Investing in collectibles: Should I even bother?
3 Key Takeaways:
-Collectible investments are physical objects — tangible assets that have the potential to appreciate in value and diversify your investment portfolio.
-Collectibles can be anything that anyone collects, but a few categories offer reliable returns, such as stamps, coins, baseball cards, fine art, and sneakers.
-Collectibles are illiquid, unregulated, and often opaquely priced, so investors should collect not just for profit, but for enjoyment.
Collectibles offer investors the chance to merge their personal passions with the upside of financial return. However, it’s not all rainbows and sunshine and there are risks involved. In 2021 news that a Wayne Gretzky O-Pee-Chee rookie card sold at auction for $1.29 million dollars had middle aged men across the globe scrambling to check their collections for their own golden ticket.
Sports cards, collectibles, and other unconventional assets have taken a meteoric rise in value in recent years. The combination of disposable income from the pandemic and strong capital markets have pushed folks to consider investing in cryptocurrencies, fine art, and collectibles like coins, stamps, baseball cards, and classic sports cars. The collectibles market had been trending upward prior to the pandemic, but it’s clear that the time at home alone triggered more interest from investors as auction houses reported record sales numbers.
Investing in collectibles is usually driven by three factors. First, investors are passionate about what they are collecting. For some a lifelong obsession with sports causes them to want to acquire memorabilia of their favorite team or player. Secondly, there is a desire to own a rare or unique object. Lastly, collectibles as an investment class has proven to be a good store of value for future generations. Although returns for a wide range of collectibles over the last two decades have fallen short of traditional asset classes, returns have easily outpaced the rate of inflation.
For those interested in investing in non-traditional assets like these, here are some things you should strongly consider. First, make sure that the items you are interested in buying are authentic. Sadly, the collectibles market is not free of bad actors trying to profit by selling fake items. Second, be cautious about overpaying for items. Some investors can get caught up in the emotional desire to own a rare item, raising the risk of making a poor investment decision. As much as possible, leave emotions out of your financial decisions. Third and most important, since it can be challenging to achieve liquidity fast it is wise to not invest money that may be needed in the short term.