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Collectibles as Investments in 2021 — Valuable Types, Risks & Rewards

Collecting appeals to young and old alike, regardless of income, location, or expertise. Looking for and finding a rare collectible is fun and emotionally satisfying.

Becoming a collector is rarely a rational, deliberate process. Few financial advisors would recommend it as an investment strategy. Many collections begin with a single acquisition that attracts us with its beauty, history, or link to the past. We acquire it because it appeals to us in a unique way that is often unexplainable.

If you’re considering starting a new collection, read on to learn about the potential risks and rewards of doing so.

Why People Collect

The motive to have unusual, even weird, objects seems to be an integral part of humankind’s psyche, originating back into early civilization.

Psychologist Christian Jarret agrees, noting that the human desire to collect could have first appeared about 12,000 years ago when our ancestors gave up their nomadic lifestyle and settled in one place. Some have theorized that the biblical figure Noah may have been the world’s first collector — collecting two of each kind of animal.

Rick Ferri, a former CEO of a large national investment adviser, wrote in Forbes magazine about his collecting experience: “I still own clocks, glassware, and artwork that I purchased many years ago. It is enjoyable to look at these hard assets and tell stories about how I acquired them. They are all worth considerably more than what I paid — but I’m not ready to sell any of it.”

For most people, the trigger to buy a collectible is its link to childhood memories, according to Harry Rinker, the head of the Institute for Antiques and Collectibles. Rinker claims that physical objects link us to our past, stirring memories of bygone days when life was simpler and happier. As a consequence, few people begin their collections with an expectation of a future financial windfall.

Those who collect things — such as hunters, gatherers, accumulators, pickers, acquisitors, scavengers, fanatics, pack rats, or obsessives — number in the millions.

Swap meets in Turlock, California; Brimfield, Massachusetts; Canton, Texas, and dozens of other communities attract thousands of visitors, each looking for that special something to recapture a memory or find a lost multimillion-dollar document.

Collectibles appeal to a broad selection of people around the world for their:

  • Store of Value. Many investors prefer to protect their wealth by ownership of tangible objects with a history of retaining their value or appreciating during troubled financial times. While the value of stocks and bonds is generally linked to the economy, the price of collectibles depends on supply and demand. Some collectibles actually increase in value with age, such as fine wine or spirits.
  • Potential Returns. Some collections can be great investments, the return on shrewd purchases being greater than traditional investments like stocks and bonds. Although art, stamps, coins, and vintage automobiles are known for their financial returns, baseball cards, old photographs, and relics of history can bring similar returns.
  • Enjoyment of Physical Ownership. Collectors frequently exhibit their prizes privately or publicly for personal recognition and admiration. For example, aristocratic collectors in the 17th and 18th centuries were quite proud of their “cabinets of curiosities” as evidence of their acumen and wealth. In contrast, traditional investors don’t usually hang copies of stock certificates and real estate deeds on their office walls or display gold ingots in their living rooms as evidence of their success.

Common Types of Collectibles

Almost every physical object — including gems, barbed wire specimens, fossils, art, Pez dispensers, and vintage circus sideshow posters — has been collected at one time or another.

A recent search of the Guinness Books of World Records found almost 300 collections of different types, from bagpipes to bobbleheads. Less publicized collections include McDonald’s Happy Meals toys, golf clubs, and rooms of medieval armor.

In fact, the extent or value of objects in collections around the world is unknown — the world of collecting is simply too extensive to easily catalog.

Because collectibles come in all shapes, sizes, and price ranges, they are often sorted into major categories and subcategories for convenience.

For example, a vintage baseball card might be lumped in with other trading cards, then sorted by the type (sport), a subtype (baseball), period (the 1920s), team (Yankees), and player (Babe Ruth).

Some of the most popular types of collectibles include:

Movie Posters

The most expensive movie poster ever sold is “Metropolis” (1927), which sold in 2005 for $690,000. In 2012, a lot including posters for “Metropolis,” “King Kong,” and “The Invisible Man” was sold for $1.2 million by the U.S. Bankruptcy Court.

The value of movie posters depends on the popularity of the movie and the stars, as well as other factors such as scarcity and age. For example, most posters from the 1980s haven’t gained significant value.

Childhood Toys

Toys have become one of the biggest areas of investment for collectors aided by online auction sites such as eBay and Bertoia Auctions.

