Passion Project or Smart Financial Choice?
Although there are many investment opportunities available, like stocks and bonds, real estate, and cryptocurrency, many wealthy investors seek additional opportunities to diversify their portfolios while growing their wealth. One such opportunity is less popular but still intriguing to many: building collections.
For the average person, collecting things like jewelry, coins, stamps, and art may be a mere hobby or too expensive to truly make worthwhile, but those with more money to invest may be able to turn a passion for a particular collectible into a long-term investment vehicle that yields solid returns. But is investing in collectibles really worth it?
Pros and cons of collectible investments
There are many options when it comes to collectibles, including precious metals, fine art, coins, stamps, jewelry and cars. Many other items of interest are out there, as well, but if you plan to utilize your collection as an investment, you’ll want to be relatively certain that your items will appreciate in value over time (and this is not easy).
Often, though, investors won’t see their collections as potential returns but as points of pride and passion. The best collectors are those who are both knowledgeable and passionate about the things they are collecting.
Pros and cons of collectible investments
There are both drawbacks and benefits to investing in collectible items.
Can yield high returns: Some collectibles experience extremely significant appreciation over time and become worth much more than an investor initially paid. However, it must be noted that this value is very subjective and cannot be assured.
Diversified assets: Collecting intangible items is one way to diversify your investment portfolio and expand your investments outside of the stock market and banking realm.
Value in a passion: The idea of turning a passion into a potentially lucrative investment appeals to many, particularly those with more expendable cash. For many collectors, building a collection brings them immense joy.
Illiquid and must be held for the long term: Most collectible items see high changes in value over the course of decades or even longer. There is not as much value in buying and selling collectibles on quick turnarounds. And, even after long periods of time, there is no guarantee that the item will have substantial returns at all.
Can be difficult to get into or do correctly: Investing in collectibles is not like trading stocks and bonds. It poses unique risks and can be more difficult to “get right” than other investment opportunities. Unless the investor has knowledge about the particular asset, they may get in over their head or waste money.
Higher returns found elsewhere: Although collectibles can yield returns over time, the returns for other types of investments are generally much higher. Unless you already have a collection of items or do it for personal enjoyment, you can find better investment opportunities elsewhere.
Collectible investing is not for everyone
In sum, it’s not usually advisable for an eager investor to begin a collection with the goal of making money. The returns for collectibles are not as high as other forms of investments, and there are many unique risks and challenges that the average investor may not want to deal with.
That being said, if you have a passion for collecting and have already started a collection of valuable items you enjoy, it may be worth getting those items appraised, purchasing insurance for them, and treating them as both a personal treasure and a valuable investment. The investors who have the most success with their collections tend to be those who experience great joy in the process of searching for and adding items they love despite the monetary value.
And, if you do have a collection, make sure you’re accounting for it when you work with your financial advisor in Los Angeles. Collections worth high sums can result in high capital gains taxes should you choose to sell, or they can affect the value of your estate when you pass away.
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Samuel Rad is an award winning fee-based Financial Planner with Affluencer Financial Advisors in Los Angeles, California. Mr. Rad has multiple licenses in the investments, real estate, and insurance fields. He has spent a considerable amount of his career lecturing at universities and companies, on financial topics such as financial planning, retirement planning, and estate planning. He currently lectures at UCLA and West Los Angeles College.