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 tangible 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 tangible assets 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.
For more on this topic, see: Introduction to Investing in Tangible 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.
It’s important for investors to know how to choose what 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, sports memorabilia would be a great choice. Tangible assets are not very liquid, so before taking the leap, an investor needs to know the industry and worth of these investments.
For more on this topic, see: Do Tangible Assets Out-Perform Stocks and Bonds?
Investing in tangible assets can be very beneficial since, as noted earlier, these alternative investments can help protect them from any market losses. They may not be influenced by economic trends, but these assets are still affected by supply and demand. Depending on the type of asset (such as art or wine) there is also a fair amount of maintenance that goes into keeping the value of these items high.
A few common investment types and some things to consider:
Sports memorabilia is perfect for the sports lover, however I cannot stress enough the importance of a passion for sports. If an investor is planning on purchasing memorabilia and hoping for it to appreciate in value, he or she not only needs to know what they are dealing with, but also how to asses the condition. For example, a rookie baseball card is often worthless if the player ends up being no good, becomes injured, or if the card is in horrible condition. However, with the right player and the right condition, just one card can be worth thousands of dollars. For example, the 1941 Baltimore News Babe Ruth card is the most valuable card in existence at $500,000. Knowing the team or player that the memorabilia is from, knowing how much similar pieces are selling for, and being able to have some grasp of how they will do in the future are all important to consider. One woman put a card she thought wasn’t worth much on Ebay for $10, but later found out it was worth a whopping $75,000. 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, because 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. It is important to not only look at the quality of work, but also at the artist as well. 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 for a while (and put in the necessary maintenance to keep it in good condition) you can be rewarded with large returns over time. Investors must also be careful to get these assets appraised from time to time, or they risk losing money. One piece that was purchased for $142,000 was resold for only $99,000 less than a year later. Knowing the current value of the asset, not just the purchase value, is very important.
They say that all that glitters is not gold. While that may be true, there are precious metals other than gold that can provide similar assets and returns, if buyers know what they are getting themselves into. Having these assets physically, such as in bars, coins or jewelry, is very different for many 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. In recent years precious metals have begun outperforming the Dow Jones Industrial Average (DJIA), with gold and silver clocking in at 510% and 534% returns, respectively, in 2012. The DJIA for the 12 years leading up to 2012 was a mere 10% total.
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.
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