In turbulent markets, many investors seek safer places to store their capital. For some, gold, commodities and real estate make ideal safe havens to grow their wealth. Others may turn to another method of generating wealth — investing in collectibles.
What Are Collectibles?
Broadly speaking, a collectible is any item that gains value over time. More specifically, collectibles include any alternative investment that doesn’t fit into traditional categories like stocks, bonds or real estate.
Many collectible investments derive value based on nostalgia and emotional factors. They also attract collector interest, helping to build markets that last for generations.
These items can be rare, like furniture owned by Benjamin Franklin, or popular, like Beanie Babies. Then, there are common items like a comic book or sports cards in this asset class. So, which should you try, and where will you access the collectibles market? And, on top of that, collectible prices vary based on each item’s condition, uniqueness and history.
What Assets Are Considered Collectible Investments?
Historically, collectibles included only physical items like artwork, wine or baseball cards. But with the rise of non-fungible tokens (NFTs), investors can now buy “digital collectibles” too.
Other common collectible investments include:
- Action figures
- Antiques (like furniture or pottery)
- Autographed memorabilia
- Comic books
- Rare books
- Sports memorabilia
Return Potential of Investing in Collectibles
The return on investment varies enormously in the collectible world. The specific item, its age and condition and the cost of acquiring, insuring and maintaining collectibles all impact sales prices.
One study found that annual returns on collectibles can range from -5% to over 175%. However, items in the upper end are rare (specifically, Beanie Babies at the height of their craze). This is just like fine art, where some pieces (while exciting) will not pay out like others—and most people aren’t sitting on a Picasso or Van Gogh.
More realistically, you can expect most collectibles to appreciate 10% or less each year—per investment opportunity. And more common collectibles may gain just 2% to 3%.
How Collectibles Are Taxed
The IRS heavily taxes collectibles to disincentivize buying and selling non-economic driving assets. For instance, if you own a collectible for more than a year, you’ll pay up to 28% in long-term capital gains taxes on your profits. For collectibles sold after less than a year, you’ll pay your ordinary income tax rate.
Benefits of Investing in Collectibles
Alternative investments like collectibles offer benefits you can’t find in other assets. Here’s what to know.
Diversifying your capital among several kinds of investments helps protect you when the market sours. Collectibles provide a unique form of diversification, as they’re largely removed from the influences of traditional investment markets.
As physical and digital assets, you can hold, transport and sell collectibles anywhere in the world. Yes, stamp collecting is portable, but you also need to be very careful with stamps while some collectibles are much more sturdy.
Collectibles don’t trade in traditional financial markets. As such, they have low correlation to other asset price movements. In other words, when the stock market tanks, your collectibles may hold their worth — or even grow more valuable.
Unlike stocks or bonds, collectible prices aren’t propped up by cash flows or interest payments. Instead, collectibles derive value from supply, demand and time.
While historic collectible supplies remain the same — or shrink as items are damaged or lost — demand can hold steady or rise, boosting rarity — and profits.
Remember, too, that some sports collectibles are pushed heavily because there’s such a large market. Counterfeits could appear anywhere, and there’s no guarantee that each new item will give you the diversification benefits which you seek.
Strong Historical Performance
Historically, many niche collectibles produced above-average returns, like stamps and baseball cards. While trends change as peoples’ interests shift, rare collectibles can still produce outsized returns.
Collectibles offer a rare level of personal control over your assets. You can show them proudly, store them away, or tour them around the world. Compared to many investments that sit in your brokerage accounts, that’s a lot of control.
Existing Buyer Base
A collectible’s status and value are determined entirely by the group of people willing to pay for it. That means that if you find a niche with enough buyers to remain liquid, you can feel confident that you’ll (almost) always have a built-in buyer base for your items.
Downsides of Investing in Collectibles
Just like other investments, even the best collectibles come with inherent risks.
Unfortunately, many scammers have made bank by counterfeiting collectibles. Learning how — or who — to vet items before you buy can save you heartache and money.
When you buy collectibles from a dealer or auction house, they often mark up the price or charge extra fees to make a profit. Unfortunately, high markups on collectible prices also eat into your eventual returns.
Investing in collectibles requires upfront capital, even on cheaper investments. While you can buy a $100 baseball card and flip it for $300, the real money lives at the higher end of the spectrum. With investments ranging from thousands to millions per item, this alternative investment can get expensive quickly.
Lack of Liquidity
As tangible objects are popular in specific niches, collectibles remain largely illiquid assets. Cashing out depends on finding the right buyer at the right time and a profitable price.
Possibility of Destruction
Collectibles are also unique in that any damage can ruin the item’s value. Scratches, dings, blemishes and even yellowing with age can convert coveted collectibles into pricey paperweights.
Storing and Insuring Collectibles
Getting the most out of your collectibles requires keeping them in pristine condition.
For some items, like baseball cards, the only cost is a binder and a $1 plastic cover. But for aged, fragile, or light-reactive objects, you may have to shell out for special moisture, heat and light controls.
Not only that, but you may need collectibles insurance to protect your investment from damage or theft.
Lack of Income
Unlike more traditional investments, collectibles don’t produce interest, dividends or rent income. With storage and insurance costs, they may even cost money in the meantime. This lack of income can further eat into your profit potential.
Collectibles as Investment Alternatives: Choose Wisely
Collectibles can diversify your portfolio, maximize your long-term returns and provide personal satisfaction. However, they’re also risky and speculative and require time, capital and special care. And when you sell, you have no guarantee they’ll generate a return.
As such, investing in collectibles is a highly personal choice every investor should make for themselves.
Frequently Asked Questions
Is investing in collectibles a good idea?
Investing in collectibles can be a good idea if you pick the right niche and can store your items safely. There’s no guarantee that any collectible will return a profit.
What collectibles are the best investments?
The best collectibles differ based on what you mean by “best.” For instance, stamps and trading cards offer high liquidity and lower purchase prices. But if you want better returns, you’ll need to shell out more on wine, coins or art.
Are collectibles a low-risk investment?
Collectibles aren’t necessarily low-risk, per se – instead, they offer different risks. Maintenance costs, potential damage, fraudulent items and market volatility can all impact your returns.