Your money-making expert. Financial journalist, TV and radio personality.
Sports memorabilia, fine art, vintage wine, antique furniture… when it comes to investing in collectables, where do you start? And how do you choose the ‘right’ collectables to buy?
In this article, we’re going to highlight 8 need-to-knows about investing in collectables.
Keep reading for all the details or click on a link below to jump straight to a specific section…
A ‘collectable’ is something that has the potential to be worth far more than it was initially sold for. Because of this loose definition the term ‘collectable’ may apply to a host of unique assets.
Classic cars, LEGO sets, movie-inspired dolls, rare whiskey, stamps, comic books… the list is (almost) endless!
For investors, buying collectables with the intention of selling them later down the line is a perfectly respectable investment strategy, especially if the assets are part of a diversified portfolio.
However, arguably the biggest challenge when it comes to investing in collectables is the pesky question of knowing what to buy.
While you may fancy yourself as a bit of a wheeler dealer with an eye for a bargain, this reality is that it can be very tricky to identify collectables to buy and sell. After all, demand for certain collectable items may ‘fizzle out’ over time. Similarly, an oversupply of collectable goods may end up saturating the market – this can happen when there are too many other investors with the same idea.
So while there’s no magic way of choosing the right collectables, there are ways to improve your chances of success.
If you’re interested in investing in collectables, here are 8 things you need to need-to-know…
If you want to maximise your chances of buying the right collectables extensive research into market trends, including some analysis of current prices, is a must.
And while it’s nearly impossible to be 100% confident that the value of any asset will rise in future (there are too many variables) identifying which collectables are hot today, and grasping the fact that nostalgia typically comes back every 20 years or so, will likely go a long way in giving you the best chance of success.
Unlike stocks & shares, where you can usually offload your holdings in a matter of minutes, collectables are typically ‘illiquid’ assets. This means they’re tricky and/or time-consuming to sell. That’s because the value of a collectable ultimately depends on how much money an individual buyer will pay for it.
On a similar note, collectables don’t pay you an income. In other words, whether you own a collection of classic cars, vintage dolls, or luxury watches, these items don’t pay out dividends!
The only way you can make a profit when it coms to investing in collectables is when you crystalise your item/s by selling.
Fail to store collectables correctly and there’s a risk your items will suffer damage. This could easily impact their value.
Likewise, using or ‘enjoying’ your collectables is a big no-no.
In other words, keep those dolls in their box, don’t be tempted to drive that classic car, and don’t try on that limited edition football shirt. When it comes to collectables, patience is the name of the game. Leave collectables as they are and aim to keep them in as pristine condition as possible.
There’s no guarantee that any collectable you buy will end up rising in value. That’s the nature of investing in collectables – it’s a risk.
Yet the good thing about investing in collectables is that it’s a lot more ‘fun’ than investing in typical stocks & shares which, let’s face it, are only the figures you see in a brokerage account.
With collectables, you get to own an actual asset. And if you ‘enjoy’ the asset you hold, then you’ll hopefully get pleasure out of your investment, even if you don’t end up making a juicy profit.
For example, say you have no interest in children’s toys but you decide to buy Polly Pocket dolls in anticipation of an upcoming movie which, you hope, will recapture the magic of ‘Barbie mania’. However, for whatever reason the movie turns out to be a flop, and the price of Polly Pockets flatline because of this.
In this scenario, any Polly Pocket investment would likely leave you with lots of unwanted dolls….
Now, lets say you have an interest in toy cars, or watches. Even if you buy these items and they end up being worth less than you paid for them, at least you’ll have a nice asset to ‘enjoy’ at the end of it.
This is why it’s often a good idea to invest in collectables that you’ve a real interest in, so you can at least get some value out of them if your financial gamble doesn’t pay off.
Buying collectables from a reseller is one way to build up a portfolio of unique assets. However, it’s worth being mindful that the world is swimming with counterfeit goods.
If you accidently buy a fake collectable, then you could find yourself paying a lot of money for an item that is essentially worthless.
Take the luxury watch market for instance, it’s estimated there are one million fake watches circulating in the UK alone. Unless you’re an expert, it may be tricky to tell the difference between a real watch and a dud.
This is why if you’re buying collectable items, it’s important to do your research and buy only from reputable, trusted sellers.
If you buy physical collectables then remember that you can’t just stick them in an ISA to avoid tax.
Any profits made could be taxable. Under current rules, you may have to pay Capital Gains Tax (CGT) if you make a profit of £6,000 or more.
There are exemptions to this rule, however, which is why CGT doesn’t apply to all collectables.
For starters, assets that have a predictable lifespan of 50 years or less (known as ‘wasting assets’) are exempt from CGT. This is why you wouldn’t ordinarily have to pay CGT on vintage wines or whiskey.
Likewise, vintage collectible cars are specifically exempt from CGT. To learn more, take a look at the Gov.UK website.
Arguably the most important need-to-know when it comes to investing in collectables is that you could lose money.
Regardless of the assets you’re hoping to buy, nobody can guarantee that your investment will pay off in the future. Remember, even the experts, including professional trend spotters, get it wrong.
This is why if you want to invest in collectables, understand that there’s a real risk the value of your investment will fall. This applies to all types of investing, of course, but when buying collectables, it’s fair to say that the risk of losses is higher compared to say, investing in a bog-standard index tracker fund.
Are you interested in learning more about investing in collectables? Take a look at these related guides:
And while we’re at it…. are you keen to learn more about investing in general? If so, why not sign up for our fortnightly MoneyMagpie Investing Newsletter. It’s free and you can unsubscribe at any time.
Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence. Capital at risk.