Star Wars characters and memorabilia have become especially popular. For instance, a figurine of Boba Fett, Darth Vader’s bounty hunter in “Star Wars: The Empire Strikes Back,” went for more than $27,000 at auction, according to Bloomberg.

However, there are no guarantees that toys gain value. Beanie Babies were a popular toy to collect as an investment, but very few are worth much today.

Trading Cards

Trading cards have been around for almost a century, with baseball cards paving the way for future sports cards and trading card games. While some cards are worth nearly nothing, others can be worth their weight in gold.

Consider that a set of early baseball cards found in an attic were estimated to have a value of $3 million dollars. The rarest Magic: the Gathering cards, such as an Alpha-edition Black Lotus, often sell for tens or hundreds of thousands of dollars each.

Pop and Rock ’n’ Roll Memorabilia

Original fan magazines from the 1950s and 1960s, vinyl records, musical instruments, and artist memorabilia are popular.

For example, Kurt Cobain’s smashed Fender guitar from Nirvana’s first tour sold for $100,000 in 2008, while his hand-printed list of the songs played by Nirvana in Philadelphia sold in 2015 for $8,750.

A Beatles-signed copy of a “With the Beatles” album sold for $36,250 at auction in 2015. In March 2018, an iconic pair of Elvis Presley’s sunglasses sold for $159,900.

Vintage Clothing

Clothing dated from the 1920s to the mid-1980s is considered “vintage” — some consider items made after the 1960s as “retro.” The clothes are prized for their uniqueness and style.

The 1940s to 1960s era of Haute Couture is especially popular — the clothes were designed for a single client by a recognized designer in the French couture world. Saddle shoes and circle skirts from the 1950s and English mod clothes of the 1970s are also highly sought after.

The company Kerry Taylor Auctions claims to be the world’s leading auction house specializing in vintage fashion, holding a minimum of five auctions annually.

Celebrity Memorabilia

If an object is associated with a celebrity, whatever it is, it can be valuable. In April 2018, Russell Crowe sold personal belongings to finance his divorce. In a Sotheby’s auction titled “The Art of Divorce,” the breastplate he wore in the movie “Gladiator” sold for $117,000, and his leather jock strap from “Cinderella Man” went for $6,500.

Other celebrity items sold at auction include Marilyn Monroe’s brush, comb, and mirror set for a sales price of $23,985, and Liberace’s custom diamond and gold piano ring for $23,370, as reported in Forbes.

Coins

Certain coins — commonly those that pertain to historical events, such as the U.S. Bay Bridge Half Dollar — are highly popular among collectors. People collect coins for a variety of reasons.

For instance, some might collect for the challenge of finding particular rare coins, while others might collect for the purpose of passing on their collection to their children or grandchildren.

Stamps

Starting a stamp collection can be a fun and challenging endeavor. The most valuable stamps can be challenging to find, but the payoff can be significant.

For example, a British Guiana Magenta One-Cent stamp from 1856 has sold at auction just four times since 1900, with its price setting a world record with each sale. In 1980, Smithsonian.com reported a sale price of $9.5 million.

Fine Art

Rare paintings — the works of great masters of the past — are virtually priceless, which is why collecting fine art can be a lucrative investment.

For instance, a painting titled “Portrait of an Artist (Pool with Two Figures)” by living artist David Hockney, sold at a Christie’s auction for $90.3 million in 2018.

Fine art has become even easier to invest in over recent years because of platforms like Masterworks.

Investment-Grade Wine

Everyone knows that the nature of wine is to increase in quality and value with age. However, some wines are more suitable for collecting than others.

For instance, in 2017, the Sotheby Auction house sold five bottles of a 1945 Romanee-Conti burgundy for $1.98 million. Only 600 bottles were made before the vines were destroyed.

Timepieces and Vintage Jewelry

Collecting the right jewelry can be just as lucrative as it is glamorous. For instance, a Rolex Daytona 6239 watch gifted to the actor Paul Newman by his wife Joanne Woodward in 1972 sold for $17.8 million at auction in 2017, according to Forbes.

During the same year, Swiss luxury watches could be purchased with discounts up to 40%, as reported by The Wall Street Journal. The newspaper reported that high-end manufacturers such as Rolex, Audemars Piguet, and Patek Philippe were buying back inventory and destroying the watches for their gold and precious metals.

