Alternative Investments: Collectibles

My wife recently inherited something special: a 1964 1/2 Mustang convertible. First-year Mustangs are referred to as “1/2” because they were produced in the early part of 1964 and before the 1965 models were in production. Originally sold for just under $3,000, some of those models currently sell for $30,000 or higher. Not bad. But in 1964, a $3,000 investment in an indexed market fund with growth reinvested would have resulted in far higher gains. That said, Mustangs are a lot more fun to own!

Many people view collectibles as part of their retirement strategy. If you have a particularly rare collectible and everything goes to plan, that could work for you. The owner of the one-of-one 1933 Saint-Gaudens double-eagle gold coin could get more than $18 million when they sell it. However, such collectibles are, by definition, hard to come by, and in many cases represent a considerable level of risk.

Collectability

Collectibles are collectible because people want them, which presents the first risk factor: What happens when interest in owning something dies down? Many people remember seeing collections of Hummel porcelain figurines when they visited their grandparents’ house. Once worth hundreds of dollars apiece, as the generation that loved them passes away, these collectables and their value has been declining sharply. Similar fates have befallen other formerly valuable items such as baseball cards and Beanie Babies. Even classic cars are showing signs of a valuation slide as those who did not grow up with them show less interest in acquiring them.

Breakability

Another risk factor is condition. If I crash that Mustang, it will immediately be worth considerably less, with little chance of recovering its former value. Even scratching the paint or performing improper maintenance can cause a permanent, irreversible drop in value.

Stocks are not vulnerable to such degradation. You can’t break them or cause one share of stock to be less valuable than other, identical shares. You don’t have to protect them from damage to maintain their value.

Illiquidity

A considerable advantage of many more traditional investment products is their liquidity. If you need a cash infusion, you can sell your stock holdings virtually instantly. The same is not necessarily true of collectibles.

That rare gold coin may be worth nearly $19 million, but if no one wants to buy it when you need to sell it, that value is largely meaningless. It’s quite common for collectibles to sit on eBay or in consignment shops for months or even years, waiting for buyers who both want and can afford them.

Inheritability

Traditional investments can be passed down to your heirs with minimal fuss. If they inherit your IRA, there are clear procedures to follow regarding its dispensation. Converting that IRA into money is as easy as calling a financial professional.

If your heirs inherit your expansive action figure collection, things are much less simple. They may know nothing about your collection. They probably won’t know the best resources to determine its value or the best options to liquidate it for what it’s actually worth. In short, your valuable collection is likely to be a considerable headache for your heirs who have to figure out what to do with it.

All this is not to say that you shouldn’t collect valuable things. I collect rare books myself because I enjoy them. But it’s unwise to assume your collections will be enough to fund your retirement. As with any retirement plan, a properly balanced portfolio that’s tailored to your unique circumstances and risk tolerance is a more prudent approach to investing than assuming any one asset or asset class is all you need to secure a comfortable lifestyle in your golden years.

Risk Disclosure: Investing involves risk including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values. Past performance does not guarantee future results. This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. Our firm does not offer collectible investments or commodities.

The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.

Jason LaBarge, financial advisor and president of LaBarge Financial

7 Riggs Avenue, Severna Park, MD 21146 443-647-4321

www.labargefinancial.com

Securities offered only by duly registered individuals through Madison Avenue Securities LLC (MAS), member FINRA/SIPC. Investment advisory products and services made available through AE Wealth Management LLC (AEWM), a registered investment advisor. MAS and LaBarge Financial are not affiliated entities.