Do you want to make money buying and selling collectibles? If YES, here is a step by step guide on how to invest in collectibles profitably with little or no money.
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What is a Collectible?
A collectible can be said to be an item that is valuable to a person, and which he or she takes time to collect and store. Generally speaking, a collectible is any physical asset that appreciates in value over time because it is rare or it is desired by many. These items can be anything from extremely valuable objects that are almost as old as antiques (that is up to 100 years old), to simple things that may hold only nominal value to the person who gathered them into a collection.
Stamps, antiques, coins, and works of art are among the many things that are usually classified as collectibles. Collectibles are often regarded by investors as hedges against inflation, since their value tends to appreciate most when general prices are rising. In fact, you should know that when you invest in objects rather than in capital assets such as stocks or bonds, you are putting your money into collectibles.
The most valuable collectibles in the world include the T206 Honus Wagner baseball card issued by the American Tobacco Company in 1909. Honus Wagner cards have almost always sold for over $1 million if they are in good condition and a few have sold for over $2 million. Another example is the Treskilling Yellow. This is a misprinted Swedish postage stamp that sold for somewhere around $2.3 million in 2010.
Collectibles as investments have some issues, and one of their common drawbacks is their lack of liquidity. If you need to sell your collectibles, you may not be able to find a buyer who is willing to pay what you believe your investment is worth.
In fact, you may not be able to find a buyer at all. But on the other hand, collectibles can provide a sizable return on your investment if you have the right thing for sale at the right time. Here are things to need to know about collectibles if you want to start investing the right way.
Merits of Investing in Collectibles
Collectibles can take very long to increase in value, and they offer no assurances as to their value in the future. Furthermore, unlike other investments, collectibles offer no income. But these drawbacks aside, there are some very good advantages to investing in collectibles. They include;
- They increase in value with inflation: The one advantage is that most collectibles increase in value along with inflation, and real assets have a strong track record of performance in a highly inflationary environment. Many collectibles offer reasonable protection from inflation.
- Tax differences: Many items that are collectibles are considered as “wasting assets” and do not factor into inheritance or capital gains tax calculations.
- Personal control: collectibles are your personal assets, they belong to you. Nobody can take them away from you. You collect them, and you hold them to do as you will.
Demerits of Collectibles Investment
Just like collectibles investments have their merit, they also have their demerits. Some of them include;
- They are illiquid: Because of the nature of collectibles, you don’t have to expect to sell them anytime soon. Unlike many stocks and bonds, art and collectibles are highly illiquid, you may not be able to sell them right away and when you do, there can be high transaction costs.
Because of this, expenditures here should be viewed as decorative and not investment, unless you are extremely well versed in a particular category or have some means of purchasing items below market. Buy it because you love it and can afford it because collectibles must usually be held a while to see a return, if at all.
- Markups are significant: The spread between the price that a dealer pays for an object and the price he then sells the same object for is often around 100 percent. Sometimes the difference is even greater, particularly if a dealer is the second or third middleman in the chain of purchase. So at a minimum, your purchase must typically double in value just to get you back to even. And a value may not double for 10 to 20 years or more.
- Lots of other costs add up: As if the markups aren’t bad enough, some collectibles incur all sorts of other costs. If you buy more-expensive pieces, for example, you may need to have them appraised. You may have to pay storage and insurance costs as well. And unlike the markup, you pay some of these fees year after year of ownership.
- You can overpay for an inferior item: Sometimes you may overpay even more for a collectible because you don’t realize some imperfection or inferiority on the item. Worse, you may buy a forgery. Even reputable dealers have been duped by forgeries.
- It can deteriorate over time: Damage from sunlight, humidity, temperatures that are too high or too low, and a whole host of vagaries can ruin the quality of your collectible. Insurance doesn’t cover this type of damage or negligence on your part.
- The returns are small: Even if you ignore the substantial costs of buying, holding, and selling, the average returns that investors earn from collectibles rarely keep ahead of inflation, and they’re generally inferior to stock market, real estate, and small-business investing. Objective collectible return data are hard to come by. Never, ever trust “data” that dealers or the many collectible trade publications provide.
- It is not always profitable: Investing in collectibles will also likely not bring particularly fast profits. Returns are only realized when collectibles appreciate in value and are sold at a higher price than that at which they were purchased. This desired increase can often take a number of years – at the very least – to materialize.
Types of Collectibles You Can Invest in
Collectibles as Treasures
There are items that are regarded as collectible treasures. These are items that earn the big buck if they are old enough, and if they are well preserved. They include;
Coins are one of the most valued collectible items. The rarity of the coins, and of course the metal they are made of, especially gold or silver will affect how much they appreciate in value and how much they can be sold for. Collecting coins is something one does for the long term. Anyone who begins coin collecting would be better off getting advice from experts and longtime collectors, as there is much to learn in order to protect one’s investment.
According to Coin Trackers, coin collecting in the United States alone is worth $10 billion a year. Coin collecting may not pay immediate returns but it’s a way to build and store significant wealth. According to research, the best coins to collect are gold ones.
