Financial Freedom,  Making Money

10-20% Return Potential For Collectibles

The return potential for collectibles is at least 10%, and with the right knowledge and timing, returns as high as 20% are definitely possible.

In fact, one study done on beanie babies during the height of the craze, saw returns of over 100% over 5 years.

This was one of the hardest to research articles I’ve written yet. The information on the collectibles market is very hard to find online, and the articles dominating Google search results are generic and somewhat useless. The only good information I was able to find was found in academic journals, and even that data was a bit spotty.

Nevertheless, I think there’s enough here to argue that collectibles rival the stock market in terms of return potential for a passive investment.

Here are my write ups on the return potential of other investment types:

Now let’s go.

Michael in front of an original painting
An exquisite original painting adorning the wall in my great room, aptly named “Robot in the Tetons.” It’s return value may be greater than even the beanie babies.

What Are Collectibles?

Collectibles are defined by Investopedia as items that are worth far more than they originally sold for. I define them as a physical item that is rare and in demand.

Here are some examples:

  • Artwork
  • Wine
  • Coins
  • Instruments of famous musicians
  • Stamps
  • Sports cards

As investments, collectibles have a lot of drawbacks. They don’t cash flow, which means you only make money when you sell the item. But there aren’t many buyers for the most lucrative collectibles, making them difficult to sell, and ultimately this means you don’t always get to decide when you realize your profit.

And don’t forget about taxes. Collectibles have a flat rate taxation of 28% on gains realized. This is among the worst.

Studies On The Returns Of Collectibles

I came across an article called Measuring Returns on Investments in Collectibles written by Benjamin J. Burton and Joyce P. Jacobsen, and it had a gold mine of studies listed in it.

The conclusion in the article was that the expected rate of returns across all collectibles, based on the studies, was between 11 and 14 percent. I feel that the list of studies was the most powerful piece of information in the article so I’m listing it here.

The annual return column represents return before taxes and inflation.

Warning: this is a huge table! If you just want the summary, look at the top three rows labeled as “Aggregate Index.”

Author(s)Collectible typeDates measuredAnnual Return
Sotheby’sAggregate Index1971-198411.1%
Salomon BrothersAggregate Index1967-198812.75%
BritRail FundAggregate Index1974-199013.8%
RushAntique Furniture1925-19684.9%
Sotheby’sAntique Furniture1950-196910.0%
Sotheby’sAntique Furniture1975-198012.71%
Sotheby’sAntique Furniture1981-19840.64%
GraeserAntique Furniture1967-19866.97%
BritRail FundAntique Furniture1974-198811.6%
Sotheby’sCeramics1950-196918.0%
Sotheby’sCeramics1975-198020.6%
Sotheby’sCeramics1981-19840.60%
Salomon BrothersCeramics1971-199111.6%
BritRail FundCeramics1974-198916.9%
KaneCoins1970-197920.6%
BritRail FundCoins1974-19871.4%
Dickie et al.Coins1984-19910.54%
RushDrawings/Paintings1925-196010.6%
AndersonDrawings/Paintings1653-19704.9%
Sotheby’sDrawings/Paintings1950-196917.0%
SteinDrawings/Paintings1946-196810.5%
Sotheby’sDrawings/Paintings1975-198013.5%
BaumolDrawings/Paintings1652-19611.25%
Sotheby’sDrawings/Paintings1981-19840.85%
Frey and PommerehneDrawings/Paintings1950-19876.7%
Frey and SernaDrawings/Paintings1915-19888.3%
Rouget et al.Drawings/Paintings1960-199011.0%
Salomon BrothersDrawings/Paintings1971-199112.3%
Buelens and GinsburghDrawings/Paintings1700-19611.6%
GoetzmannDrawings/Paintings1716-19863.2%
Holub et al.Drawings/Paintings1950-197016.0%
Mok et al.Drawings/Paintings1980-199052.9%
BritRail FundDrawings/Paintings1974-199017.5%
Chanel et al.Drawings/Paintings1960-198811.8%
De la Barre et al.Drawings/Paintings1962-197412.0%
Agnello and PierceDrawings/Paintings1971-19929.3%
Chanel et al.Drawings/Paintings1855-19696.2%
FaseDrawings/Paintings1946-199210.8%
GoetzmannDrawings/Paintings1907-19878.24%
Candela and ScorcuDrawings/Paintings1983-19943.9%
CzujackDrawings/Paintings1966-19948.6%
Agnello and PierceDrawings/Paintings1971-19966.9%
PompePhotographs1980-199230.2%
PerloffPhotographs1975-199813.8%
Sotheby’sPrints1950-196920.0%
PennPrints1954-197824.9%
DavisPrints1965-198019.6%
PesandoPrints1977-19927.3%
BritRail FundPrints1974-198711.0%
Pesando and ShumPrints1977-19966.6%
OpenheimerPrints1830-19997.2%
TaylorStamps1963-197714.5%
Salomon BrothersStamps1971-199110.0%
Cardell et al.Stamps1947-19887.6%
KraskerWine1973-19770.38%
JaegerWine1969-197711.3%
Ashenfelter et al.Wine1952-19802.4%
Byron and AshenfelterWine1961-199313.4%
FaseWine1982-199211.5%
Burton and JacobsenWine1986-19968.48
Sotheby’sBooks1950-196912.3%
Wellington and GalloToy Soldiers1978-198210.0%
Avery and ColonnaFirearms1978-19847.4%
Ross and ZondervanViolins1803-19862.2%
BritRail FundBooks1974-19908.7%
KellyBeer Steins1983-19932.7%
Ginsburgh and PendersArt1972-199220.9%
Burton and JacobsenBeanie Babies1994-1999168%
Data compiled by Benjamin J. Burton and Joyce P. Jacobsen in their article Measuring Returns on Investments in Collectibles and copied here by me.

