Investing in collectibles

Art of making money:  ‘Security selection’ is just as important for collectible assets as it is for stocks.

Art of making money: ‘Security selection’ is just as important for collectible assets as it is for stocks.

The pandemic is far from over even as the year draws to a close. Small wonder that our emotional well-being is fragile.

It is in this context that you should consider real assets. Early this year, we discussed passion assets, which you can touch and feel, as opposed to financial assets that are intangible. Here, we discuss why you must mull allocating some of your savings to real assets now.

We typically strive to improve our emotional well-being through retail therapy, whether it is spending on wellness or home-improvement products. Such spending has a temporary improvement on our emotional well-being. Given that most of these are consumption products, you can derive satisfaction till the products last. Others such as home-improvement products are mass-produced.

Therefore, these may stop stimulating your emotional well-being after a while as you get used to owning them.

You need products that carry a story; for it is the story that contributes continually to your emotional well-being. For instance, owning a high-value mahogany sideboard may feel good but may not continually contribute to your emotional well-being. But if it comes from a 19th century Georgian country house, you have a story to share with your friends. And each time you dwell on the uniqueness of the product, you improve your emotional well-being. It is in this context that you should consider investing in collectible assets. We define collectible assets as artefacts, paintings, vintage, and antique items including rare books.

These assets are commonly called as passion assets. The popular passion assets are wine, arts and rare artefacts.

Risk-return trade off

Buying collectible assets is just as difficult as choosing a mutual fund. With the latter, your objective is to choose a fund that can help you achieve your life goal (such as buying a house) with minimal risk of goal failure. With collectible assets, you should buy an artefact that you like, and importantly, one that you believe will increase in value in the future. So, foresight is just as important for ‘investing’ in collectible assets as it is for financial assets.

The biggest risk comes from the genuineness of the artefact.

With unscrupulous vendors describing all dark-wood furniture as rose wood and any artefact that is rusted and patinated as antique, it is easy to buy fake products. So, ‘security selection’ is just as important for collectible assets as it is for stocks in your trading portfolio.

An additional risk is storage. While vintage glass and brass may not have major storage issues, art and coins do. You must ensure that they are not exposed to the elements of nature; for the fading of a painting or oxidisation of a rare coin can affect their value. The return on these assets can be attractive.

Traditional assets such as stocks and bonds provide two sources of returns — income and capital appreciation. Collectible assets also provide two sources of returns — emotional returns and tangible returns in the form of capital appreciation when you eventually sell them.

Buying collectibles can be fulfilling but be mindful of the associated risks. The biggest advantage is that, unlike financial assets, you do not have to sell your collectibles at distress price to raise cash at short notice. The reason is that you do not typically invest in collectibles to achieve a life goal.

So, till your collectibles fetch a good price or till you are ready to part with them, you can share stories about them with friends for emotional returns.

( The writer offers training programmes for individuals to manage their personal investments)

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Printable version | May 17, 2022 5:28:36 pm |