If one is to seriously invest in gold, USA Gold also recommends making it 10 to 30 percent of one’s portfolio. More than an investment, gold is by itself real money that’s always better than cash. According to a Huffington Post report, the Double Eagle gold coin minted in the US back in 1933 was sold was in 2002 for $7.2 million.
Interestingly, most gold coin collectors are not coin professionals, but everyday people who are in common professions like; doctors, nurses, dentists, teachers, building contractors, lawyers, engineers, and even plumbers and carpenters.
- Art and Artifacts
Some collectibles are worth millions simply because of their historical and cultural value. For example, paintings by Pablo Picasso are considered the blue chips of the art world. In 2015, according to The Guardian, Picasso’s “Women of Algiers,” sold at Christie’s in New York for $179 million. It is part of a series of works by the artist in the early to mid-1950s.
Investing in artworks will require a thorough knowledge of art history and how certain works have been valued in the market. If the collector is not versed in this himself, then the expert advice would be needed.
As for cultural artifacts, the more ancient, the more valuable. Sculptures, vases, trinkets, jewelry by ancient civilizations from several thousands of years ago can be valuable, although these would be priced in the thousands, rather than millions of dollars. Some items like rare musical instruments are considered both artworks and cultural artifacts as well.
- Pop Culture
Those who want to relive their childhoods would collect comic books, old toys, another knick-knack of bygone decades. These items can net you several thousands of dollars if they are well-preserved. More recent examples of pop culture like the comic Amazing Spider-Man #1 and Superman’s first comic book appearance in Action Comics #1 have joined stamps and baseball cards as appreciating collectibles.
If you can resist uncorking the bottles then wine may prove to be a lucrative longer-term investment, but you need to be extremely careful of the wines you buy. Investors have certainly enjoyed decent returns in the past from stockpiling a selection of the finest wines produced by the top chateaux of Bordeaux and then selling them for a handsome profit.
However, investing in wine is a very complex subject so you must put time into researching the area before deciding whether or not to get involved. As with any alternative investment, the golden rule is: only risk what you can afford to lose.
- Sporting Memorabilia
Football is the big seller in this area and demand has remained fairly stable over the past few years, because people are still going to matches and collecting memorabilia relating to particular players and clubs. A good idea is to collect items relating to young players that have potentials to become top players in the future.
However, you need to be fairly selective about the items you buy or collect. The sheer volume of autographs – some genuine, some fake – on eBay has dampened valuations severely, but there is still demand for more unusual items.
- Classic Cars
The good news is that the market for classic cars has been extremely buoyant over the past couple of years. It is a tangible asset that is kept in your garage and you cannot put a figure on the fun you get out of its use. Also, as long as you buy sensibly and it does not end up needing a lot of work done on it, it might increase in value two or three years down the line.
Cars increase in value for a variety of reasons. Sometimes it can be a manufacturer producing great modern cars that rekindles interest in their predecessors, while others shoot to prominence celebrating an anniversary for a particular model.
A stamp collection is one of the most common collectibles items. If you pick your stamps wisely, it could end up being a lucrative business as some unique examples can sell for millions of dollars. The rarest stamps have delivered annual average returns of around 9.7 per cent, with the prices being driven mainly by collectors.
Collectors are buying and selling millions of pounds worth of stamps every day. These stamps can be a good way of diversifying your portfolios because they do not correlate closely with any other asset classes. The key is finding a reputable dealer that can help guide you through the process of stamp collecting and selling.
How to Invest in Collectibles Profitably With Little Money
Collectibles can be bought just about anywhere. The most popular places to get them are flea markets, antique stores, collectible retailers, auctions, garage sales, and more recently, online exchanges such as eBay. The value of the collectible can vary widely, but is dependent for the most part on supply and demand for the asset. Here are ways you can invest profitably in collectibles.
a. Know how long you want to hold it
You should first of all determine this so as not to tie down your investment. Knowing how long you plan on holding a collectible as an investment before you sell it can help you determine what’s a good price to pay for it as well as help you set your expectations for a reasonable profit.
For example, if you find a really good deal on a collectible, you may want to flip it for a fast profit. Or if you find a really rare collectible at a reasonable price, you may want to hold it for a long period of time and sell it after it’s value appreciates a lot over time.
b. Hunt for bargains
The entire idea of investing in collectibles is to buy low and sell high. It may seem simple, but it’s easy to forget the basic principles when trying to keep track of everything. Keeping in mind the entire process from beginning to end also helps you make rational buying and selling decisions.
Again, you should not be too proud to dumpster dive or to pick up stuff off the curb, etc. You should also learn to fix up, repair, paint, or do whatever it takes to make throw away stuff more sellable. People often pick things off the curb on garbage and sell them to a dealer for hundreds of dollars in a few hours.
c. Start with small investments
Of course it is exciting to start a new hobby, especially one that can be financially rewarding. But endeavor not to test the waters with your two feet. Don’t go out and spend your life savings on one piece of art. That’s an easy way to get burned out and lose interest altogether. Instead, start small and start slow. This will help you build the anticipation for your next transaction, and it helps minimize risk as you learn the process and inevitably make mistakes along the way.
