Learn how to manage your collection like an investment.
- If you have a substantial collection now, or expect to build one in the future, it’s important to consider the financial side of your avocation.
- As your collection grows, so does its importance in your overall financial plan.
- Considering the financial implications shouldn’t reduce your pleasure, but rather ensure that you build something lasting, valuable, and worthwhile out of your passion.
Microsoft co-founder Paul Allen owns a collection of impressionist and modern art worth hundreds of millions. Fashion magnate Ralph Lauren has accumulated more than 60 collectible cars, including Ferraris, Alfa Romeo roadsters, Bugattis, Mercedes coupes, Bentleys, Jaguars, and a McLaren F1—all in red. Actor Nicholas Cage sold a lifetime’s accumulation of rare comic books for $1.68 million. These individuals—and thousands like them—have discovered the pleasures of investing in collectible assets.
If you collect items that you’re passionate about— whether they are cars or wine or jewelry or even autographed baseballs—you may be wondering about the value of your collection, its potential future value, and how it fits into your overall plan for financial security. Here are some tips about how to maximize the investment value of your collection.
- Don’t let collections be your only financial strategy
Collectibles don’t produce income, and they’re relatively hard to sell—so they’re probably not an appropriate way to invest to fund your basic income needs in retirement. Talk to your financial advisor about how much of your wealth you can invest in your collection without jeopardizing your overall financial security. Then stick to these limits.
- Build expertise in the areas that interest you
Most collectible markets are relatively inefficient, that is, prices can vary widely depending on who is buying, who is selling, and how “hot” a specific item is. The more you know about the items you collect, the better you’ll be able to recognize value, and the potential future value. You can develop your expertise by going to museums, attending trade shows, talking with dealers, and reading trade magazines.
- Don’t get swept up in fads
Collectible prices can swing wildly if a certain artist, automobile model, or wine vintage suddenly becomes popular. Think twice about investing in “hot” collectibles or paying top dollar for an item everybody suddenly has to have.
- Get professional appraisals
It’s important to know how much your collection is worth, both as part of your overall wealth plan and to make sure you have adequate insurance. And, remember, values change. If you haven’t had important pieces assessed in more than a decade, think about getting them reappraised.
- Understand liquidity
Collectibles are different from marketable securities in that it can take longer and cost more to sell them. Talk to dealers you trust about how readily your collectible assets could be sold, how much they are likely to fetch, and what the transaction costs might be.
- Protect your collectibles
Many types of collectibles require special care. For instance, fine art must be protected from damaging light, dampness, and mishandling. Wine must be kept at a proper temperature and stored away from light. Collectible automobiles need regular maintenance and safe storage. Rare coins can lose a significant portion of their value if they are scratched or otherwise damaged. And all collectibles must be protected from theft with adequate insurance and security systems. Make sure your collection maintains its value as a long-term investment by taking proper care of it.
- Recognize the emotional aspects of collecting
It’s natural to get attached to items in your collection, so that you’re reluctant to sell them when they become overvalued. It’s common for collectors to become so excited about a new addition that they’re willing to overpay for it. That’s part of collecting, and the emotional appeal may be a big reason why you started collecting in the first place. Still, it’s smart to recognize that collecting is different from other types of investing, and that you may not always be making decisions based on cut-and-dried investment criteria. If you feel yourself becoming too wrapped up in a purchase or sale, talk to a trusted advisor to make sure you’re not letting emotions get the best of you.
- Think about transferring assets to your heirs
If you want your collection to outlive you, you will have to plan carefully. Your estate plan should designate who should receive the collection and, if necessary, arrange financing to meet estate tax liabilities and avoid a forced sale. You might also wish to begin involving your heirs in the collection during your lifetime, consulting with them on sales and purchases, and transferring some assets to them before you pass away. Of course, not all collectors have heirs who share their interests. Often, the collection is simply included in the general estate, and in the emotional period following the collector’s death, the heirs may sell the collection for less than it is worth. For this reason, many collectors begin selling their collections while still alive to minimize the burden on their heirs. Others begin planning to donate collectible assets to museums. Talk to your advisors, including wealth planners, estate planning attorneys, and accountants, to develop a strategy for your collection.
Those are some strategies for increasing the investment value of your collection, but remember, that’s only part of the reason to collect, and there are no guarantees. Collections can also be the source of profound personal satisfaction, intellectual stimulation, and cultural value. Collecting the things that fascinate you—whether wine, cars, art, jewelry, or antique furniture—can be a worthy pursuit on its own terms. If you make money at it, all the better.
This article is for informational purposes only and is not intended as an offer or solicitation for the sale of any financial product or service. This publication is not designed or intended to provide financial, tax, legal, accounting, or other professional advice since such advice always requires consideration of individual circumstances. If professional advice is needed, the services of a professional advisor should be sought.
IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that, while this presentation is not intended to provide tax advice, in the event that any information contained in this presentation is construed to be tax advice, the information was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax related penalties under the Internal Revenue Code or (ii) promoting, marketing, or recommending to another party any matters addressed herein.Download Article