Art of Investing in collectibles

Collectibles can include art, antiques, old coins, vintage cars, stamps, rare books, Persian rugs, baseball cards, bottles of fine wine and other items that offer the potential for appreciation in value. Unlike other investment vehicles, these items generally do not generate any type of cash flow during the time that they're owned (unless the property is so rare and exquisite that you can open a museum and charge admission for patrons to view it). In addition, a number of other characteristics make collectibles investing significantly different from investing in financial securities.

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.