Collectibles As Investments
What does contemporary art have in common with beanie babies, comic books or sneakers? More than you might think. Many people have no issue calling stamps, coins, or trading cards collectibles, but with the growing collectibles market, these are more than collectibles: They are investments.
What Are Collectibles?
A collectible can be any physical item that people collect and are willing to spend a significant amount of money on. From bottles of wine to fine china or rare manuscripts, the range of potential collectibles is vast.
Hobbyist collectors often purchase and hang on to these items because they have a passion for them, while investors hang on in hopes that they’ll appreciate in value over time.
Collectible investments are defined as real assets that are worth more now than when they were originally purchased. Art, antiques, books, coins, comic books, and trading cards are all common types of investment-grade collectibles. Rare collectibles will frequently earn higher prices.
For example, the ultra-rare “Rabbit,” a stainless steel sculpture by Jeff Koons, sold at auction for a record-breaking $91.1 million in May 2019. On the other end of the spectrum, some mass-produced items have become collectibles such as vintage baseball cards or even Beanie Babies.
Much of a collectible’s value comes from the interest of the buyer. Some Star Wars memorabilia from the 1970s can be valued up to $45,000 if in mint condition, but only someone who really loved Star Wars would be willing to pay a year of college tuition for a 1979 Boba Fett figurine.
Another major driver in the sale price is nostalgia. Nostalgia tends to cycle in 20- to 30-year waves, as adults who now, theoretically, have more access to wealth are able to relive some of their childhood through the purchase of memorabilia.
The most important determinants in the price of a collectible, especially compared to comps, are the rarity and the condition of the item. Even the smallest dent, scratch, or smudge can wipe out a large amount of its value. That same Boba Fett figurine, if not in mint condition, has a value of only $10,000, for example.
Types of Collectibles
Practically any physical object — and with the introduction of NFTs (non-fungible tokens), not even necessarily physical — can be collected and potentially sold down the line for a profit. Because collectible is a wide umbrella term, it is often sorted into major categories and subcategories for convenience (i.e. art broken down by period or style, or sports cards broken down by sport, player, team, or period).
Some of the most common types of collectibles include:
- Fine Art
- Wine and Whiskey
- Trading Cards
- Sports Memorabilia
- Comic Books
- Classic Cars
- Rare Books
Collectibles as Alternative Assets
Collectibles are considered an alternative investments because they do not fall into the traditional asset categories of stocks, bonds, and cash.
Many collectors and investors choose to purchase real assets directly. They purchase art from a gallery or an auction house, they search for vintage baseball cards on eBay, or they purchase a luxury watch from the creator.
This method of investing in collectibles has the advantage of enjoying the item while waiting for the price to (hopefully) appreciate. On the other hand, the upfront cost of owning an investable piece of art or fine wine can be immense.
While there are everyday collectibles that have the potential to appreciate in value — multiple Beanie Babies are listed on eBay currently for over $100,000 with a 1997 Princess Diana Bear listed for $900,000 — most investment-grade collectibles will require a solid chunk of change in order to participate in the asset class.
On top of upfront costs, many collectibles require storage, maintenance, and sometimes an appraiser. Fine wine, contemporary art, vintage cars, toys, and even coins or stamps require careful storage and some will likely warrant insurance. The costs of caring for your collectibles can also end up being steep over time.
For investors looking to diversify their portfolio with the addition of collectibles but don’t have the upfront capital, storage capacity, or time to worry about maintaining the piece, fractional shares of collectibles can be an attractive option.
The alternative investment landscape has broadened greatly in recent years, notably with the introduction of numerous alternative asset platforms that offer fractional shares of collectibles. Retail investors now have the ability to reap the benefits of diversifying with fine wine, sports memorabilia, trading cards, comic books, cars, and — of course — contemporary art without the starting cost, the responsibility of ownership, or market knowledge to decide when to sell.
Of course, investing in only a fraction of these assets comes with some downsides. For one, these collectors do not get the joy of seeing these assets hang in their homes or sit in their driveways. There are also often additional costs associated with investment platforms that will vary from firm to firm.
Potential Advantages of Investing in Collectibles
Store of Value
Many investors opt to prefer their wealth through ownership of hard objects with a history of retaining their value and potentially appreciating during bear markets.
During the Covid-19 recession, the collectibles market accelerated as people were spending more time at home and looking for new ways to earn cash easily. New collectors came to market and trading activity and prices for many collectibles categories soared.
Sales of global collectibles are expected to grow to $692 billion from $412 billion over the next 10 years, according to Market Decipher.
