Alternative Investments – Collectibles

Alternative Investments - Collectibles Earlier in this series, I discussed investing in FarmlandRooftop Solar System, and Private Equity as alternative investments. Alternative investments can provide lucrative returns that are unavailable by investing via stocks and bonds. In this version we look at another Alternative Investment – Collectibles.

A Collectible is any physical asset that appreciates over time. The rarer the collectible item, the more valuable it is and can vary widely depending on the field. For someone to invest in a collectible, an in-depth knowledge of the subject and a good eye is necessary. Luck also plays a huge part in the investment as some characteristics of collectibles can be out of one individual’s control. It is also common for some people to simply collect items that interests them and captures their attention, and not necessarily consider the collectible as an investment. But this interest and collection over time can turn into an investment portfolio, of sorts.

Alternative Investments – Collectibles

So what are some types of collectibles? As mentioned earlier, collectibles can be any physical asset. Some of the common ones include art (one of the favourite collectible items for the wealthy), cars, wine, stamps, coins, minerals, toys, books, antiques…you name it! There are advantages and disadvantages with collectibles, esp as an investment.

Advantages

  • Potential for gains is high
  • A collectible can provide a great hedge against inflation
  • It is possible to find a gem that is very rare in unorthodox places. Stories of someone coming across a collectible found in the attic, garage sale, etc are all too common.
  • Low correlation to the traditional markets – such as the stock market or bond market; in essence, a great alternative investment
  • Tax advantage – it is easier to pass on the collectible to your heirs and is considered a “wasting asset”, without being taxed in your estate in the inheritance.

Disadvantages

  • Counterfeits – One of the biggest problems with collectibles is the possibility of ending up with a counterfeit piece or other counterfeits in the marketplace.
  • Not liquid – a collectible by definition is a physical asset that an investor needs to hold for the value to appreciate over time. As such, the investment is not liquid.
  • Does not provide income whatsoever
  • Time is an important factor – investors have to usually wait a very long time to find out if the investment was worth it.
  • Wear and tear – this is a big one and investors sometime need to take care trying to keep a collectible in pristine condition to minimize wear and tear.
  • Some factors may be out of control – an item can be valuable, but if its not rare and commonly available, the price will not appreciate at all or enough. A growing rarity over time is desirable – which ties in with the ‘wear and tear’ above.
  • Its hard to figure out true value – it is only as good as the next investor who wants to invest in it.
  • Markup – when going through a dealer, a huge markup is included, since the true value is usually subjective.
  • Tax disadvantage – a tax has to be paid when finally selling the collectible – there is no way to protect the asset by using tax-advantaged accounts such as retirements accounts etc.

Conclusion

Collectibles can be a lucrative form of investment and the potential for gains is high if rightly chosen. Collectibles can provide with a lot of advantages over traditional forms of investment, but also come with risks, some of which may be out of control. Due to this reason, to have a collectible investment pay-off may require both a good eye/idea for investment in addition to luck. Do you collect anything? Do you consider that collectible an investment? Share your thoughts below.

 

21 thoughts on “Alternative Investments – Collectibles

  1. Personally, I would never invest in collectibles. The market for most are even more fickle than the stock market. It’s interesting that you would write about this as I was thinking about the failed market of beanie babies the other day as I seen some for sale at a store. I remember when everyone was crazy about these things and bought a ton, then the maker just flooded the market and they were worthless. Or what about baseball and sports cards? Or comic books? All are nothing like they used to be.

    – HMB

    • haha I remember the beanie babies. That was a crazy fad. I hear you on the baseball cards and comic books. There are stories in the news about someone making millions because of a rare item and ppl get tempted. I agree that it is too fickle and random to invest in.

      Thanks for sharing
      R2R

  2. I own a few collectibles such as money coins and hockey cards (I have Paul Coffee’s rookie card). I like collecting stuff. But I’m not sure I will ever sell them so I don’t view them as potential lucrative returns. Nice post though. Thanks!

    • Interesting, MD. I collected stamps as a kid (who didnt?) and had some coins as well…but never collected cards. Hang on to them, you never know what the value might turn out to be in a few years/decades 🙂

      Thanks for stopping by and sharing
      R2R

      • I also collected stamps as a kid, when we would receive letters from HK and Australia and other places. I still cherish them and I doubt I’d be able to make much if I were to sell them. Liquidity is almost always the #1 thing to look for in an investment, and collectibles will never be as liquid as the stock market.

  3. There is a drought in California from 2010-2015 … and probably will go on a bit longer. Good time to collect some wine. Dig a basement and 20 years from now, $12 wine = $600-$1000? hehehe. I’m not into wine, I can’t stand the smell, but the wine business seems very lucrative.

