You can invest in a lot various things, shares, bonds and property are the mainstream options. But there are a lot of other options. You have a lot of information about investing in the mainstream options and most other financial instruments, even if they may not be especially popular. But what about collectables? Does it make sense to invest in collectables?
Virtually all so-called financial experts will warn you against investing in collectables. Typically without much explaining, collectables are simply nothing for serious investors. On the other hand, you have some people, generally salespeople, who will tell you how good investment specific collectables can be.
Collectables include a wide range of items. There is no strict definition for what a collectable is. Coins and stamps are examples of traditional collectables. But virtually any physical item that is rare or desired by collectors can be classified as a collectable.
Collectables can be bought almost anywhere, traditionally places such as auctions, flea markets, antique stores and collectible retailers were popular sources for collectables. Nowadays, ebay and other Internet sites have made it much easier for sellers and buyers to meet.
The price of collectables is generally decided by supply and demand. But prices often vary widely. Some collectables, such as coins and stamps, have list prices but when trying to sell them, it is generally impossible to get the list price.
The main reasons for that the financial experts don’t like investing in collectables are that you don’t get paid any dividend and the true value is often impossible to determine. The so-called fundamental value for most collectables is far less than the asking price.
Although the market for collectables has become much more efficient, thanks to online sites such as ebay, there is often a huge spread between buying and selling prices. It is very likely, unless you are a dealer, that you will have to pay retail price when you buy but you will have to sell at, in best case, wholesale price.
It is certainly possible to make good money with collectables, but that requires both deep knowledge about the specific items and a little bit of luck with the timing. It is easy to fall in love with specific items and pay far too much for them, at least if they are to be regarded as investments.
A lot of collectables go up a lot in price during good times but typically lose a lot during a recession. Many collectables are also hot during a short period of time when prices skyrocket but once out of fashion, the prices drop quickly and the items can even be impossible to sell. Unfortunately, a lot of people buy collectables when they are hot and pay a lot for them just to be holding on to them while the price keeps on dropping far below what they paid.
The standard advice is that if you like to collect specific items, feel free to do so and pay as much as you think it is worth. But don’t classify collectables as investments, see it as a hobby. It is certainly possible to make money with collectables but it is much easier to lose money.
Another thing to remember is that fakes and forgeries are not uncommon. Do you have the skills to know the genuine item from a fake? Some collectables can also incur significant expenses for insurance and storage.