Can Collectibles Be Considered An Investment?

If you’re like most geeks or nerds, you probably have at least a few collections going. You might collect for practical purposes, such as building an archive of video games, or for more superficial purposes, like collecting artwork from a favorite artist.

But you may not have thought of your collectibles as a viable form of investing. Is such a categorization reasonable? And if so, is this a viable way to invest your money for the future?

Why Alternative Investments?

Investing is a way of accumulating wealth and setting yourself up for a brighter financial future. However, there are issues associated with many mainstream forms of investments.

For example, one of the best investments you can make is in real estate, given its necessary nature, its long history of property appreciation, and its potential to generate passive income. But if you want to invest in property, you’ll need a lot of capital and significant experience. Once you have a rental property, you’ll be responsible for finding tenants, making repairs, planning for taxes, and a host of other tasks.

The stock market, similarly, is hard to parse for newcomers, and is notoriously volatile. Even if you’re a relatively smart investor, you could suffer massive losses because of economic downturns and other developments.

Alternative investments are so named because they stand outside the realm of traditional investments like stocks, bonds, and real estate. Alternative investments can be a viable inclusion in your investment portfolio, in part because they are insulated from broader economic trends and in part because they can help you maintain a better balance of assets.

But are collectibles a good choice within this category?

Collectibles as Alternative Investments

There are some great strengths of collectibles as alternative investments:

Portfolio diversification. All investors need to practice portfolio diversification. Essentially, this means holding many different types of assets so you can mitigate risks and stabilize your returns. Because alternative investments like collectibles have such a unique blend of pros and cons, they’re often a great addition.
Insulation from broader economic trends. Collectibles are typically insulated from broader economic trends. The types of people who would spend thousands of dollars on a rare comic book aren’t the type to be deterred just because stocks are down this week.
Personal interest. Many people are drawn to the idea of investing in collectibles because of personal interest, and they have a critical advantage here. You may not be able to compare different stocks against each other from a technical standpoint, but you may have a wealth of knowledge about the rarest and most valuable action figures in existence.
Enjoyment. Many collectibles also have the capacity to improve your personal enjoyment. For example, you can actively play with your valuable trading cards – or enjoy your favorite figurines on display in your home.

However, there are also some significant downsides:

Unpredictability. You can study historical trends for your collectibles, but the future is always going to be unpredictable. Are you sure this comic book is going to increase in value? What if it’s reprinted in the future? What if people lose interest? What if the nostalgia train runs out of steam?
Subjective value. In the world of collectibles, value is mostly subjective. Unlike stocks and real estate, which are priced according to the income they can generate, collectible items are often priced according to the whims of collectors.
Liquidity issues. Liquidity can also be an issue. Your rarest stamp might be valued quite highly, but if no one is willing to buy it at the moment, you won’t be able to generate cash from it.
Preservation problems. The value of a collectible item typically depends on its condition. This usually means collectors are responsible for preservation and maintenance, which can be expensive.

Choosing the Right Collectibles

Much of your success depends on your ability to choose the right collectibles.

Consider the following column

Rarity (and future rarity). How rare is this collectible, and how rare might it be in the future? If everyone is collecting an item that’s currently being mass distributed, it probably won’t become rare in the next year, or even in the next decade.
Staying power. People may appreciate this collectible now, but will they appreciate it in the decades to come? Nostalgia seems to run in 20-year cycles. Trends come and go. Staying power isn’t always predictable, but it is always an important consideration.
Maintenance needs. You should also consider the requirements to keep these collectibles in good condition. Will you need to purchase a display case? Will you need to maintain a proper humidity? How much is this going to cost?
Personal appeal. Don’t forget about the subjective appeal of collectibles. If you genuinely love and enjoy the collectibles you purchase, don’t be afraid to factor that into your calculations.
The rest of your portfolio. And, of course, consider the rest of your portfolio. It’s a bad idea to have all of your wealth tied up in collectibles, but if you already have sizable exposure to more traditional investments, alternatives like collectibles are well worth considering.

So are collectibles a reasonable way to invest your money? There are simply too many variables to make a solid universal recommendation. However, there are many potential advantages worth considering in the realm of collectible investing, and with the right approach, you might be able to make things work.