Art and collectibles are known as alternative investments — alternatives to stocks, bonds, real estate and cash. Since art can be considered a collectible, we'll include it in the "collectible" category for the purposes of this article. (For more, see: Evaluating an Heirloom.)
The biggest advantage to investing in collectibles is the high upside potential. You might already know this from personal experience, or you know of a story from a family member. If not, there's a good chance you have watched "Antiques Roadshow" or one of the several pawn store shows that have become popular in recent years. "Antiques Roadshow" is a better example because the focus is often on people who don't realize what they have. They might have thought that old figurine sitting in the attic was worth $500, but it was appraised for $200,000. This wide of a difference between the expected price and appraisal price is rare, but people find valuable items at garage sales, yard sales, in their attic and at thrift stores all the time. (For more, see: 6 Things You Shouldn't Sell at a Garage Sale.)
A hefty profit is always going to be an investor's No. 1 goal, but there are many other advantages to investing in collectibles. (For more, see: Contemplating Collectible Investments.)
AdvantagesHedge against inflation: It's difficult to find investments that gain value above the rate of inflation; collectibles fall into that category.
Tax benefit (for some): You usually won't see tax benefit and collectibles in the same sentence, but if you're in a tax bracket north of 28%, the maximum you will pay on the sale of a collectible is still 28%; since this is still a high percentage, tax benefit is relative.
Uptrend: At the time of this writing (mid-2015), collectibles are in an uptrend, and record prices are common. Since everything is cyclical, this eventually will change; but also because everything is cyclical, the market will come back again.
Increasing demand: There are a limited amount of historical collectibles out there, which should keep demand high over the long haul. Some of these items will end up in museums, which will make available historic collectibles even more limited and valuable.
Growing middle class in emerging markets: Emerging markets are going to experience some volatility over the next several years, but the middle class in these markets will continue to grow, which will mean more buyers for collectibles thanks to increased disposable income levels.
Not sensitive to interest rate fluctuations: Most investments are sensitive to interest rates; collectibles are not — at least not directly. If interest rates increase, investment gains will decline, which will lead to a reduction in disposable income levels. On the other hand, rising interest rates present other types of investment opportunities, so there will always be potential buyers.
Adventure: When you buy a stock or a bond, you type in an order on a computer. When you buy a collectible, you're on the hunt in the real world, which can be fun and adventurous.
Usage: If you buy a painting and hang it on the wall in your living room, you don't just have an investment but an investment you can enjoy. When you purchase a stock, you're not going to digitally display that stock's ticker on the wall. Then again, anything is possible.
Long-term investment: This is beyond the long-term investment you're used to reading about. Instead of selling at any point, you can pass collectibles down to the next generation. If you wait decades to sell a collectible, the odds of the value increasing are high.
Global investment: You can sell a collectible almost anywhere in the world. (For more, see: 20 Investments: Collectibles.)
The Bottom LineIf you want to invest in collectibles, you should have a long-term investment time frame. The longer you hold on to that collectible, the more likely you are to enjoy a substantial return. There are other advantages in the meantime as well. (For more, see: 6 Weird Ways to Invest.)
