Contemplating Collectible Investments

If you have a lot of storage space, your attic and garage may be stuffed with old furniture, books, and other items you've held onto over the years. At first glance, it may just seem like nothing more than a pile of junk. But if you rummage through carefully, there may be a chance that you're sitting on a few valuable collectibles just waiting to make you money.

Collectibles are items worth far more than their original sale price and are considered alternative investments—vehicles that don't fall into any other category like stocks, bonds, cash, or real estate. Investing in this asset class can be rewarding and help you maximize your returns. But it helps to know some of the basics. This article looks at collectibles as an investment and helps you decide whether this emotional market is a good place to park your money.

All Things Old Made New Again

A collectible is anything that can be sold for more money than it was originally worth. These are items whose value increases over time. While they may be rare, some mass-produced items become collectibles—consider Beanie Babies when they first hit the market. Another trait collectibles have is that they pique the interest of collectors, like rare photographs and many works of art. To get the most return on a collectible, the owner must ensure it's in stellar condition. Trading cards, stamps, and comic books are just some of the most well-known collectibles around. Here are a few specific examples:

140,000,000 B.C.

A young Allosaurus dinosaur gets itself mired in mud hidden beneath the underbrush. Millions of years later, an amateur paleontologist pulls it out—or at least what was left of its head. When it hits the market, the Allosaurus' restored skull sells for a few thousand dollars.

1908

Honus Wagner of the Pittsburgh Pirates hit his tenth home run—an incredible feat before Babe Ruth started the home run era—and ended the year with a .354 batting average, marking one of the best years of his career. The next year, the American Tobacco Company commemorated Wagner by putting a trading card inside its cigarette packages. Fewer than 60 made it into stores before the world found out that Honus was vehemently against smoking. In 2000, Wagner's cigarette trading card sold on eBay for $1.1 million.

1962

Stan Lee created a superhero who worried about paying his rent, his ailing aunt, and passing his next test at school—all in addition to saving the world. In 2021, a near-mint-condition copy of Spiderman's first appearance in a comic book sold at Heritage Auctions for $3.6 million. The comic book, Amazing Fantasy No. 15, sold for 12 cents in 1962, the year it was issued. 

What Do Collectibles Have in Common?

So, what do a fossil, a comic, and a baseball card have in common? Most people have no qualms about calling them collectibles. But when you speak about diamonds, gold, and other precious materials, people tend to call them investments. In theory, these materials—and even stocks—could be termed collectibles because their price is based more on what people are willing to pay for them, known as their market value, rather than their intrinsic value. This is the calculated or perceived value of the good. Precious metals and stocks all have an intrinsic value.

For metals, this value is based on rarity. If you melt it, burn it, or bend it, you still have the same atomic substance in the end. For stocks, the value is produced by the underlying brick-and-mortar company that the share represents—a company that generates earnings to justify the prices you pay for its stock.

What makes collectibles different is that even a little damage can erase all of a collectible's value. This is because a collectible's value is based on nostalgia and other emotional factors—which can be erratic. Collectibles in pristine condition are valued higher than those that aren't. So, the value of a baseball card that's scratched or torn up is much lower than one still in its original condition.

The 20-Year Itch

It's believed that nostalgia runs in 20-year cycles. That is, the things that are popular now will become collectibles in 20 years when people want to reconnect with their past. This doesn't mean you can buy the top 10 items from consumer polls, set them aside for 20 years, and then sell them for a fortune. If this were the case, every pack rat would be rich. So what's the take-away? Some items this year will become collectibles if they meet two conditions: rarity and appeal.

Rarity is more difficult for the last century's products as mass production allows companies to (over)fill demand without incurring an extra cost. Beanie Babies have devalued as more and more product lines are introduced. It is profitable for a company to sell as many products as possible to meet demand—and that mentality eliminates the chance for a future collector's profits.

Appeal is difficult to nail down. To make money at collecting, you have to predict what will become popular in retrospect—perhaps the objects aren't in high demand today but will become more popular in the future, either because they are rare or they're not fully appreciated yet. For example, in the 1950s and 1960s, wing-tipped plastic sunglasses with glass lenses were sold for a few dollars in drugstores, but they can now fetch hundreds of dollars in collectors' markets.

