'Record-setting prices on virtually every category': How to invest in a booming collectibles market
With the explosion in popularity of nonfungible tokens, online investors and collectors have bid up the prices of all manners of digital collectibles, from basketball cards to drawings of rocks to virtual racehorses.
But many of the traditional items people like to collect are seeing a surge in popularity, too.
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"At the beginning of 2020 there was a slowdown in auctions and exhibitions," says Laura Doyle, art, jewelry, and valuable collections manager at insurer Chubb. "Then, with people spending more time indoors, they had more time to devote to their passions, including collecting."
As a result, she says, "we've seen record-setting prices on virtually every category."
With prices on the rise, many investors see collectibles as an investment opportunity. Nearly half of Americans (47%) say they'd purchase jewelry as an investment if they had the money to do so, according to a recent Chubb survey. About 40% said they'd do the same with art, and about a third of respondents say they'd add wine to their portfolio if they could.
Read on for how experts say you can strategically start a collection while maximizing your chances that your valuables appreciate over time.
'Be an informed collector'
If you're hoping to eventually turn a profit on your collection, you'll need expert knowledge of the field you're collecting in, says Xiliary Twil, an accredited senior appraiser of fine art with the American Society of Appraisers. "The goal is to learn as much as you can and be an informed collector," she says. "That's the key to everything. You wouldn't go out and buy stocks without doing your research."
In the world of fine art, that means keeping up with all the free literature you can get your hands on to get a sense of art and artists that are trending among collectors, Twil says. "All the major galleries have email lists and some offer virtual viewings," she says. "Auction houses, such as Sotheby's, Christie's, and Phillips have very good writers who put out articles about recent trends and market studies."
Video by Courtney Stith
If you're not sure where to start, experts recommend getting in touch with an auction house or advisory firm that specializes in the commodity you want to begin collecting. "You want to go to reputable people who will advise you. Ultimately, their goal may be to sell you something, but they're going to give you the confidence and knowledge to feel good about what you're buying," says Irv Goldman, CEO of wine auction house Acker Wines.
"You don't want to just read something online and go, 'This sounds good,'" he adds. "Go to a company trying to get people to invest in wine and pick their brain. Ask them how they pick wine and what their process is. Like anything else, you have to do your homework."
Calibrate your expectations
Depending on what and how you collect, you may be able to earn a good return on your investment. According to Acker's data, an index of fine and rare wines has returned a cumulative 242% since the beginning of 2006. That's less than the 300% return in the S&P 500 but a respectable number that came with a fraction of the volatility of the stock market over the same period, according to Goldman.
Any single collectible you buy has a chance to deliver a much more dramatic return — in either direction. "Designer sneakers are currently a $79 billion market that's expected to grow to $120 billion by 2026," says Twil. It's not hard for a collector to imagine, then, that the right pair of shoes could send their portfolio skyrocketing. But things can go the other way, too.
"Whatever type of furniture you collect will eventually be out of style," Twil says. "We all thought shoulder pads, spiky hair, off-the-shoulder T-shirts, and leg warmers were the most amazing look in the '80s. They didn't stick around."
To give yourself the best chance of turning a profit, try to build a diversified collection of your chosen item that covers different areas of the market you're interested in. That way, experts say, the value of your collection won't crater alongside a downturn in a particular piece. "For an entry-level wine investor, you're looking at $100 to $150 a bottle," says Goldman. "If you can start by spreading your first investment across, say, six different regions, you're probably fine."
Even if you do your research and spread your bets, there's no certainty that your interests are going to be aligned with the market's, says Doyle. So "buy what you love," she says. "Because you never know what's going to happen. There are no guaranteed returns."
Protect your investment
It's essential that you protect your collection from damage and theft. That process starts even before you buy, says Doyle. "Consider who you're buying from," she says. "More collectors are buying directly through online platforms like Instagram, with items being shipped directly to individuals. That can lead to issues with damage during transit."
Once you've begun a collection, the best thing you can do to make sure it doesn't decline in value is to manage its physical upkeep, Doyle adds. "Whether you're buying for passion or as an investment, prioritize physical and financial protection," she says. "That means appraisal, insurance, and proper storage."
That process should last throughout your ownership of your collection, says Twil. "You should have appraisals done every 3 to 5 years, because valuations change," she says. "If your stuff is more valuable and your insurance rate goes up, it's better to be safe than to have a flood and watch your art float out the door."
The article "How to Invest in a Booming Collectibles Market" originally published on Grow (CNBC + Acorns).
Video by Stephen Parkhurst
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