Investors who are looking to expand their portfolios and open up the prospect of potentially securing a return from an investment they are passionate about often turn to the world of alternative investments. Tangible assets, such as cask whisky, art, and antiques, are often pitched as ways that investors can go on a journey by getting to know their investment and following it in a way they wouldn’t generally with things like stocks and shares.
On the surface, this sounds like an attractive proposition, but what do the finance experts have to say? We’re going to take a closer look so that you can understand the bigger picture.
The promotion of diversification
Every finance expert will highlight the need for an investment portfolio to be diverse so that it doesn’t become overreliant on the performance of a single market. Taking cask whisky as an example, the historical performance of the value of most casks tends to show that they behave in a way that is distinct from that of stocks and bonds. This means the value of a cask whisky investment will be affected by changes in the economy in a different way, thereby reducing the volatility of the overall portfolio.
A potential inflation hedge
Simply put, high inflation means a rising cost when it comes to goods and services, which means the value of a tangible asset may rise at the same time. Of course, there can never be a guarantee that a cask whisky investment will deliver a specific return, but some investors like to look at this market as a long-term hedge against inflation. That said, it’s important to note that alternative investments of this type will generally accrue value gradually as the market is relatively stable, if they do indeed appreciate.
An opportunity for a passion project
If you are investing with the intention of making a return, but you also want to go on a journey where you immerse yourself in a world you are passionate about, an alternative investment may be able to offer both. The key point to note, however, is that you need to keep your passion in check by being pragmatic when it comes to verifying the details of the investment opportunity.
“We actively encourage people to come to our office or Knightsbridge store to meet us. Any company that shies away from meeting face-to-face should be met with a good degree of caution,” says Alphie Valentine, Co-founder of Hackstons, a whisky specialist that offers opportunities for both investment and consumption. By being transparent and open, Hackstons help their clients to verify the nature of the opportunity by providing things like Delivery Orders (the ultimate proof of cask ownership) and expertise on casks that have the potential to perform well.
Potential tax benefits
Cask whisky has become an increasingly popular investment in recent years because it is exempt from Capital Gains Tax as long as the whisky is maturing in the barrel. This is because it’s classified as a ‘wasting asset’ due to the fact that some of the liquid evaporates each year, known as the ‘angel’s share’. Hackstons has a specialist warehouse partner in Scotland that is fully bonded and has been approved by HMRC, with visits available to investors should they wish to see their cask and learn more about how it’s cared for. If you decide to bottle the whisky as part of an exit strategy, it is important to know that the investment will then be subject to VAT, Duty, and possibly Capital Gains Tax.
The need for transparency
Critics of the world of alternative investments will highlight prominent scams and frauds that have made the headlines over the years. While these things certainly go on, potential investors can take control of their portfolios by only doing business with companies that offer full transparency from the beginning.
In the case of cask whisky, looking at Hackstons on Trustpilot will provide a high degree of social proof and present plenty of evidence that the company has an established profile. This is in contrast to opportunities you may be presented with, where you receive an unsolicited approach from a provider who has little or no online presence. Such approaches are initial red flags and warning signs, especially if you subsequently connect only to then find that the full details you need to perform due diligence are not readily available.
The importance of timeframes
An investment in cask whisky will behave very differently from an investment in the stocks of a tech company, for example. The latter may be suited to intraday trading and high volumes, whereas the relative stability of the cask whisky market means that investments tend to work best when they are held for an extended period of time.
Understanding that, while there are never guarantees of a return, alternative investments like cask whisky tend to work best over the longer term is important. Rather than being seen as a contributor to illiquidity, financial experts say that this makes such investments valuable components of diverse and robust investment portfolios.
