Jerremy Alexander Newsome is one of the world’s leading thinkers in stock market education and is the CEO of Trade in real life.
A few months ago, I began a quest with some fellow investors to create a “recession proofAsset. We decided that finding something “recession-proof” wasn’t a reasonable goal, so we lowered our expectations and got to work.
At that time, the stock markets were extremely high, a recession was imminent and a rise in interest rates was inevitable. Anticipating that the change in price would push the stock market down, we began exploring alternative investments that would not react negatively.
Fine Arts was suggested but was quickly rejected as we decided it was too speculative. Crypto was also proposed; at the time, Bitcoin was selling for about $60,000. The consensus was that crypto would be a smarter move after Bitcoin saw a drop and a pullback.
After some additional exploration, including a discussion of the benefits of investing in rare books— we discovered an asset class that stood out from the crowd. It was something I had never heard of, and I invested in assets for a living. But the more I learned about it, the more I liked it. The asset in question? Bourbon barrels.
Yes, I’m talking about real wooden barrels full of bourbon, the alcoholic drink often associated with Kentucky that distilleries have been producing from corn since the 18th century. Bourbon is what is known as a “barrel-finished spirit,” meaning it is aged in a barrel before being sold for consumption. Barrel aging gives bourbon its distinctive flavor. It also creates an opportunity for barrels of bourbon to be bought by investors.
To understand how this works, you need to understand that the distilleries that produce bourbon do not necessarily produce a particular brand of bourbon. In fact, brands often buy barrel bourbon from different distilleries and blend them to get their signature flavor.
Two things happen during the aging process. First, the barrel is in a warehouse, undisturbed. The minimum time bourbon typically sits in a charred oak barrel is two years. However, most brands age bourbon for at least four years. In some cases, bourbon is aged for more than ten years.
The second thing that happens during the aging process is that the value of the bourbon increases at a pretty impressive rate. Hearing this, I saw the potential for bourbon barrels as an investment. If you are interested in adding some barrels to your portfolio, here are three tips to start investing.
1. Don’t be in a rush to buy.
Bourbon has a long and celebrated history. Don’t invest in bourbon barrels. Google “invest in bourbon barrels” and you’ll discover a growing number of companies willing to sell you their barrels or help you buy barrels. Before giving your money to any of them, take some steps to ensure that they are trustworthy.
Like cryptocurrency investing, bourbon barrel investing is not a practice regulated by a government watchdog. There is no BrokerCheck which you can use to quickly check whether a salesperson or investment specialist is legit, which means doing some homework. Reading customer reviews is a great place to start. Positive press on a company is another good sign. In general, you want to avoid anything that looks shady or suspicious, which brings me to my second point.
2. Avoid scams.
Yes, bourbon barrel scams exist and they are a lot like other investment scams. If you find an offer that promises an ROI that sounds too good to be true, then it does. You will find offers that guarantee returns. Guarantees on an investment like this do not exist. You will also find offers that promise an annual return. When it comes to investing in bourbon, this is not an appropriate factor.
As the popularity of bourbon barrel investing grows, so will the number of scammers preying on interested investors. To avoid them, keep in mind that you are investing in an alternative asset, not a pyramid scheme. It’s an opportunity to make money, but not quick money, leading to my third point.
3. Don’t be in a rush to sell.
Bourbon barrels certainly belong in the long-term investment category, as their value is reflected in their age. Right now you can buy bourbon for about $1,600 a barrel. Selling those barrels in two years at $3,000 each is a reasonable expectation based on past market performance. While that’s not a bad return, it does require patience.
Plus, liquidating your barrels isn’t as easy as clicking ‘sell’. It can take a while to find the right exit deal. If you can’t find a buyer in two years, I suggest you wait and watch the barrels continue to appreciate in value. While you wait, spend about $60 a barrel per year to store them in a modern, air-conditioned steel warehouse equipped with a fire suppression system.
Every investor’s dream is an asset that requires very little work, requires very little maintenance, rises constantly over time, and pays generously and regularly. From what I’ve seen, bourbon barrels fit that description. At the very least, if the market fills up, you won’t find yourself over a barrel.
The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice on your specific situation.