Can whisky casks help to protect your portfolio against inflation?
The current predicament of soaring inflation and political instability represent a double whammy for the global economy. In addition, disruptions in supply chains and weak growth across the board mean that forecasters all agree on one thing: things are not set to improve in the short term.
For investors looking around for safe havens, traditional assets are showing vulnerability in the face of global instability; while alternative assets, like cryptos, have been experiencing some deeply worrying swings. Even gold, traditionally the safest haven in unstable times, has shown itself to be less than secure as a means to protect wealth when unpredictable headwinds are battering the global economy.
But where does that leave whisky cask investors? And how is inflation impacting the whisky market globally?
Steady growth, low risk
Casks of whisky are an increasingly popular investment in uncertain times because they hold the double appeal of steady growth combined with relatively low risk. Due to their lack of correlation with the stock market, whisky casks are an attractive option to diversify investment portfolios. Whisky casks even compare favourably to similar luxury investments like fine wine, because the value of the liquid inside the cask continues to gain value year on year until it is bottled.
The most recent whisky cask market report showed annual growth of 13.12% in 2021. That’s a healthy number in itself, but what was probably more remarkable was the stability of the investment when tracked over the last five years.
It’s clear that whisky casks were able to withstand the pressures of a global pandemic and the likelihood is that they will also be able to ride the current waves of instability.
Is whisky investment ‘inflation-proof’?
Every type of investment comes with its own risks and rewards. All investors need to decide how to balance their portfolios and whether to skew towards greater risk or more security. However, every situation is fluid, and as conditions in the market change, investors need to be prepared to adjust the way they allocate their funds with the objective of protecting their hard-earned wealth when outside forces threaten to upend all their carefully laid plans.
That’s when even the most risk seeking investors can start considering diversifying their portfolios to safer ground. Of course, no investment is entirely safe, and nothing is ‘inflation proof’. But there are a number of reasons why whisky casks come close.
1. Whisky casks hold up, even when financial markets are struggling. Like other alternative assets, whisky casks tend to exist in cycles unconnected to financial markets. During periods of instability, alternative assets become more attractive to investors with a consequent rise in prices. Of course, demand for certain goods will still react to the broader financial situation, but over time fluctuations are usually far smaller than those that affect volatile financial markets. Cask whisky stands out amongst many other investments because its value is connected to the process of aging. Whisky in its cask matures year upon year, becoming more valuable over time. This is not the case for bottles, as maturation only takes place in the cask. Therefore, regardless of what happens in the market, the value of a cask of whisky will continue to increase over time, becoming an ever more desirable investment product.
2. Rarity is continuing to push up prices. Supply and demand is always a key consideration when choosing an asset to invest in. And when it comes to casks of rare whisky, supply is increasingly limited, while demand is rocketing. Every time an old cask of whisky is bottled, there are fewer out there. There was a glut of whisky in the 80s and early 90s, as distillers ramped up production. Those casks are now fast running out and prices for them will continue to rise. If you’re lucky enough to have one or more of those casks, you can definitely anticipate good returns. And, if you still don’t have any, this could well be an ideal moment to enter the market.
3. Consumer trends are all pointing in the right direction. Analysts have noticed a clear shift in the habits of consumers worldwide. Millennials are moving towards higher quality and more premium drinks, prizing quality over quantity. Habits are changing along with the amount of time we spend socializing and the way we connect with each other. New generations are drinking less but spending more. This is very good news for single malt, which is becoming an increasingly fashionable product for the Instagram generation. Take a look at the recent ad campaigns of the big single malt brands (The Macallan, we’re looking at you!) and you can see this shift towards single malt as a lifestyle choice happening in real time. There’s a lot of money pouring into single malt whisky right now, with new distilleries opening and big brands spending more on marketing and production. That’s good news for anyone with a cask or two in their portfolio.
Reasons to be cheerful
There’s no doubt that things are looking grim. With the cost of living rapidly escalating, inflation has risen to about 7% in the US and hit almost 9% in the UK, a number not seen for many decades. Every day we wake up with more bad news on the radio and a dark feeling that global events are spiraling out or control.
However, calm your mind by picturing a warehouse in the rolling hills of Scotland. That warehouse is full of casks of whisky, which have been slowly maturing over the years, and then the decades. Casks of whisky, just like those, have been sitting there through wars, recessions and economic and political shocks of any description, carefully holding their precious liquid which continues to build value despite everything happening outside.
Whatever happens next, investors can be sure that they will continue to do so.
Want to find out more about how whisky casks can help to protect your portfolio against inflation? Schedule a free consultation today.