Classic Automobiles

The U.K. property investment firm Knight Frank publishes an annual Luxury Investment Index that tracks the prices of the top 10 most popular investment collectibles.

According to the index, the prices of classic cars have increased more than 330% in the past decade — an average annual compound growth rate of 12.8%, well above other collectibles in the same period.

However, in 2017, fine art appreciated at 21% compared to an increase of only 2% for cars, showing how prices can be volatile.

Antique Furniture and Housewares

Antiques are highly sought after among collectors for their beauty, history, and value. Oftentimes, people can be surprised when they realize the value of certain antique furniture and housewares that have been sitting in their homes or attics for years.

For example, television series such as “Antiques Roadshow” and “American Pickers” reinforce the fantasy that one’s great-great-grandfather has fortuitously stowed away an original Faberge figurine.


Valuing a Collectible

Like all assets, determining the valuation of an individual collectible is primarily based on its supply and demand. Low supply and high demand mean high prices.

Depending on the item, you may want to work with appraisers who are familiar with collectible assets or the specific market where you’d sell your item to determine an accurate valuation. For example, if you have a piece of art to sell, you’d want to work with someone familiar with the art market to determine a fair price for it.

Generally, a collectible’s market value is the result of its:

Appeal

The value of a collectible depends on its ability to attract potential buyers.

The attraction might be functionality (such as cards for a trading card game), an effort to connect with one’s past (such as in toys), evidence of one’s superior ability or status (such as in jewelry), aesthetics, intellectual curiosity, or potential financial gain.

Objects that have little appeal are unlikely to become valuable collectibles.

Rarity

Unique items often attract our interest, especially if there are a limited number of specimens available. Even objects initially available in vast quantities such as coins, stamps, or comic books can become rare over time as they are destroyed or lost.

For example, an estimated 100,000 to 150,000 copies of Marvel Comics’ “Amazing Fantasy #15” featuring Spiderman were printed in August 1962 with a retail price of $10. A top-graded version of the original issue sold for $454,100 at auction in 2016.

Authenticity

Being able to prove factually that an item is “the real thing,” rather than a cheap copy, is essential to collectors.

A letter confirmed to have been signed by Abraham Lincoln is worth thousands of dollars; Lincoln’s signature copied by your neighbor is worthless.

Counterfeiting is a significant problem in collectible markets, especially when the expense of reproduction is less than market value. Modern technology and technical skill allow forgers to copy almost anything and sometimes fool the experts.

Origin

The source of an object is especially important in the value of luxury collectibles. Thefts of valuable collectibles occur regularly, especially when owners fail to take steps to protect their property.

In 2018, more than $1.4 million of Marvel collectibles were stolen from a storage unit in California. Less than six months later, two thieves stole a collection of 21 high-end electric guitars from another storage unit.

Buyers of collectibles of unknown origin run the risk that the property has been illegally acquired and will be returned to the original owner when discovered. Requesting and maintaining a chain of ownership is good practice.

Condition

Many collectibles are items that were intended to be used every day, rather than stored away for a future sale. Over time, most physical objects suffer wear and tear, affecting their appearance or usefulness.

The impact on the collectible’s value depends on the extent of damage, the quality of repair, and the acquirer’s motive for purchase.

For example, a purchaser seeking investment return might discount the value of a cosmetically damaged toy, a flaw that a buyer trying to recapture the memories of childhood might view as insignificant.


Advantages of Being a Collector

Collecting can be an occasional activity, a lifelong hobby, or a vocation. The activity can be pursued for its pleasure as well as potential profits.

You can find collectibles at a vast range of prices, making them available to anyone with available time, energy, and interest. Transactions occur every day in multiple venues, including local garage sales, swap meets, dealers, auction houses, and between other collectors.

According to Pablo Solomon, who finds many of his pieces in dumpsters and discarded on the curb, “Nothing is cheaper than free.”

In addition to the potential profits in finding a rare item, collectors note the following advantages of collecting:

1. Personal Satisfaction

Reaching a goal like collecting a complete set of baseball cards or acquiring a rare movie poster can be satisfying. Many collectors get into the hobby for fun. That satisfaction can be a reason to collect in and of itself.

2. Social Networks

Collectors are often members of clubs of people with the same interest.

They have regular meetings to share information and often travel together to swap meets and auctions, where they assist each other to find missing pieces of their particular collections.

Being a collector can help you build and maintain a social circle.

