Collectible Investments

Many of us own collectibles. Maybe you own a collection of 100 Beanie Babies, including a retired “Legs the Frog” Baby born in 1993 complete with its original Ty heart hang tag! Maybe it’s a Marilyn Monroe doll made by the Franklin Mint. Maybe it’s a Lincoln penny collection book from 1941 – 1958.

At one time, you were sure your collectibles would turn into gold if you just held onto them long enough. Is it still worth keeping these collectibles gathering dust around your house? Do they still merit taking up closet space? Are you sick of dusting them? Is it worth the effort to move them to another house if you plan to move soon? Or, should you sell them on eBay and make a few bucks?

A collectible is “an item that is worth far more than it appears because of its rarity and/or demand”, according to Investopedia. There are many types of collectibles. Common collectibles include coins, stamps, comics, wines, trading cards, antiques, books, paper money, paintings, sculptures, figurines, dolls, stuffed animals, entertainment memorabilia, toys, sporting memorabilia, animals, rocks, fossils, shells, militaria, matchbooks, playing cards, poker chips, signs, magazines, etc.

Many people gather collectibles as a hobby. You may have sifted through your parents’ pocket change to find Lincoln Wheat pennies. You may have steamed the stamps off the birthday cards from your grandparents in France. You might have hunted for Hummel figurines at the flea market.

Other people create collections to make money. You may have bought fine wine during your vacation in Napa Valley thinking it'd appreciate if the vintage turned out to be a good year. Or you may have scoured local barns to find vintage signs thinking you’d resell them in a few years for a hefty profit.

If you survey your house, you’ll probably find a number of collectibles acquired over the years. To decide which to keep, the first question to ask is: “Do you have an emotional reason to keep them?” For example, you may have a framed Mickey Mantle jersey on your rec room wall which reminds you of your first major league baseball game at Yankee Stadium. If you have a emotional reason to keep a collectible, you may decide to keep it without regard to any economic rationale.

On the other hand, if the only reason you’re keeping a collectible is because “it might be worth a lot of money someday”, you should decide whether to keep it on economic grounds. The questions to ask yourself should shift to investment-related questions: Is the value of your collectible likely to increase in the future at a rate higher than your other investments? Or is its value likely to stagnate or decrease as time passes? How much money and time will I need to put in to maintain my collectible?

To help decide what collectibles are worth keeping, examine their characteristics.

Collectibles worth keeping due to their solid investment potential share a number of characteristics, as do collectibles that should be sold since they tend to be economic losers over long periods of time. To decide if a collectible is an economic winner or loser, consider the following:

• Fads vs. Intrinsic Value: Fad items with no intrinsic value tend to make much worse investments than collectibles with intrinsic value. For example, collectors went crazy over Beanie Baby stuffed animals in the late 1990s. Ty Inc. fed this mania by creating hundreds of unique animals, and limiting quantities to drive up prices. Unfortunately, most collectors watched the value of their collections plunge as the Beanie Baby fad dissipated and people realized these toys have little intrinsic value. In contrast, coins have intrinsic value and a long investment track record. Coin collectors take comfort knowing coin collecting will almost certainly remain popular far into the future.

• Planned vs. Accidental: Items marketed as collectibles tend to make worse investments than items that were never intended to be collected. One reason is supply and demand. People hold onto items they perceive have value, but toss away items they think are worthless. As time passes, the supply of “valuable” items stays high and their prices stagnate or decrease, while the supply of “worthless” items shrinks and their prices increase. For example, the Franklin Mint sells “collectible” memorial coins, die-cast cars, knives, figurines and other items. However, their prices tend to decline rapidly from their purchase prices as they are sold in high quantities at top-dollar prices, and their buyers hold onto them. In contrast, items such as marketing brochures for 1920’s automobiles can sport high prices as collectibles because they were never marketed as collectibles and, as a result, few of them were saved. Since few of them remain, the law of supply and demand assigns them high prices.

• Large vs. Constrained Supply: As the preceding paragraph suggested, it’s better to keep collectibles if there is a limited supply of them, while selling collectibles if there are many of them. Thus, there’s little reason to keep your collection of Statehood Quarters because the millions of similar collections will cap any potential appreciation. In contrast, keep your baseball signed by Babe Ruth because there are few of them in existence and no chance for more.

• Poor vs. Mint Condition: In the world of collectibles, condition is a key determinant of value. Thus, in deciding which collectibles to keep, favor items in mint condition. This extends not only to the item itself, but to any original tags, packaging and accessories. For example, if you own a collection of vintage G.I. Joe toys, you might want to simply clean out your closet if they were played with hard by your boys, while hanging onto your collection if they are still packed away in their original boxes.

• High vs. Low Holding Costs: In deciding to keep or sell a collection, consider any costs associated with maintaining the collection in mint condition. Do you need to pay storage costs? Do you need to buy special storage containers? Do you need special environmental controls? Do you need to buy insurance? Do you need to perform maintenance such as changing the oil on vintage automobiles? If you are unable or unwilling to spend whatever money is required to maintain the collection, consider selling sooner rather than later.

• Increasing vs. Decreasing Collector Base: Another factor to consider in predicting if the value of a collectible will rise or fall is whether the collector base will increase or decrease. For example, the collector base for 1960’s TV show memorabilia may decrease over time as the Baby Boomers who grew up watching TV in that era have less money to spend as they retire. On the other hand, the collector base for gold coins will likely grow as more people become interested in diversifying their investments by buying collectibles with high intrinsic value.

Predicting the future value of collectibles is difficult as they generate no income, and thus are valued only by what people are willing to pay. Making these predictions is more difficult because some collectibles (e.g., antiques) take decades to appreciate in value, while others (e.g., Pokemon cards) peak soon after they are introduced. To help make the right decisions on what to keep, focus on collectibles in mint condition with high intrinsic value, long-term track records as investments, accidental status as collectibles, limited supply, low holding costs and increasing collector bases.