What should I know about investing in collectibles?
Collectible assets such as fine art, antiques, coins, and gems are one way to diversify your investment portfolio. But it can be difficult to predict if or when the money you invest will provide a return. Here are a few things you should know about collectibles before investing in them.
Not all collectibles are valuable. Some collectibles are valuable because of the creator's inherent talent or skills; each item is unique. Other collectibles are considered valuable because they're rare or experts and appraisers have attributed significance to them. Another type of collectible may have no intrinsic value, including baseball cards, action figures, stuffed toys, and vintage wine. These collectibles are subject to changing tastes and tend to be valuable only if they're currently in demand and someone is willing to pay for them, which makes it hard for collectors to get the timing right and profit from them.
Different factors help determine a collectible's value. The age of a given item as well as its quality, condition, historical value, and current popularity among collectors are factors that contribute to determining its worth.
It's easy to fall for a counterfeit. Even the most experienced appraisers can get duped by forgeries. And it's possible to overpay for a collectible because of an imperfection or inferiority that you didn't realize prior to the purchase.
Returns may be low. The average returns that investors earn from collectibles may not keep pace with inflation, and it may take a long time for them to appreciate.
The most compelling reason to buy a collectible is personal enjoyment. If you have pre-existing knowledge or interest in a collectible, or desire to learn more about a particular subject, then that's why you should buy a collectible — not because you expect a high investment return. Remember that all investing involves risk, including the possible loss of principal, and there is no guarantee that any investment strategy will be successful.
Diversification is a method used to help manage investment risk; it does not guarantee a profit or protect against investment loss.