Analyzing these studies

There is a lot to conclude from this table. I’m going to go through everything that stood out to me.

Missing recent data

This journal article came out in 1999, so obviously we’re missing data since 2000. Because of this, we definitely need to be cautious drawing any conclusions from this data.

Returns increasing

One thing I found very interesting is that the return potential for collectibles seems to be getting higher as time has gone by.

This observation is mostly based of the comparison between returns in the late 1900’s and the returns that include data from before 1900. All the returns that include data from before 1900 were below 5%. That leads me to believe that the market for collectibles has grown over time.

I’d still love to see data for the 2000’s though.

Decent volatility

Since we don’t have a handy dandy graph, we have to draw some sweeping conclusions. A lot lowest return time frames seemed to be in the 80’s. This leads me to believe that the collectibles market has ups and downs.

If you compare to say the real estate market, which mostly has ups and bigger ups, and the occasional down year.

It’s hard to say what causes the market to have ups and downs. I imagine part of the puzzle is that most of these collectibles markets have a much smaller audience than most investment types.

Drawings and Paintings

Based on how many studies have been done around drawings and paintings, I’d imagine this is the heart of the collectibles market.

If I were interested in getting started in collectibles, I think this is where I’d put my time and research. You’ll likely have a better time finding buyers when you’re ready to sell, and there should be more information available to anyone wanting to learn.

And if you are interested, I’m not the person to ask. From what I’ve read, there’s a lot of fraudsters in the collectibles space, so do your research and probably do some cheap deals before you start putting serious money into it.

Beanie babies

I couldn’t walk away without mentioning the beanie babies. I’m delighted that a study was done on these. Clearly some people made lots of money in this market.

I’d imagine part of the reason it was so lucrative was the fact that word got out to the public. When you increase the demand for something by orders of magnitude, you’ll see crazy return numbers.

Taxation

Tax law can be pretty complicated, but in this case it’s simple. The gain collected from selling a collectible is taxed at 28%, as long as you’ve owned the collectible for one year or more. That’s pretty brutal.

Those 11-14% average returns from the studies we’ve looked at drop all the way down to 8-10%.

While the taxes hurt, those 8-10% returns are in competition with the stock market for best returns for a passive investment.

Some Personal Thoughts

I honestly haven’t found a good article on getting into collectibles. It’s hard work finding information on the industry. The return numbers are appealing, but if I were thinking of getting into collectibles, I’d be worried about the learning curve.

It seems this is an investment type that runs a high risk of getting cheated. And I know certain types of collectibles require very special care. Think about antiques like furniture or baseball cards. The value of these assets is incredibly dependent on their condition.

So you’ll have a lot to learn about verifying legitimacy of potential investments, and possibly a lot to learn about caring for your assets. It’s probably less work than business or real estate, but I’d wager it’s more work than the stock market.

Overall, I’m preferring the stock market for my passive investing and here are my big reasons.

  • Liquidity. It’s much easier to sell stock than a painting from Vincent van Gogh.
  • Dividends. You can earn a modest cash flow with stocks, not with collectibles.
  • Fraud. I’m not too worried about buying a fake stock, but I’d be worried about buying a fake painting.

You may be able to squeeze collectibles for a bit higher returns, but it’s pretty negligible, so I’m leaning towards stocks.

Conclusion

Collectibles seem to be the most mysterious of the major investment types. It’s difficult to find information and while I suppose that could be considered a good thing, I like my investments to be straightforward.

After taxation, the expected returns are 8-10%, and it’s clearly possible to earn 20% or more, but that requires some great timing and good luck.

I’d love to hear about others’ experiences investing in collectibles, if for no other reason than I find it fascinating, but until then.

Happy investing.

Michael

I'm living the path to financial success and sharing everything I learn in this blog. I believe in the power of cash flowing investments, due diligence and time. This is my journey so far.

I learned everything I know from books, podcasts, conversations with friends and family and of course through real world experience as a cash flow investor. And I'm always pushing to learn more.

To see my investing timeline, check out our about page

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