As children, many of us may have dreamed about collecting comic books, baseball cards, jewelry or art. For many, those dreams have not yet come true, but it is never too late to start collecting. With the right portfolio, these collections can become valuable tangible assets for investors. We’ve all heard of how physical assets can help diversify portfolios and investment strategies. However, choosing a tangible asset to invest in can be the hardest part.
In previous years, tangible assets were seen as strategies for only high-wealth investors, but that is no longer the case. While not everyone can afford a classic car or fine art collection, many are able to afford some type of physical asset to diversify their portfolios and help protect them from losses. In fact, many investors already own some type of physical asset, whether that is a car, a piece of jewelry or a family heirloom.
What to Consider When Choosing Physical Assets
Since they don’t tend to move in step with the stock market, tangible asset investments can help a portfolio withstand some market volatility. These alternative investments can help protect from any market losses. They may not be influenced by economic trends, but these assets are still affected by supply and demand. A physical asset can also be affected by its physical state. Depending on the type of asset, such as art or wine, there is a fair amount of maintenance that goes into keeping the value of these items high.
It’s important for investors to know how to choose among these assets. While there are many options, ranging from sports memorabilia to precious metals, it’s imperative that the individual investor has some type of interest in the asset chosen. For example, if the investor is a die-hard sports fan, then signed sports memorabilia or jerseys may be a great choice. Tangible assets are not very liquid; before taking the leap, an investor needs to know the industry and worth of these investments.
Sports memorabilia is perfect for the sports lover and the sports lover only. If an investor is planning on purchasing memorabilia and hoping for it to appreciate in value, they not only need to know what they are dealing with, but also how to assess the condition.
Let’s use baseball cards as an example. As a sports aficionado, you should be able to identify the following factors that can affect the card’s value:
The team or specific player on the card
The team or player’s success or lack thereof (including any injuries)
The going rate for similar cards
A grasp of how the card’s value will appreciate in the future
The condition of the card
Just how much are highly sought-after baseball cards worth? The most expensive baseball card bought at auction was a $3.2 million “Jumbo” T206 Hornus Wagner card in circulation from 1909 to 1911. The card was worth the price due to its history, size and rarity.
Being ignorant to an item’s value can cost you. One Maine family sold an old baseball card alongside a pile of other garage sale items for $100. The man who bought the seemingly worthless stuff later went on to sell the baseball card for $92,000. The rare baseball card was actually dated back to 1865. Not knowing much about sports or the industry could cause investors to make similar mistakes and miss out on huge returns.
Fine art is a tricky investment. As they say, “Art is in the eye of the beholder.” What one person likes, another may not be able to appreciate in the same way. Personal tastes play into value, which is why the price of a Jackson Pollock and a Van Gogh can differ by $50 million.
In order to have quick returns, you must purchase works from well-known artists. However, if you are willing to hold on to the piece and keep it in good condition, you can be rewarded with large returns over time.
Investors must also be careful to get these physical assets appraised from time to time, or they risk losing money. A piece purchased this year may not sell for the same amount next year.. Knowing the current value of the asset, not just the purchase value, is very important. An appraiser will look at several factors:
Welsh poet George Herbert once said, “That is gold which is worth gold.” In other words there are precious metals other than gold that can provide similar assets and returns if buyers know what they are getting into. Having these assets physically ( bars, coins or jewelry) is very different for investors than having investments in related ETFs or stocks. When these items are physically owned, investors have more control over them than investments in the market.
Physical precious metals can’t default on their value, and it is difficult to physically manipulate this tangible asset. In recent years, precious metals have begun outperforming the Dow Jones Industrial Average (DJIA), and silver and gold remain great stores of value.
With tangible asset investments available in everything from comic books to antiques, it’s important that an investor does his or her homework. While these investments are a great way gain some protection in case of market losses, investors must first know their worth. Matching the right asset with the right investor can not only boost a portfolio, but it can also make childhood dreams come true.
[Editor’s Note: This is an updated version of an article first published on June 30, 2015.]
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