Collectibles as an Alternative Asset: What You Need to Know

Posted Apr 9, 2022

collection-484192411

Collectibles can take many forms and whether a particular collectible will grow in value is a gamble. Remember the Beanie Baby investors? But collectibles often have a benefit that is unique compared to other investments. When looking to diversify a portfolio, could collectibles be a part of your investment strategy?

What Are Collectibles?

Collectibles can be anything that can hopefully one day be sold for more than you paid for it. The value of collectibles depends on demand, scarcity, and condition. Some common kinds of collectibles include art, jewelry, wine, books, baseball cards, autographs, stamps, and coins. Even sneakers are consider collectibles.

Potential Pros of Collectibles

Some people look at collectibles as strictly an investment, but the majority of those who buy collectibles do so because they have a passion for them, and researching, finding, owning, and in some cases caring for or restoring them is a hobby, which can differentiate from other assets.

If you have a strong knowledge of your preferred collectible, a bit of luck, and maybe a seller who doesn’t have much knowledge, you can get a potentially precious collectible for very little money. There are many incidences of people finding rare, valuable collectibles at garage sales, estate sales, antique or thrift shops for just a few dollars and selling them for much, much more.

Potential Cons of Collectibles

Collectibles are generally a long-term investment. You may have to hold onto them for decades in some cases to see the value increase substantially. During that time, your collectibles don’t generate any income. That only happens if you sell them. That leads to the next potential downsides of collectibles as investments.

You need to store them, and depending on what they are, they may need to be stored in very specific conditions, like a climate-controlled environment. That may mean paying for off-site storage. While doing so protects their potential value, it reduces your pleasure in your collection.

Depending on the value of your collection, a standard homeowner’s insurance policy may not be enough coverage, and some policies won’t cover collectibles at all. You’ll need to increase the amount of your coverage or take out separate collectibles insurance.

How to Invest in Collectibles

Because you need specialized knowledge and quite a lot of it to find collectibles that are likely to increase in value, it’s best to invest in a type of collectible you have a genuine interest in. If you really love researching and learning about wine, finding a good investment won’t feel like a chore.

Before you make a significant investment or sell an item, it’s wise to have it appraised by an expert. You also need to find the best marketplace when you’re ready to sell. That might mean eBay, or it could mean a local or international auction house.

Collectibles and Modern Portfolio Theory 

Collectibles certainly can provide a way to add an alternative asset to an investment portfolio. And they have the added bonus of bringing collectors fun and enjoyment during the acquisition process, even if they may not be as lucrative as other investment types in the end.

This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. It should also not be construed as advice meeting the particular investment needs of any investor.

Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Diversification does not guarantee a profit or protect against a loss in a declining market. It is a method used to help manage investment risk.

Alternative investments involve a high degree of risk, often engage in leveraging and other speculative investments practices that may increase risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are subject to the same regulatory requirements as mutual funds, often charge higher fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. The performance of alternative investments can be volatile. There is often no secondary market for an investor’s interest in alternative investments and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-US exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in the US markets. Additionally, alternative investments often entail commodity trading which can involve substantial risk of loss. All real estate investments have the potential to lose value during the life of the investment. All financed real estate investments have the potential for foreclosure. Cash flow or income are not guaranteed.

Learn Ways To Help Build Long-Term Real Estate Wealth

Get Tips For Managing Real Estate Wealth
Download eBook

 


Get Tips For Managing Real Estate Wealth

Learn Ways To Help Build Long-Term Real Estate Wealth

Learn new ways to use real estate to pursue your wealth goals.

By providing your email and phone number, you are opting to receive communications from Realized. If you receive a text message and choose to stop receiving further messages, reply STOP to immediately unsubscribe. Msg & Data rates may apply. To manage receiving emails from Realized visit the Manage Preferences link in any email received.