A Picasso in Your Portfolio | Baird Digest: News for Growing and Preserving your Wealth
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A Picasso in Your Portfolio

Collectibles like art, classic cars, sports cards, and vintage wines have become an asset class of their own. Before you invest in them, here are some guidelines to keep in mind.

With the markets struggling and inflation surging, many investors have begun wondering about the collectibles market. Could a classic car have a place not just in your garage but in your portfolio? While collectibles are high‐risk, illiquid investments, with additional costs to acquire and maintain, they have the potential for substantial appreciation.

Here are some ups and downs to keep in mind:

The Upside

  • While there are no guarantees, there is the potential for tremendous appreciation. A 1952 Topps Mickey Mantle baseball card sold for $12.6 million in August 2022, setting a record for a sports card. The owner had bought it in 1992 for $50,000.
  • When prices rise, the value of your coin or stamp collection may rise along with it – providing a hedge against inflation.
  • Collectibles do not move up and down in lockstep with the stock and bond markets. In fact, commodities like artwork can sometimes move opposite to the markets, as investors flee more traditional investments in times of turbulence.
  • There are companies that offer fractional ownership of collectibles, allowing you to invest in things like century‐old artwork or classic cars without having to buy an entire piece. Unfortunately, you can't take your 10% of a vintage Porsche out for a spin.

The Downside

  • The value of a collectible is almost entirely dependent on what the market will bear. While certain items, such as original Van Goghs, can be assumed to hold their value well, that doesn't necessarily apply to all collectibles. According to the consulting firm Arts Economics, a piece of art returns to the market an average of once every 30 years, so it can be very hard to anticipate what their prices will be like decades from now.
  • The mechanics of collectibles markets can also work against you. What a dealer is willing to pay for your piece or collection is likely to be quite different from what it costs to buy at retail. As an investor, expect to pay the advertised price when you buy, but receive substantially less if you sell to a dealer.
  • Collectibles, particularly artwork and items like stamps, can be susceptible to fraud and forgery. This means you may have to pay some upfront fees to verify the provenance of your piece, raising the cost of your investment.
  • Unlike with many other investments, gains on collectibles held for over a year are taxed at a top rate of 28%. Collectibles, although technically capital assets, are considered an asset class of their own for tax purposes.
  • You'll also need to insure your investment, adding to your upfront costs. It's possible that your homeowners insurance will cover your collections' full value, but you may also need to add them as an endorsement to your policy.

Most importantly, if you're making a significant investment in the collectibles market, consider how it fits into your overall wealth management and estate plans. Your Baird Financial Advisor team can help you sort out a strategy that's right for you – and for your collection.

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