3. Confidentiality

Unlike the regulated securities markets that maintain historical records of security transactions, transfers on the collectible market are generally personal, confidential, and unrecorded.

Despite the publicity that accompanies high-value auction sales, most collectibles’ values range from the tens to the low thousands of dollars, which isn’t enough to get covered in the news.

The benefit of this confidentiality is that the value of your collection is not public knowledge.

4. Diversification

Collectibles are part of the group of unique asset classes that can help investors add some diversification to their portfolio.

Sometimes, the prices of collectibles and the stock market move in different directions, so your collection can help you reduce losses during a down market or times of inflation.

5. Potential for Extraordinary Gains

Although you can’t bank on huge returns, some collectibles have proven to be highly successful investments.

Examples of extraordinary gains in recent years include a mint-condition baseball card from 1952 featuring New York Yankees baseball player Mickey Mantle, which sold for $2.88 million at the Texas-based Heritage Auctions in April 2018.

A specimen set of 1936 Canadian “dot” coins was purchased in 1954 for $400 and later sold at auction in 1999 for $345,000.

A 5-inch ceramic bowl manufactured during China’s Northern Song Dynasty sold at a March 2013 Sotheby’s auction for $2.25 million. According to CNN, the owner had purchased the pottery for $3 in a neighborhood yard sale several years earlier.


Investment Risks of Collectibles

Although collectibles often have a superior appeal over more mundane investments, those who collect for investment purposes should recognize that they carry unique risks:

1. Price Volatility

The lack of information and agreed-upon standards — and a fickle public — mean prices can vary significantly between comparable objects and from one period to another.

Arlan Ettinger, President of Guernsey’s Auction House, notes that Mark McGwire’s record-setting 70th-home-run baseball brought $3 million at auction in 1999, according to The New York Times, only to significantly decrease in value due to the player’s suspected steroid use, as well as the fact that Barry Bonds broke his record with 73 home runs in 2001.

2. Liquidity

Unlike stocks and bonds that trade daily on a central market, finding buyers for a collectible can be difficult. Participating in an auction is no guarantee of a sale. Plus, each collectible is unique, so attracting a buyer might require significant discounts from the desired price.

Collectibles generally become rarer and more valuable over the years, so holding periods can last decades.

3. Special Care Requirements

Physical objects can be lost, damaged, or stolen. Aging electronic and mechanical objects may become inoperable due to wear. Storage requirements may be elaborate and expensive, while insurance is often unavailable or expensive.

These costs are continuous, regardless of whether the collectible goes up or down in value. In some cases, the value of the item may limit the owner’s willingness to use their property.

For example, it can be hard to justify playing a game with a trading card worth tens of thousands of dollars or taking a classic car out for a drive considering the risk of damaging it and lowering its value.

4. High Transaction Costs

Interpersonal transactions in collectibles are cheap but limit your market. Working with an auction house increases costs. Depending on the type of collectible — such as metal or cars — transportation costs can also be high.

5. Special Tax Status

A person who buys collectibles may be classified as a dealer, hobbyist, or investor, each with unique tax consequences.

For most (hobbyists or investors), collectibles are generally treated as capital assets and any difference between purchase price (basis) and sales price (proceeds) is treated as a short- or long-term capital gain or loss.

Collectibles cannot be depreciated, but the costs of storage or insurance are deductible in the year incurred.

If you display a collectible in your home, wear it, or use it in a personal way, you may not be entitled to capital gains treatment.

Finally, investing in collectibles through a qualified retirement plan account is deemed an “immediate distribution” and subject to tax per IRC Section 408(m)(2).


Final Word

Successful collectors follow a simple rule: they never borrow money to acquire an object. Profits are, at best, uncertain with collectible investments.

Never buy a collectible with funds you need for something else. If you cannot pay cash or trade another collectible for a piece, continue to look for items that fit with your financial status and lifestyle.

Remember that patience is a virtue in collecting and few objects, if any, justify an acquisition you’re not willing to hold for years.

If you’re ready to explore collectibles, buy something because you love it for its own sake and will continue to enjoy it for years in the future. Remember that the vast majority of collectibles will not have great value in your lifetime.

TJ Porter
TJ is a Boston-based writer who focuses on credit cards, credit, and bank accounts. When he's not writing about all things personal finance, he enjoys cooking, esports, soccer, hockey, and games of the video and board varieties.

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