
Some just do it as a hobby, with investment as a bonus. Those kinds of investors are passionate about wine, whisky, or other spirits and enjoy collecting and learning about these beverages. Investing in them allows them to combine their hobby with potential financial gain. More often than not, they use the money incurred through selling off these items to buy rare, more expensive bottles. Many even prefer auctions as it lets them get certain bottles at a much lower cost, especially if some ‘signature’ bottles on offer allow other items to be let go without too many bidders competing.
However, buying and storing them for long periods isn’t easy either. It’s essential to be aware of the challenges and risks of investing in wine, whisky, and spirits before purchasing a bottle.
As Fragile as Glass – The Challenges They Present
These investments are not as liquid as stocks or bonds. It can take time to find a buyer, and the market may need to be more active for certain bottles or vintages. Yes, these assets can continue to be appreciated during recessions. Still, finding a buyer can also be more challenging, so you can keep your asset value but not be able to liquidate it if needed. Buying and keeping stocks and investments is particularly appealing for most investors, but the tangibility and fragility of spirits and the maintenance they require make them much more challenging. A house will always be more risky than land simply because the house needs to be maintained. Similarly, the lack of liquidity makes storing it a necessity.
Proper storage conditions are essential to maintain the value of wine and spirits. This can involve costs for storage facilities, insurance, and monitoring for quality. Even if you get a third-party storage provider to keep it for you, the money you get from that whiskey selling at auctions or to individuals needs to be high enough that you make a profit after that as well.
Understanding the Market, Regulations, and Potential Issues
Successful investing in these areas often requires a deep understanding of the market, including knowledge of producers, vintages, and trends. It’s not a passive investment and may require ongoing research. That is crucial, as the world of fine wines and spirits has seen issues with counterfeit products. Ensuring the authenticity of your investments can be a significant challenge, and knowing the market helps understand potential counterfeit products, listings, and bogus sellers.
Of course, the level of scams and counterfiets depend on the regulations in place, which can make it difficult (or easier) for bad actors to take advantage. Different regions have various regulations and tax implications related to the purchase, sale, and storage of alcoholic beverages, which can impact your returns, too. Understanding the market is key to making a return, let alone a profit.
Before investing in wine, whisky, or other spirits, it’s crucial to do your research. Consider your risk tolerance and consult with financial professionals who specialize in this area before you proceed with any purchase. Like any investment, there are no guarantees, and prices can fluctuate based on a variety of factors, including market demand and the reputation of the producers. Even if you are buying a few hundreds dollars worth of bottles, you need to make it count.
Storage and Other Considerations
When you buy these bottles, though, you can’t just store them in a fridge or in your kitchen. Bourbon and wine, especially fine and rare bottles, are often stored in specialized facilities such as refrigerated vaults or wine cellars to maintain their quality and value. Both private collectors and investors typically use these facilities.
Refrigerated storage vaults are designed to provide a controlled environment with optimal temperature and humidity conditions for the aging and preservation of wine and spirits. Maintaining a consistent temperature and humidity level is essential to prevent spoilage and preserve the quality of these beverages. For wine, a temperature of around 55°F (13°C) is ideal, while for bourbon, a slightly cooler temperature is often preferred.
Companies that offer refrigerated storage services typically provide secure facilities with temperature and humidity control, monitored security, and insurance coverage for the stored bottles. Cataloging, record-keeping, and inventory management may also be included but are sometimes more like bonuses rather than a core service.
Such strict conditions also mean you have limited access to your investment, as some might require certain conditions or advance notice to allow you access to it. Keeping it stored in your own cellars or mini-vaults can have its own maintenance and other costs, but you also need to care for it yourself. A few service providers may have private viewing rooms to alleviate this so clients can be assured that their investment is secure.
When you store your bourbon or wine with a third-party service, you should maintain clear ownership documentation and receipts for the stored bottles. This is important for tracking your assets and ensuring that you can prove ownership when necessary, especially with online auctions or purchasing bottles strictly as investments you never see or hold for yourself.
All these investment opportunities are acquired taste and plenty of challenges need to be considered in addition to understanding how they can be investments. This is all well before the purchase itself, so always consider researching and understanding the market before you move forward with a purchase, especially a long-term one, unless you plan to drink them at special occasions, of course!