Collectibles may aid in diversifying your investment portfolio by adding an asset that is not correlated with the stock market. Because collectibles do not have intrinsic value, but instead are valued based on subjective tastes and preferences of buyers and sellers, they can act as a store of value not impacted by stock market movements.
According to a 2022 Citi Private Bank Report, Post-War and Contemporary Art has a -0.04 correlation with developed market equities and a 0.15 correlation with investment-grade fixed income. Fine wine has a correlation of just 0.3 to the S&P 500
There are many examples of valuable collections that proved to be good investments. For example, the Birkin bag has outpaced both the S&P 500 and the price of gold since the Birkin was created in 1981. According to Market Decipher, the US collectible toy market is expected to grow to $25.3 billion by 2032, with a compound annual growth rate of 10.1%
In recent market downturns, many collectibles such as art and rare whiskey outpaced the S&P 500 and the bond market. Of course, this is no guarantee, but the potential for greater returns is a major driver for investors getting into collectibles.
Joy of Ownership
Unlike a share of a stock or a bond investment, if purchased outright, investors are able to enjoy collectibles while holding them. Fine art can be displayed in your home or a vintage car can be taken on joy rides while you are waiting for the collectibles’ value to appreciate.
Collectibles are not part of a traditional or basic investment strategy. They are riskier and more speculative compared to traditional assets like stocks and bonds, and often require more in-depth research and experience to end up being successful in the space.
Unless an investor is an expert, collectibles can be extremely risky investments. If an investor is looking to purchase a collectible outright on an auction site like eBay, the industry is highly unregulated and full of frauds, counterfeits, and forgeries.
One mitigating factor for fraud in the collectibles market is to work with third parties. If you own a collectible asset outright, many experts are available to assist with valuation and authentication from investment advisers to professional appraisers. If you invest in fractional shares, fraud is much less of a concern because the platform is in charge of sourcing and authentication.
When buying and selling collectibles, the appraisal of items will often take the going rate for similar items into consideration. However, this does not always pan out perfectly because there is no intrinsic value to collectibles.
Collectibles are largely illiquid because, by nature, they are long-term assets. Cashing out on an investment requires finding a buyer willing to pay your asking price, and sometimes requires a third-party auction house.
No Income Stream
Many traditional securities such as stocks or real estate yield an income in the form of dividends or monthly rent payments while investors are waiting for the value to rise. For collectibles, the capital gain is not realized until the piece is sold.
Various types of collectibles have widely differing volatility profiles. The lack of agreed-upon standards and the varying tastes of consumers mean prices can vary significantly between comparable objects and from one period to another.
Begin Investing in Collectibles with Contemporary Art
Investing in fractional shares of collectibles is an easier way to dip your toes into the collectibles market without risking the price of a vintage car or a designer handbag.
Masterworks is the first platform making it possible to invest in multimillion-dollar works from artists like Banksy, Kaws, Basquiat, and more. Masterworks’ industry-leading research and acquisition teams use proprietary data and art market expertise to curate a collection of iconic works of blue-chip contemporary art.
Masterworks only invests in contemporary blue-chip art, democratizing access to fine art investing.
Investing involves risk. See important disclosures at masterworks.com/cd
*[Please note: All investing activities involve risks and art is no exception. Risks associated with investing through the Masterworks platform include the following: Your ability to trade or sell your shares is uncertain. Artwork may go down in value and may be sold at a loss. Artwork is an illiquid investment. Costs and fees will reduce returns. Investing in art is subject to numerous risks, including physical damage, market risks, economic risks and fraud. Masterworks has potential conflicts of interest and its interests may not always be aligned with your interests.
Liquidation timing is uncertain. Expenses and fees are listed in our Offering Circulars. Note: Fees are 1.5% per annum (in equity), 20% profit share, and certain expenses are allocated to the investment vehicle. Investors should review the offering circular for a particular offering to learn more about fees and expenses associated with investing in offerings sponsored by Masterworks. Masterworks will receive an upfront payment, or “Expense Allocation” which is intended to be a fixed non-recurring expense allocation for (i) financing commitments, (ii) Masterworks’ sourcing the Artwork of a series, (iii) all research, data analysis, condition reports, appraisal, due diligence, travel, currency conversion and legal services to acquire the Artwork of a series and (iv) the use of the Masterworks Platform and Masterworks intellectual property. No other expenses associated with the organization of the Company, any series offering or the purchase and securitization of the Artwork will be paid, directly or indirectly, by the Company, any series or investors in any series offering. For more information, see “IMPORTANT DISCLOSURES” at Masterworks.com/cd
This post was sponsored by Masterworks