First, specialized knowledge is necessary in order to be
able to determine the value of a specific collectible, whether it's a work of
fine art, a rare book, or a vintage car. It can be quite easy to pay too much
for a collectible if you don't have the expertise and familiarity required to
judge the particular item. You should therefore be knowledgeable about the
factors that determine the value of the specific collectible.
Furthermore, the markets for collectibles are informal as
well as unregulated. When buying or selling a collectible item, it's important
to have an idea of the worth of the item because you're dealing with individual
buyers or sellers. There are no current price lists as there are with stocks
and other financial instruments. Similarly, there is no governmental body such
as the Securities and Exchange Commission (SEC) that regulates companies who
list their securities on the financial markets. You can easily pay too much or
sell your collectible for far too little without being able to seek any
recourse from an official regulator. Additionally, many collectibles are bought
and sold at auctions, where prices can vary greatly.
Supply and demand generally determines the value for
collectibles. For example, the supply of paintings of those artists who are
considered to be the truly great masters is limited; it can, therefore, require
huge sums of money to invest in these items. Think about it: what actually
makes a work of art by da Vinci, van Gogh, Picasso, or Salvador Dali worth two
million, twenty million, or a hundred million dollars? It's the fact that they
are others who are willing to pay those prices to acquire such works. By
comparison, the works of unknown artists are much more available, thus they're
bought and sold and far lower price levels.
Investing in collectibles will also likely not bring
particularly fast profits. As stated previously, there's no underlying cash
stream upon which to base the item's value or return-on-investment. Returns are
only realized when collectibles appreciate in value and are sold at a higher
price than that at which they were purchased. This desired increase can often
take a number of years – at the very least – to materialize.
Finally, collectibles must be characterized as illiquid
assets because they're not easily converted into cash. Added are the high
transaction costs associated with liquidation of these items. Regardless,
investing in collectibles provides a definite sense of pleasure and enjoyment
for many individuals. If collectibles are of interest to you, there is any
number of easily accessible books, magazines, and websites to provide you with
specific information on the many different types of potential investments
available. As with any investment, however, proceed with knowledge and prudence.
