Bourbon whiskey has seen a huge surge in popularity and value over the past decade, making it an increasingly attractive alternative investment option. As an asset class, bourbon offers investors the potential for high returns and portfolio diversification. This article explores the bourbon investment landscape, including growth trends, valuation outlook, risks, and strategies for investing in this unique spirit. With proper research and planning, bourbon can be a rewarding part of a balanced investment portfolio.
Bourbon’s strong growth makes it a compelling investment choice
The bourbon industry has experienced tremendous growth in recent years. Total U.S. bourbon sales have risen from $1.7 billion in 2010 to over $5 billion in 2021, driven by rising global demand and popularity of premium and super-premium bourbons. As supply struggles to keep pace, many rare and aged bourbons are becoming increasingly scarce and valuable. For example, the value of rare bourbons at auction rose over 500% between 2006 and 2021. This supply-demand imbalance suggests continued upside for bourbon valuations.
Bourbon offers portfolio diversification with low correlation to stocks
Bourbon has a low correlation with stocks and bonds, making it an effective portfolio diversifier. For instance, the Knight Frank Luxury Investment Index shows bourbon significantly outperforming gold, fine art, and diamonds between 2006 and 2021. Bourbon’s returns are largely independent of broader financial markets. During the 2008 financial crisis, bourbon gained over 15% in value while stock markets plunged. Bourbon’s diversification benefits come from its collectibility and scarcity – attributes not closely tied to economic cycles.
However, bourbon investing comes with risks like high storage costs and fraud
While alluring, bourbon investing has risks to consider. Properly storing rare bourbons requires temperature and humidity control, security, and insurance – adding storage costs. As bourbon popularity grew in the 2000s, counterfeiting emerged as an issue, requiring investors authenticate bottles. Additionally, bourbon’s illiquidity means it can take time to find buyers for rare bottles. Investors must weigh bourbon’s high returns against its specialized storage needs, authentication costs, illiquidity challenges, and fraud potential.
Focus on rare, aged bourbons but diversify across brands and ages
The most promising bourbons for investing are rare, aged (15+ years), pre-2000 bottles from acclaimed distilleries like Pappy Van Winkle, William Larue Weller, and George T. Stagg. However, experts recommend diversifying across several brands, ages, and bottle sizes to reduce risk. While ultra-aged bourbons get attention, well-aged (8-12 years) bourbons can also appreciate nicely. Blending high-end brands with affordable ones enables diversification on a budget.
Use qualified appraisers, certified warehouses, trusts to navigate risks
Bourbon investors can take steps to minimize risks. Store bourbon in certified warehouses like Vault & Vator to ensure ideal conditions. Have bottles appraised by experts like Whisky Advocate to confirm authenticity and value. Work with qualified bourbon investment firms like Vinovest that handle sourcing, authentication, storage, insurance, and sales. For larger holdings, explore a bourbon trust. While not risk-free, thorough due diligence and working with specialists can maximize upside and minimize pitfalls.
Though not without risks, bourbon represents an attractive alternative investment for thoughtful investors seeking portfolio diversification, hedge against inflation, and potential for double-digit returns. With proper due diligence and risk mitigation,allocating a small portion of a portfolio to bourbon can boost returns. But speculation should be avoided in favor of long-term, diversified investment.