In theory, at least, you can pick up a few collectibles, put them somewhere safe for several years and then sell them at a profit. But, in reality, using collectibles as an investment can be a complex process.
Everybody remembers Beanie Babies, after all. For several years, it seemed like everyone was collecting Beanie Babies. A friend of my mother’s had thousands, claiming that when she sold these toys, she’d be able to put her children through college easily. Now, though, you can barely give them away. The company behind Beanie Babies literally made millions of the little toys, followed closely by a string of competitors. Worse, many people held on to the toys, meaning that there are a lot more Beanie Babies out there than people willing to pay money for them. Sure, they’ll be worth something some day, but that day is probably a century in the future, when most of the existing Beanie Babies have gone into a landfill.
There are collectibles worth a lot of money: fine art, wine, a few select baseball cards and so on. The rule to remember, though, is that something has to be rare and desirable to be worth anything. A painting by an artist who turns out a new piece every week is far less valuable than something by Michelangelo, because there’s relatively little left available from Michelangelo’s time. But you absolutely need to know what you’re doing before you get into the collectible market.
With Collectibles, Knowledge is Money
With most investments, there are rules to keep investors from getting into trouble. The SEC controls stock investing fairly closely, so that an inexperience investor won’t get taken for a ride by a greedy broker. But with collectibles, you’re entirely responsible for protecting yourself. There’s no one looking out for you.
If you don’t closely study your market before you buy anything, you can wind up buying a fake, something that isn’t all that collectible or an actual collectible for far too high of a price. You basically have to be an expert before you lay down your money if you really want to turn collectibles into an investment.
There are appraisers and experts who can help you decide on the value of a given item: when dealing with fine art, for instance, it’s commonplace to bring in experts to check that a painting is not a fraud and to set a price. Of course, those experts cost money and you have to be able to trust their opinion — the more you can confirm on your own, the better. Those expert opinions are especially important when you’re selling a collectible. You can always sell a collectible for more if you can guarantee it’s the real thing.
Collectibles Aren’t Like Any Other Investments
The average investment brings you income after you buy and before you sell it. A stock, for instance, may bring you dividends, while a piece of real estate may bring you rental income. A collectible, though, just sits there. It may even cost you money as you have to store many collectibles appropriately — wine, comic books and antique cars really shouldn’t just hang out in your garage while you’re waiting for their value to increase.
Furthermore, collectibles are incredibly illiquid — it’s tough to turn them into cash. In order to get full value, you usually have to find a collector who wants the piece. Someone who isn’t passionate about their collection simply won’t pay you top dollar. It can take years to find the right buyer for even a particularly valuable collectible. You can sell some collectibles quickly, often through pawn shops and the like, but you’ll almost always take a loss. Beyond pawn brokers, it’s also very difficult to use many collectibles as collateral for a loan if you do need cash quickly.
Are Collectibles Really Worth the Hassle?
There are some collectibles that will sky rocket in worth over the years. You have to know your market very well, though, and be able to tell why a given item is going to increase in value — and, no, ‘because everyone’s buying them’ doesn’t count.
You also have to be able to afford to wait years (or even decades) before to cash in. In most collectible markets, appreciation happens over the course of decades. If you want to make money through collectibles, you can’t afford to cash in early. But, if you can afford the wait, there may just be a nice chunk of change for you at the end of the tunnel.
David’s Note: My dad kept reminding me that I loved breaking his collectible train sets when I was a toddler. Before I was 10, I was into collecting stamps, and I have no idea where they are now. I was into baseball cards during my teens and I believe they are in (of all places) my uncle’s basement in Canada. Now that I think of it, I remember hearing my uncle’s house having a floor a few years back. Safe to say that while I probably had some hopes of profitability of every collection at one time or another, those turned out to probably be the worst investments of my life. Do you collect anything? Anything for profits you want to share?