How Does Collectible Investing Work?
Thinking about investing in collectibles? Not sure how it all works? Find out what you need to know here.
Collectible investing is an alternative investment that has numerous pros and cons. As technology has improved, the market for collectibles has expanded. This has made it easier for buyers and sellers of collectibles to transact. Chances are, you probably have heard a story about a collectible being sold for a high price. You may be wondering whether to invest in collectibles as a wealth building strategy. This article aims to shed light on this sentimental area of investing.
What is a collectible?
A ‘collectible’ can be defined as an item valued and sought after by collectors. It is usually an item that is sold for a price much higher than its original value. This is usually due to a unique quality such as its scarcity, popularity or condition. Some common examples of collectibles include cards, antiques, coins, books and action figures. Although, collectibles are not limited to these examples and can include almost anything. Personal factors is the key force impacting value. This makes this form of investing highly volatile and unpredictable. Collectible investing therefore is the practice of buying items in the hope of a greater future return.
Some businesses try to take advantage of the ‘collectible’ term. A business may label one of its products as a collectible item as a marketing tool. Ultimately, it is demand after time has passed that determines if it is truly a collectible item. This is despite a business producing a product scarcely or in limited quantities.
There are two main benefits:
Pursuing your passion
For many, purchasing collectibles in an area of interest is something that appeals to them. For example, if you closely follow a sports team, you may purchase rare sports souvenirs as it becomes available. This holds a sentimental value for the purchaser and may also appreciate in value. It is likely that the value of the item will depend on the team’s success into the future.
Diversifying your assets
Collectible investing provides an alternative to traditional investments. This includes assets such as stocks, real estate and bonds. They are a tangible investment option that does not necessarily follow other investment trends. For example, factors influencing property and stock prices will not have the same effect on a true collectible. Emotional factors will have a greater influence on the value of these items.
On the other hand, there are some drawbacks to be aware of:
Long term nature of investment
Unlike some other forms of investment, collectibles do not offer any form of income until sold. It may take many years for these items to rise in value to make it a viable investment. For example, a vintage car will not appreciate in value daily, but rather over a number of years. This is assuming its condition is maintained.
Storage and maintenance costs
Some forms of collectibles require storage and maintenance costs to preserve value. Using the above example of a vintage car, money is needed to maintain its value. This could include routinely cleaning, servicing, insurance and fuel costs. Storage costs can arise through the hiring or purchasing of a garage. It is important to consider costs before investing in any collectible.
Finding a buyer
Depending on how niche the item is, it may be difficult to find a buyer in the market. Doing research into the demand of the item can help. However, there is always an element of risk with collectible investments considering its reliance on emotional factors.
Easily copied knock-offs may impact value. Trading cards are a prime example of a collectible that has many counterfeits. Investing in any collectible requires careful analysis. Making an effort to ascertain the authenticity of the item as far as possible is key. In some cases, the risk of buying a knock-off may be difficult to avoid.
Investing in collectibles as part of a retirement plan requires compliance with ATO rules. There are rules based around usage, storage, insurance, leasing and selling that must be followed. A failure to do so can result in large fines. These rules somewhat take away the attractiveness of investing in collectibles.
It is clear that collectible investing can be a great alternate investment. This is particularly true for those who want to financially gain from a passion or diversify their assets. However, there are many disadvantages that you should be aware of. For investors looking to make quicker returns, perhaps micro or value investing may be a better option. Predicting future trends based on sentiment is key to having a profitable collectible investment.