    I used to collect stamps, and coins but it take disciplines. I also collect $2 bill until the guy came and wiped it all out. Ouchy! After that no more valuables.

    • Thats a thought! The drought in California makes the California wines more precious but do you think the value of those bottles will get really high? Interesting thought.
      I remember I had a $2 bill as a kid and saw a couple of years ago – someone get a few thousand dollars for a specific $2 bill. Not mine 🙁

      Thanks for stopping by and sharing, Vivianne.

      R2R

  4. I love comic books… to read and collect for fun. There is no real market for them unless its high quality gold or silver age. Bronze and later are just worthless money wise. Collectibles in general are rough because the markets can get hot and cold too quickly.

    Still… I love the fact that you are looking into alternatives..

  5. I’m definitely in the minority, as I actually do invest in collectables and consider them a valid part of my portfolio. It’s actually not very easy, as you imply. It takes knowledge and luck, and time. Lots and lots of time. If there’s an investment that really requires you to pass it down to the next generation in order to fully manifest its value, collectables are it.

    A good example is my emerald collection. Seems easy to do, as gems aren’t that hard to understand. But it’s tougher than it looks. What makes an emerald investment grade? Can you tell the difference between emeralds from Columbia, Brazil, and North Carolina? What’s a garden, and how much of it do you want? What are the forms of treatment, and is it a good thing to have? You really should focus on the stuff you are really educated in. I’ve been collecting gems and minerals for years, so I like to think I have that foundation.

    And I think the most important thing is that you actually enjoy collecting what you do. We’re not billionaires with legions of staff to appraise each thing we buy. The best we can do is make educated guesses and hope for the best. Even if my emerald collection doesn’t ever appreciate one cent, I would still buy them, simply because I love doing so, and collecting them makes me happy. If you don’t have that love for what you collect, you’re making a mistake collecting it at all.

    • DD,
      I did not mean to imply that building a collectible portfolio is easy, if thats what my article comes across as. You, as a collector, have hit the nail on the head – that it takes an enormous amount of time, patience and luck to build a good portfolio. I am not trying to say its easy and you are absolutely right that it takes years and one also needs to enjoy it to learn the differences and find something of value.
      Thanks for stopping by and sharing your thoughts. Always great to hear from someone who practices this style of investing.

      Best wishes
      R2R

  6. R2R,

    I don’t really see collectibles as investments unless you really know what you’re doing, but that’s hardly the case for many people.

    Ever since I was 16 I started collecting old Nintendo video games and there are some very rare gems in my collection. I’ve noticed prices have shot up dramatically the past few years, yet no one is willing to buy a rare spare (around €2,000 according to previous sales) I have lying around. To me, that’s one of the biggest disadvantages: you need a seller who’s willing to pony up a decent amount of money and sometimes it’s hard to find someone to do just that.

    Side note: I bought the rare spare game for €3. So my investment returns would be off the charts in just six years’ time if someone did buy it, ha!

    Bets wishes,
    NMW

    • I hear you, NMW. That would be an amazing return if a buyer comes along. Hang on to those…you never know when someone is ready to drop big bucks to buy something like that.

      Thanks for sharing
      R2R

  7. Like No More Waffles said, if you aren’t an expert or at least highly knowledgeable in that area, then collectibles are not really a solid investment. If you don’t know about comic books, then you’ll probably go out and foolishly buy every comic that is “Issue #1. COLLECTOR’S EDITION!!!”. If you don’t know numismatics, then you’ll probably be buying mostly worthless coins from shady dealers rather than true pieces of monetary history from reputable sources.

    Speaking of shady dealers, ever watch Pawn Stars? Just because an item is worth, say, $10,000 doesn’t mean that they will give you $10,000 for it. If you get Rick from that show as the person you are trying to sell that asset to, he’ll probably give you $400 for it. But at least you’ll get to meet a buddy of his who is an expert on whatever you just brought in.

    Sincerely,
    ARB–Angry Retail Banker

    • You hit the nail on the head, ARB. If you arent an expert, theres no point buying something just for the sake of being a collector. More likely than not, you will get a bad deal. I dont have TV, so dont really watch any shows…although Ive seen that show on the TV at gym occasionally. I do watch some shows online, and I was watching an old episode of Top Gear and they were talking about classic cars and buying cars as an investment. The funny thing was – the main presenter, Jeremy, knows a lot about cars and bought the right cars and sold them for a loss too soon, and the year after their value shot up…so, even when you pick the right one, you need to time it right, it seems….just like any other investment.

      Anyway, thanks for stopping by and sharing your thoughts, ARB.
      R2R

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