Again, if you start small, the profits you make would spur you into bigger investments. It would also help you learn the market before you can start making larger investments.
d. Care for the collectibles properly
Once you make a purchase and have a collectible in your possession, don’t let it’s value unnecessarily tumble due to poor storage procedures. Maximize the value of your collectibles by storing them properly. This is actually a great way to add value to your collectibles as well if you plan on holding it for a very long time.
Note that if you keep your rare items in perfect condition and reduce wear-and-tear as much as possible, it will be in much better condition relative to similar or identical pieces out there, making yours more valuable.
e. Choose collectibles that are of interest to you
You should endavour to invest in collectibles that excite you. It’s important to be excited and passionate about your items. It will help you to stay more motivated and active. Buy something because you love it and you get pleasure from it and it kind of speaks to you.
Never buy something purely for investment purposes unless you’re absolutely 100% sure you can make a return on it. Alternative investments like artwork, jewelry and cars can yield huge rewards, but only if you love the items you’re connecting.
Financial firm UBS Group (UBS – Get Report) and its Wealth Management Americas branch surveyed 2,475 investors with at least $1 million in investable assets, including 608 with at least $5 million. Among them, 25% consider themselves collectors. A majority of that group has spent more than 20 years collecting various items that represent 10% of their overall wealth, on average.
However, 57% of wealthy collectors say they’ve built their collections out of love, not in pursuit of profit. So, take a lesson from this and target your collectibles investments towards your hobbies.
10 Winning Tips for investing in Collectibles Profitably
1. Invest only in collectibles for which you know the market well: It has been found that it is extremely difficult to successfully invest money in collectibles if you don’t have a healthy knowledge of that particular type of collectible.
Let’s say you walk into a store or a booth that deals in the kinds of collectibles you’re interested in investing in. If that dealer removed the prices from everything they were selling, could you come close to naming the price for most of what was on offer there? If you can’t do that, you shouldn’t be investing in the collectibles over the long term.
2. Stay on top of any collectibles market you’re invested in: If you are not current on the market you are invested in, you might not be aware of an oncoming drop in prices. So if you’re not interested enough in the hobby to spend some time each week – or at the very least each month – to keep up with the changes in that hobby, it’s not a good idea to invest in that hobby. It’s no different than investing in individual stocks – if you’re not keeping up with that company, then you’re making a mistake investing in that company’s stock.
3. Acquire your collectibles through bargain hunting: Generally, buying from dealers is a poor place to invest your money because the prices they have on items are generally not going to be bargains. Instead, you should look for non-typical places to fill out your collection. You should frequent Goodwill and secondhand stores along with yard sales. When bargain hunting, you can equally find other items you are not interested in, but you are advised to buy them and sell off for quick profit.
4. Always, when possible, try to view items in person: It is always advisable to view the items you want to purchase in person. By viewing the items in person, you would be able to spot out forgeries and items that have significant flaws. Most top auctions have presale viewings where you can quiz the sellers. Otherwise, only deal with third parties you trust.
5. Set your budget and stick to it: Spend as much as you can afford – but also buy the best with what you can afford. This is where important factors like quality, rarity and provenance come into play.
6. Keep your valuables secure: it would not do to keep your collections carelessly. You should find a secure place for them where the risk of theft is low. The best option for most people is a safe deposit box at a local bank if you invest in very rare items.
7. Have your most valuable items professionally graded, if possible. Professional grading means that you have an independent company assess the authenticity and condition of your item. They will also often seal the item so that the condition can’t be altered. Grading can’t decrease the value of your item, but it certainly can increase the value of the item.
The cost of professional grading is usually worthwhile for any item that has a value of $500 or more. For items of lesser value, the cost of grading ends up being a significant part of the value of the item and thus it would take a pretty large price bump to make up for that value.
8. Cut out the middleman: Buy from the source and cut out the middlemen whenever possible. In some cases, you may be able to buy directly from the artist. For example, purchase pottery directly from artists. This would save you a lot of money in the end.
9. Get a buyback guarantee: If it is possible, ask the dealer for a written guarantee to buy back the item from you, if you opt to sell, for at least the same price you paid or higher within five years. This is a good way to ensure that you are not stuck with the item for the rest of your life if you don’t want to be.
10. Diversify: Don’t have all of your money in collectibles; diversity is king. It doesn’t make sense to have all of your money in stocks. It doesn’t make sense to have all of your money in cash. It doesn’t make sense to have all of your money in real estate. It also doesn’t make sense to have all of your money in collectibles. Diversity is king.
You do not want a collapse of the collectible market to leave you broke. Like it or not, collectibles are non-essential items and buyers can be fickle. If interests were to change, your collection could devalue relatively quickly and that’s not something you want to be exposed to.