Collectibles
Collectibles include everything from high-priced antiques and works of art to stamps, coins, books, and many other objects. Collectibles belong to the investment category known as hard assets .
Some collectibles are valuable because they are creations born of talent, skill, and fine workmanship (e.g., paintings, sculpture, musical instruments, glasswork, jewelry, furniture). Their value has an intrinsic quality because each made-by-hand item is inherently unique. Other types of collectibles are valuable because they are rare or because scholars have attributed some significance to them (e.g., coins, stamps, books, antiques). The value of these types of collectibles depends on many factors. A work considered an artist's best will probably have more value than one of his or her mediocre works. Value may be added if the work is of an artist who produced relatively few works. Items in better condition are generally more valuable than those that are in poor condition or have been restored. The age of the item may be a factor. Its historical value may be a factor. And, its current popularity among collectors can also be a significant factor. These types of collectibles tend to hold their value over time, generally keeping pace with inflation. Many have the potential to appreciate in value. But there's another type of collectible that has no intrinsic value (e.g., baseball cards, memorabilia, bottles of wine, action figures, stuffed toys and dolls). The value of these collectibles is strictly in the eye of the beholder. They are only valuable if there is someone who is willing to buy them; they may be valuable today and worthless tomorrow. Though a savvy collector may profit from this latter type of collectible if his or her timing is right, serious investors typically seek collectibles that are less susceptible to the prevailing taste of the marketplace.
Some collectibles increase in value, though they tend to appreciate slowly over a number years (often several decades). On the other hand, collectibles can decrease in value, and they do not generate income while you own them. So, making money is generally not a good reason to invest in collectibles. Collectibles can, however, act as a hedge against inflation. This is why many investors are sometimes tempted to add them to their portfolios during economic downturns. And, collectibles offer an important intangible benefit that most other types of investments don't offer--personal enjoyment.
The key to investing in collectibles is to know what you're doing. This requires a commitment of time and effort on your part. Even if you become reasonably knowledgeable, it can be difficult to determine an object's true value, and fakes can sometimes fool even the experts.
You may need to transport, properly store, maintain (e.g., clean, repair, restore), and insure the collectible.
It may take some time to sell your collectibles, and you may have to sell at a less-than-desirable price if you need the money quickly.
Many collectibles require large outlays of capital. While you may derive great joy from owning your collectibles, such capital cannot be invested in other vehicles that offer greater growth potential.
Net capital gains from selling collectibles are taxable at a maximum rate of 28 percent. |
