Collectibles: Fun or A Passion Investment

My father (Mr. Mel) loved collecting stamps. Ever since he was a young boy, he collected all types of stamps. I remember when I was a kid, my father bought me a set of Skylab stamps. Skylab was the United States' first space station, launched by NASA, and was occupied for about 24 weeks between May 1973 and February 1974. He was friendly with the local postmaster, visiting the post office regularly to purchase sheets of stamps as well as individual ones. He subscribed to Linn’s Stamp News and frequently attended stamp shows. It was his passion project. What he also loved about collecting was learning history through his stamps. He had all the tools of a philatelist, including binders sorted by year, country, or period of history, tongs, magnifiers, stamp hinges, special pages, and more. This was his thing. Unfortunately, I was too young to get into it. I preferred baseball cards. I collected, sold, flipped, and traded them. That was more my thing. Put a group of collectors together in a room, and OMG, these folks are passionate about their collections.

What is Collecting About?

Investing in collectibles has become increasingly popular among the wealthy and everyday enthusiasts alike. The world has evolved from baseball cards to rare coins, offering a blend of nostalgia, cultural significance, and financial potential. Comic books, vintage automobiles, watches, and the list goes on. Here’s a quick dive into why investing in collectibles is gaining traction, the pros and cons, types of collectibles worth considering, tax implications, and how to get started.

Why Invest in Collectibles?

On a more serious note, collectibles are unique investment assets that appeal to both passion and profit. Here are a few reasons why they attract investors:

Diversification: Collectibles provide an alternative investment option, diversifying portfolios beyond traditional stocks and bonds.

Appreciation Potential: Rare and high-demand items can appreciate significantly over time, often yielding impressive returns. No guarantees though!

Tangible Asset: Unlike digital investments, collectibles are physical items that can be held, displayed, and enjoyed.

Cultural and Emotional Value: Many collectibles hold sentimental value, evoking nostalgia and personal connections to historical or cultural moments in time.

Limited Supply: The rarity of certain collectibles can drive up their value, especially as they become harder to find over time.

Some Pros and Cons of Investing in Collectibles

High Returns: Some collectibles can appreciate greatly, offering significant returns on investment. Again, not always!

Diversification: Adds variety to an investment portfolio, reducing overall risk.

Tangible Enjoyment: Collectibles can be enjoyed and displayed, providing personal satisfaction beyond financial gain.

Cultural Significance: Collecting items with historical or cultural value can be rewarding and educational.

Inflation Hedge: Collectibles can maintain or increase in value during inflationary periods. Not always!

Disadvantages

Liquidity Issues: Finding a buyer can be challenging, and selling may take time.

Market Volatility: The value of collectibles can fluctuate based on trends and market demand.

High Transaction Costs: Buying, selling, and maintaining collectibles can incur significant costs.

Authentication and Fraud Risks: The market is susceptible to forgeries and scams, which can impact value.

Storage and Preservation: Proper storage is essential to maintain the condition and value of collectibles.

Types of Collectibles One Could Possibly Invest In

Baseball Cards: Vintage cards, especially those of iconic players, are highly valued. Limited edition and mint condition cards can fetch high prices.

Sneakers: Limited edition and rare sneakers, particularly from brands like Nike and Adidas, can appreciate in value. Collaboration models and sneakers with unique designs are especially sought after.

Cars: Classic and vintage cars, especially those with historical significance or unique features, can be valuable investments. Models from brands like Ferrari, Porsche, and Aston Martin are particularly prized.

Stamps: Rare and historical stamps often appreciate in value due to their scarcity and historical significance.

Coins: Historical and rare coins often appreciate in value due to their rarity and historical significance. Coins minted in limited quantities or those with unique features can be extremely valuable.

Comic Books: First editions, rare issues, and comics featuring the debut of popular characters can be extremely valuable.

Action Figures and Toys: Vintage toys, especially those in original packaging, are highly collectible. Popular lines include Star Wars, GI Joe, and Transformers.

Vinyl Records: Rare and limited pressings, especially those from iconic artists, can be valuable.

Tax Consequences and Costs of Investing in Collectibles

Not much in life comes for free. No difference here. Investing in collectibles can have several tax implications and costs that come associated with an investment:

Capital Gains Tax: Profits from selling collectibles are subject to a special capital gains tax. The rate can be higher for collectibles compared to other assets.

Sales Tax: Purchasing collectibles may involve sales tax, depending on the jurisdiction.

Estate Tax: Collectibles are considered part of the taxable estate, which can affect estate planning and inheritance taxes.

Insurance and Appraisals: Costs related to insuring and appraising valuable collectibles can also impact the overall investment.

Some Ways on How to Get Started in Investing in Collectibles

Research: Educate yourself about the specific collectible market. Understand what drives value and the history behind the items. Visit some shows to get a feel for what is going on in the market.

Consult Experts: Work with advisors, appraisers, and experienced collectors to gain insights and avoid common pitfalls.

Start Small: Begin with smaller, less expensive items to gain experience and build your knowledge.

Verify Authenticity: Ensure that collectibles are authentic and properly documented. Provenance and condition are crucial factors.

Proper Storage: Invest in proper storage solutions to maintain the condition and value of your collectibles.

Network: Engage with the collector community through forums, trade shows, and clubs to stay informed about trends and opportunities.

Determining the Value of Collectibles

Rarity: The scarcity of an item significantly impacts its value. Limited editions and rare finds are typically more valuable.

Condition: The better the condition, the higher the value. Items in mint or near-mint condition are especially prized.

Demand: Market demand plays a crucial role. Popular items with high demand will command higher prices.

Provenance: The history of ownership and authenticity of the item can greatly affect its value.

Trends: Market trends and cultural shifts can influence the desirability and value of collectibles.

Back to Mr. Mel's Collection Story

As my dad aged, his interest in his collection waned. He told me it would be worth hundreds of thousands of dollars for my sister and me to split as part of our inheritance. We stored the stamps properly and insured them for several hundred thousand dollars. As my father reached his 90s, he finally agreed to let me bring in an appraiser to review his collection of over 80 years. For a day and a half, the appraiser meticulously examined the stamps. He set up a table in the basement with a magnifier and took notes. At the end, he said, "My, your dad really loved to collect. So many interesting stamps, a lot from places he and your mom visited."

I asked if we would get a million dollars for the collection. He said no. How about half a million? Nope. 250K? Nope. Finally, he said there are a few that might be worth a few dollars, but if I were you, I'd cancel the insurance and use all the stamps as postage. LOL. Thanks to dad, we never have to buy stamps again! But you know what? He did it for fun, not to get rich. It was his passion. It was fun and educational. I might find a Willie Mays baseball card worth some money, but I did it at the time for fun, never thinking it would be worth a lot.

Parting Thoughts

Encourage your kids to find an interest or passion in something and learn all they can in every way they can about the topic. You never know what might come out of it. For those who are truly serious, there's a lot to follow and digest. Let's talk more about collectibles and dive deeper into this fascinating world as time goes by. You never know what you may find in your attic. Stay tuned for more on the topic over the upcoming weeks.

Jonathan Gassman

Disclaimer

Investing in collectibles involves risks, including market volatility, liquidity issues, and potential for fraud. Values can fluctuate, and there's no guarantee of profit. It's crucial to conduct thorough research, consult with experts, and consider financial and tax implications before investing. Collectibles should be stored and insured properly to preserve their condition and value. Always consider your financial situation and investment goals before diving into the world of collectible