Investors acquire collectibles in the hopes that those items will appreciate in value. Collectibles can be financially and personally rewarding, but they can also be extremely unpredictable investments. Learn the basics of collectibles investing, including what they are, their pros and cons, and what they may mean to the average investor.
Definition and Examples of Collectibles
Almost anything can be a collectible. Collectibles can have an intrinsic value, such as gold coins, or no intrinsic value, such as a baseball trading card. There are auctions and other markets for all types of collectibles, from artwork to vintage toys. High-net-worth investors sometimes acquire collectibles to diversify their portfolios. Research suggests that some collectibles, such as luxury handbags and watches, remain more stable in value when traditional investments such as stocks, bonds, and real estate are volatile. The most popular collectibles for high-net-worth investors include fine art and watches. There are plenty of opportunities for all types of investors to participate in the collectibles market. The global sports trading card market, for example, is estimated at $13 billion and comprises a wide range of collectors, including kids. Non-fungible tokens (NFT), have created entirely new markets for digital collectibles. NFTs use the same blockchain technology to authenticate an original digital image or recording as does a cryptocurrency such as Bitcoin. Athletes and celebrities can use NFTs to sell digital autographs or pictures of unique sports moments. Artists use NFTs to create and sell digital artwork and music. Companies such as Verizon use NFTs as marketing tools. On March 11, 2021, auction house Christie’s sold the NFT artwork “The First 5000 Days” by Beeple for $69 million.
Types of Collectibles
NFTs
The market for non-fungible tokens has exploded. NFTs can be bought and sold on marketplaces as well as auction sites such as eBay and through outlets like Sotheby’s. Some NFT marketplaces specialize in interests such as sports memorabilia, celebrities, or music.
Coins and Stamps
Coins and stamps have been popular with many kinds of collectors and investors for generations. It’s easy to get started, and there is a wealth of resources available.
Sports Trading Cards and Memorabilia
Sports trading cards and memorabilia are a $17 billion global market, one of the fastest-growing types of collectibles. According to the PWCC 2500 index, a benchmark created by PWCC Marketplace, a large seller of investment-grade trading cards, they have returned 555% as a whole since 2008, compared with 230% for the Standard & Poor’s (S&P) 500.
Vintage and Antique Toys
Popular items in this category include LEGO sets, toy cars, and toy action figures. Rare items such as wind-up toys from the 1920s are often in high demand, commanding top dollar.
Pros and Cons of Collectibles
Pros Explained
Portable: Many collections, such as NFTs, artwork, jewelry, or coins, are portable stores of wealth.Liquidity: Popular collectibles can often be bought and sold via auction, dealer, and online markets. But price transparency can be problematic, especially for unique, one-of-a-kind items. Securities are also truly liquid. They can easily be turned into cash in seconds. Collectibles, like real estate, are subject to timing and liquidation problems.Appreciation: Collectibles have the potential to diversify and outperform traditional portfolio assets such as stocks, bonds, and real estate.Personal satisfaction: Unlike with most investments, collectors can enjoy their acquisitions as those items appreciate in value.
Cons Explained
Carrying costs: Storage, insurance, and maintenance costs reduce returns. Volatility: Some types of collectibles, such as fine art, are highly sensitive to economic cycles. Not available for inclusion in IRAs: Most collectibles are not eligible to be held in an individual retirement account (IRA). Fraud: The collectibles market isn’t regulated, making it attractive for fraudsters.
What It Means to the Average Investor
There are many collectible opportunities available for every type of investor. If you want to get started with collectibles, here are some points to consider:
Preferences
Part of the benefit of collectibles is the enjoyment you get from the collection, as it may not appreciate in value.
Budget
How much of your savings do you want to allocate to collectibles? Remember, IRA money is not an option.
Research
Collectibles aren’t regulated, so they are more subject to fraud than other markets. Find reputable dealers, join collectors’ groups, and thoroughly research your acquisitions.
The Bottom Line
Collectibles aren’t only for high-net-worth investors. They can be used to diversify your portfolio, as well as provide personal enjoyment for years. But collectibles can be volatile, and may not pan out as an investment with a worthwhile return. It pays to do your research, develop a plan, and manage your expectations.