Reasons Not To Buy Collectibles

Just like everything else, there are inherent risks with buying collectibles. Some are fairly common, while others aren't so obvious. Here's a list of some of the reasons you may hesitate before handing your hard-earned money over for a collectible.

Markups

When you buy a collectible from a dealer, they usually mark up the price to make a profit. Unlike collectors, dealers do not have the luxury of holding an item for years while the value increases—they have sales to make and a business to run.

Maintenance

A collectible doesn't produce income while you hold it; it may actually eat into your other income as you wait for it to increase in value. Collectors incur plenty of different costs before they sell an item.

Many collectibles require special care to keep them in mint condition. These can range in cost from the $1 plastic cover used to keep hockey cards safe to a special room with moisture, heat, and light monitors to extend a painting's life. On top of storage costs, there are the added costs of buying insurance for the more valuable types of collectibles, as well as paying to have professionals, appraisers, restorers, and dealers look at the collectible before you sell it.

Wear and Tear

Most collectibles—from Pokemon cards to antique plumbing fixtures—have a manual classifying how much they're worth given the type of condition they're in. For example, a well-read copy of "The Amazing Spider-Man #1" may only be worth 30% to 60% of its list price, depending on the type and degree of wear it shows.

Counterfeiting

Most museums display models of dinosaur fossils, not the real thing. Can you tell the difference between an Allosaurus skull made of plaster and cement versus fossilized bone? No matter how experienced the appraiser, forgeries do make it to dealers, then to the market of collectors. This could leave you holding a very expensive piece of criminal art.

Low Returns

Collectibles tend to have lower returns than a stock market index fund, a money market account, and most bond funds. If you took an average of the returns on all collectibles—which is practically impossible to do given some have little or no market to measure—it would be dismal compared with the S&P 500. Even if you took diamonds and stamps—the collectibles with the best returns—you would still find a sizable gap. A generous estimate is that stamps return 5% to 10%.

Reasons to Buy Collectibles

Sure, there may be many reasons not to buy collectibles. You won't necessarily make a good return on your item and there's no guarantee that anyone will actually be interested in the same thing you are. It may seem the only reason to buy them is for your own interest. But that doesn't mean you should avoid them altogether.

Remember, people don't invest in collectibles, they spend money on them. If they are lucky, they can sell that same object in the future and beat inflation for the period during which they owned it.

Tips on Buying and Selling Collectibles

Keep Heirlooms

It may smell like cats and tobacco, but you never know what people will pay for an old snuffbox. If you have inherited antiques or collectibles from relatives, check around and see whether they are worth something before you throw them away. The profit margin goes way up when you pay nothing for a collectible.

Compare and Call

If you have your eye on a collectible, take the time to call other dealers and price out similar items. Yes, there will always be “two interested buyers” coming back the next day, but you should not make snap decisions under pressure from the dealer. The best method is to browse the store and call the dealer when you get home. You’ll think more clearly and have fewer regrets in the end. If possible, purchase from other collectors (better yet, trade). They will be less likely to markup items because they will assume you have the same pricing guide they do.

Ask for a Written Guarantee

If a collectible is really an “unbelievable buy” with “several interested buyers,” ask the seller to write a buyback guarantee for an agreed period of time. After all, the dealer can buy it back at the same price and then sell it again to all those interested buyers banging on the windows.

Do Your Own Research

Pick up Kovels' Guide To Selling, Buying, and Fixing Your Antiques and Collectibles (or any of the other guides written by Ralph and Terry Kovel) or another collectibles publication and read up on the items you want. The literature will show you the pricing guides as well as how to care for your collectibles and what kind of markets to buy and sell them in.

Consider Collectibles Insurance

Keeping in mind the risks associated with owning valuable items, it may be worthwhile to purchase collectibles insurance. These policies protect your collection from potential mishaps such as accidental breakage, theft, flood, and other types of loss. While this type of protection may be essential for owners of priceless items, your collection does not need to be worth millions to be worth insuring.

The Bottom Line

There are more reliable ways to hedge against inflation. A collectible is an illiquid, taxed investment that produces no income and can lose its value if you drop it. If you buy one, make sure it is one you will be happy to own forever rather than counting on some major sale in the future.