You’ve likely seen the headlines: Rare collectibles, from vintage trading cards to digital art, are sold for jaw-dropping money. The hype suggests an easy path to making a fortune, attracting investors looking to diversify their portfolios.
But beyond those attention-catching success stories lies a different reality – where most collectors experience erratic returns, high volatility and unpredictable demand. So are collectibles like Pokémon cards and NFTs shrewd or failing alternative investments?
Why Collectibles Seem Like a Smart Investment
At face value, investing in collectibles seems straightforward – acquire rare or unusual items, hold onto them and flip them for a pile of cash later. Collectibles differ from stocks or bonds; they give you something tangible (or uniquely digital) that feels more personal and engaging.
And when stories of life-changing payouts make headlines, the hype grows stronger.
Take, for example, a Honus Wagner baseball card that went for $7.25 million or an NFT of plain white circles atop a black background selling for $91.8 million. Even Pokémon cards have skyrocketed in value, with others selling for over $400,000.
The Reality Check: Most People Lose Money
For every headline about a rare Pokémon card selling for six figures or an NFT going for millions, there are countless untold stories of investors who lose money or barely break even.
Promoters love spotlighting the rare wins, but these are outliers, not the rule. The truth is far less glamorous. Returns on collectibles can take years – if ever – to realize. And when collectors attempt to sell, many often discover that their treasured items aren’t worth anything near what they’d expected.
Major Risks That Come With Collectible Investments
So, are collectibles a failing alternative investment? Here are some risks you need to be aware of:
Fewer Undervalued Finds in the Digital Age
Finding a gem at a garage sale or flea market is much less frequent than in years past. The internet has increased pricing transparency, so sellers are more savvy than ever about what their goods are worth.
Online databases, price-tracking tools and immediate auction results have made for a more efficient market in which truly undervalued collectibles don’t hide out for long.
Counterfeits and Authenticity Issues
High-dollar items, such as rare trading cards or limited-edition art, are prime targets for counterfeiters. Even experienced appraisers can overlook subtle signs of forgery and sell the unsuspecting buyer a copy with no resale value.
For buyers, that means you might spend thousands – or even millions – on an investment that seems legitimate only to find out later that it’s a fake. Authentication services can help, but they tend to be expensive, and even they sometimes miss the truth.
High Upfront and Ongoing Costs
Collecting high-quality items usually requires significant upfront investment, whether it’s a rare Pokémon card or a sought-after NFT. But the spending doesn’t end there. Underlying costs of ownership, including storage, maintenance and insurance, can rack up at a rapid pace.
These expenses chip away at would-be profits over time, making it increasingly difficult to break even, let alone bring in a significant profit.
No Passive Income
The biggest downside of collectibles is that they don’t make you money while you own them. This is a big advantage for traditional investments. Even if the market value stays the same or falls temporarily, it can still yield steady returns in dividends, interest or rent.
However, collectibles are the only way to profit when sold for a higher price, which can take years (or may never happen).
Volatile Pricing Driven by Trends
Prices tend to fluctuate depending on hype, pop culture and passing trends as opposed to any true, quantifiable value.
For instance, take Pokémon cards. A card may be worth thousands today, but it could plummet overnight if demand for the card shifts or a new set renders it less desirable.
Poor Liquidity – Hard to Sell When You Want or Need To
Unlike stocks or bonds, which you can sell at any moment, collectibles are not quick to turn into cash. Locating a buyer willing to pay a fair price isn’t always feasible, particularly during a market cooldown.
This can be an actual issue during financial emergencies. If you need cash on the spot, selling a collectible quickly usually comes at a much-diminished price tag.
Hyped and Burned: Collectibles That Flopped
Here are some examples of collectibles that didn’t work out, along with key indicators that collectibles might be a failing alternative investment.
Beanie Babies: The Speculative Crash
Ty Warner’s “retiring” of certain designs in the late ’90s created artificial scarcity, spurring a frenzy among collectors who believed the $5 plush toys were certain to rapidly appreciate in value, with some rare models even commanding as much as $5,000.
But following the bubble’s burst, values crashed. Today, most of these once-sought-after toys fetch next to nothing, and hopeful investors are left with little more than stuffed animals.
Antique Furniture: From Investment to Giveaway
For decades, antique furniture was considered a sound investment that would only increase in value. But the market has collapsed in recent years. Prices for top-tier antiques are down about 70% from their peak, while mid-range and lower-tier pieces have lost 90% or more of their value.
NFTs: Millions Left Holding Worthless Tokens
Until recently, NFTs were the most sought-after new asset class, with purchasers spending millions on digital collectibles. Prices shot up thousands of percentages in some cases on the backs of hype, technological novelty, and a mirage of digital scarcity.
But just as fast as they soared, many NFTs dropped in value, leaving millions of investors with assets valued at a fraction of what they paid.
Beware of the Risks of Collectibles
The implosions of Beanie Babies, antique furniture and NFTs illustrate how quickly market sentiment can change, erasing perceived value instantly. Collectibles can bring joy, but betting your future on them is a gamble.
Instead of looking at collectibles mostly through the lens of financial assets, consider adopting a more sustainable mindset. If your collection gives you joy, that is reason enough to maintain it.