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Getting Started: Understanding Collectibles as Investments

Collectibles are an excellent way to invest in things that you personally enjoy owning while providing further diversification in your portfolio. From stamps to coins to antique furniture to vintage cars to the latest non-fungible tokens (NFTs), collectibles can be anything of value.

Collectibles Explained

Collectibles refer to any items that become more valuable over the long term. They can be sold for a higher price than they originally cost as they grew rarer and more popular. Items like art, antiques, coins, comic books, and stamps are some of the common types of collectibles.

Collectibles can be anything you would want or love to own. For example, a genuine baseball card could be worth more to a baseball fan or a vintage sports cards collector than to someone who has zero interest in baseball or sports history.

Nostalgia also brings added value to a particular collectible. In fact, one of the biggest reasons many people collect certain items is because they look to reconnect with their past.

If a product, such as a toy or clothing, is trending worldwide now, it may become a collectible after two or three decades due to the nostalgic feelings it could evoke.

However, that is not 100% certain. If you plan to have a comfortable retirement, you can’t rely solely on the possibility that you’ll turn an excellent profit just by collecting the most popular items today.

That strategy will not exactly take you there, as there are no guarantees that many will be nostalgic 20 or 30 years from now about the items you’re collecting.

The collectible’s physical condition also plays a role in its price. Scratches, bents, rusts, and other imperfections can reduce a collectible’s value. On the other hand, if it is in original and excellent condition, you may be able to sell it for a higher price.

Collectibles as Investments

Collectibles fall under the alternative investment category. That means they have a low correlation to conventional investments like stocks, bonds, mutual funds, or cash and can provide investors with diversification and potentially more returns.

However, unlike traditional investments, collectibles lack intrinsic value. Depending on investors’ preferences, perceptions, and sentiments, a collectible can either be worthwhile or not. Plus, these three factors are usually short-lived and can ease overnight.

Putting money into alternative investments can be a thrilling and profitable experience, but their potential for higher returns also means higher risk. With collectibles, it is uncertain that you’ll be able to get your initial investment back or sell it in the future for a higher price.

In addition, it’s crucial that you consider the risk involved with investing in collectibles. Scams, con artists, and fraud runs rampant in the world of collectibles. Therefore you need to be careful in choosing which collectible you should own.

Learning how to verify dealers and identify an authentic from a fake properly may not only save your capital, it could save you from a long time of sadness. Still, not all collectibles are bad and should be avoided.

Suppose you bought it strategically and have done your research on it. In that case, a collectible may appreciate and reward you with higher returns without sacrificing a considerable amount of your investment dollars to generate more profit.

Benefits of Owning Collectibles

Easy Storage and Access

Collectibles are tangible assets, making them pretty easy to store and transport and allowing people to sell or trade them wherever they are in the world.

You can buy collectibles on online marketplaces such as eBay or in local shops. Additionally, pawn shops, yard sales, and thrift stores can offer items worth investing in.

Enjoyable Experience

Investing in something you’re personally interested in can be a more enjoyable experience than investing in stocks or bonds.

For example, if you’re an art collector, you can display the artworks you purchased at your own home, or if you bought a vintage car, you could take it for a spin whenever you like.

The thrill of the hunt is also what makes investing in collectibles enjoyable. Looking for and trying hard to obtain the item you want is near as fun as actually having it.

Diversification

Collectibles can help diversify a portfolio filled with conventional assets since they are alternative investments independent from the stock and bond markets. It’s good to have your money spread across different types of investments rather than have them stay in stocks and bonds only.

Factors to Consider Before Investing in Collectibles

Fraud Risk

Collectibles can carry a significant fraud risk. The world of collectibles is filled with frauds, knock-offs, and forgeries, and those already experienced in this industry still fall victim to fake items that look exactly like the real ones.

Markups

Dealers of collectibles can markup items to make money, as they are focused on selling the item to pay their overhead costs and replenish supplies. Unlike collectors, dealers can’t buy and keep holding on to an item with hopes that it will appreciate.

Imperfections Affect the Value

As mentioned above, imperfections such as scratches and bents can reduce or completely erase the value of a collectible. That is why they need to be stored properly and protected from hazards like sunlight or water.

A collectible can be officially insured to keep it in pristine condition. Usually, it costs around 1% or 2% to insure an item’s value annually. So $10,000 collectible would cost about $100 to $200 per year to insure.

Not an Income Source

Collectibles can’t provide an additional income stream, unlike stock and real estate investments that could deliver returns through dividends or rent payments while they grow in value. As a result, you need to keep holding your collectible until you see an excellent time to sell it.

Largely Illiquid

Being an alternative investment, collectibles also lack liquidity. If you look to turn a profit and cash out with collectibles, you need to be able to catch a buyer’s interest and have him willingly agree to pay your asking price.

Competition

Keep in mind that a collectible’s value mainly depends on its rarity and physical condition. So even if there are similar items in the market, their value would still be different from each other. Therefore, if you’re buying or selling collectibles, you should analyze the current rates for similar items.

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