Investing In Collectibles

Some people have become disenchanted with conventional investments.  With uncertain stock returns and low interest rates many are switching to such unconventional assets such as art and collectibles.

Is art an asset or investment?

Art as an investment has been considered an interesting and profitable alternative.  Art sales are thriving, with buyers eager to own something solid and beautiful and willing to part with some serious cash to get it.  But it’s also extremely risky.

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There are examples of art that have sold for much more than their purchase price over time, but these are exceptions.  The vast majority of art is never going to go up in price and may devalue the minute your walk out of the gallery with it.

To buy undervalued artists or well-known artists at discount prices requires a lot of knowledge or expert help.

The collectibles market

The vast collectibles market ranges from beer cans to stamps, sports and celebrity memorabilia to dolls and teddy bears, fine wines to antique furniture, and everything else you can think of.

There are loads of pop-culture treasures in many a boomer’s closet, protectively packaged and stored away.  A “Lost in Space” lunch box, anyone?

What makes art and collectibles valuable?

It’s hard to predict future value of anything.  You need to have a knack for figuring out what people want as well as what objects have staying power.

Related: How To Analyze Potential Investments

Qualities that make them valuable include:

  • Rarity – avoid mass produced products
  • Condition – the better condition, the more it’s worth – but usually not if it has been altered in any way
  • Authenticity – original paintings are worth more than subsequent prints.  If you can prove a famous person owned (or signed) something it will be worth more as well.
  • Age – old age can add value, especially if its also rare and in good condition.

Most importantly, however, is how much someone is willing to pay for it.  Buyers are subjective, faddish and emotional.  From action figures to sports cards, these are highly subjective in terms of value.

Someone may pay more than an item is worth to complete their collection, but on the other hand, the item may no longer be in favour.  Individual tastes and preferences can change quickly and unpredictably.

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Remember when Beanie Babies were going for $20 – $50 each (or even higher)?  Now you can find them for less than a buck on e-Bay.

Proceed with caution

More people are buying with an eye on possible returns.  But trying to figure out what to pay for an item is complicated.  You want to make sure you don’t overpay and it can be difficult to properly value items.  There’s no reliable way of doing that.  Research is essential.

Auctions can get pretty wild and the thrill of acquiring objects connected to a youthful passion, for example, may cloud a collectors’ judgment.  There’s the risk that the item may not trade for that price ever again.

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Warren Buffett’s concept of “circle of competence” – basically, never stray beyond your level of understanding – applies here more than ever.  If you are interested and knowledgeable you will make better choices of what to buy.

The problem with investing in an Old Master or first issue of the Spiderman comic book is they are already so expensive.  Will they appreciate enough to justify your investment? – you never know.

Don’t forget to include other costs such as commission fees, storage and insurance.

I read of one woman who insured her collection of 7,000 Precious Moments figurines for $110,000.  When she tried to consign them she found they were now worth precious nothing.

Tax rules

Capital gains tax is due on any gains you make from a sale over $1,000.  You can deduct sale and purchase costs (e.g. commissions) but not things like maintenance costs.

Related: Smart Tax Planning Strategies

If you buy or sell a lot you might be considered a trader rather than an investor for tax purposes.  In this case you’ll pay income tax on your profits rather than capital gains tax.

The bottom line

“If we’re ever in a tight spot, we can sell these at a profit.  They’re an investment.”

Collectibles can make interesting investments and might be a good way to diversify and may – one day – become profitable.

In most cases, buy rare and beautiful things because you love and enjoy them, want a collection, or to have nostalgic reminisces of bygone days.

Just don’t rely on them to fund your retirement.

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  1. Joe on December 12, 2012 at 1:10 am

    Generally I avoid collectibles — I hate clutter. Also, I think it’s typically a terrible investment idea. Because of Efficient Market Hypothesis (and specifically EBay) it’s got to be fraught with risk and next to impossible to make a lot of money. I own a small bit of silver and that’s about it; the only scenario in which it’d become useful is probably a zombie apocalypse.

    • Boomer on December 12, 2012 at 6:35 pm

      @Joe: I collect enough clutter on a regular basis without buying into a formal collection.

      I would only buy fine art or a piece of antique furniture (or whatever) if I absolutely loved it and it wasn’t beyond my budget. I wouldn’t think about selling later at a profit.

  2. Ken Faulkenberry - Arbor Investment Planner on December 12, 2012 at 9:30 am

    Investing in collectibles requires a great deal of expertise to be successful. Never rely on others (particularly sales and marketing people in the industry) to educate you. If you are not an expert in a particular sector I would avoid collectibles as an investment.

    • Boomer on December 12, 2012 at 6:41 pm

      @Ken Faulkenberry: When there’s money to be made counterfeits abound – in just about anything – to catch the unwary and uneducated. You see it all the time on Antique Roadshow. Someone pays a great deal of money for an item and it ends up being a knock off and worth only a tenth of the price.

  3. krantcents on December 12, 2012 at 11:07 am

    My wife was ateddy Bear collector for years. We have a variety of collections of things that we can sell. I have stamps, coins, antiques and Teddy Bears. None of these collections were ever started to make mmoney, but it will if we decide to sell.

  4. Liz on December 12, 2012 at 12:48 pm

    I bought art by very well known Canadian artists. Now I am trying to downsize. My kids don’t want them – I have tried selling them on usedregina and kijiji – nobody is interested. I phoned a pawn place – they said I would get maybe $200 if I was lucky. I guess I will keep them and not worry about them selling at a garage sale or going in the garbage when I am not around. They are definitely not an investment!

  5. Steve on December 12, 2012 at 8:48 pm

    I used to collect Transformers when I was a kid and I had a pretty good collection too. I never took them out of the box and they were in perfect condition.

    When I went home one summer to claim my toys, my parents had lent them to a friend and the little kid ruined my collection.

    No…I’m not bitter especially since Optimus Prime was worth over a thousand bucks.

  6. Gillian @ Money After Graduation on December 13, 2012 at 9:10 am

    Great post. I think I’ll stray away from collectibles, unless it was something I actually wanted to have and keep for a long time. It is far too volatile of a market and finding the right buyer is tough!

  7. Bryan Jaskolka on December 14, 2012 at 5:50 am

    Thankfully, the era of collectibles is coming back! With so many TV shows on (Storage Wars and American and Canadian Pickers to name just a few,) people are realizing just how important this stuff IS, and how much history it brings to the table! Yes, you must must must have a good eye, and know where to find deals. But I think this is an important segment that needs more light shed on it. Otherwise the only history we’ll be left with soon is the iPod Classic. Thanks so much for another great post, Boomer, and on what I feel is a very important subject!

  8. Bet Crooks on December 14, 2012 at 1:13 pm

    Things sometimes end up valuable for an unexpected reason, too. I have some silver quarters which are worth 25 cents as collectibles, but which have a melt value of about $4 each for the silver in them. It’s not their age or their collectibility that gives them any value, just the material from which they are formed.

    I agree that collections should bring enjoyment without any expectation of profit.

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