1. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company1 What is it? An investment quality collectible is any item of property that meets the following three criteria: –Rarity –Popularity –Ready marketability The specific value of a particular collectible will depend of its: –History –Aesthetic qualities –Condition –Composition –The number of similar items in existence Examples include rare coins, art, stamps, gems, oriental rugs, antiques, and certain wines.

2. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company2 When is the use of this tool indicated? When the investor has little or no need for immediate income and desires long-term capital appreciation When the investor has a particular knowledge of factors affecting the value of a specific type of collectible When an investor has unusual access to the sources of supply and demand for a particular type of collectible When an investor wishes to combine the potential for capital appreciation with the psychological pleasure of owning a collectible When an individual is looking for an investment with relative capital stability

3. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company3 Advantages Collectibles have the potential for long-term capital growth. Investors with specialized knowledge or information can realize above-average returns. Collectibles are fun! Collectibles have proven to be a relatively stable form of investment with steady appreciation.

4. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company4 Disadvantages Collectibles generally provide no current income for the investor. Most individuals are not expert enough in a particular area to judge the specific quality of the item they are purchasing. –They are dependent upon the dealer and any appraiser they may employ. –An independent appraiser will add to the cost of purchasing the item.

5. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company5 Disadvantages Collectibles are subject to swings in popularity. –Fads come and go. –Even if the number of collectors increases, the price of a particular item may fall, or may not appreciate as rapidly as expected. The absence of an organized market puts both buyers and sellers at a disadvantage. –Neither is likely to have adequate knowledge of supply, demand, or what is a “fair price” for a particular item –The availability of Internet auction sites has lessened the problem.

6. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company6 Disadvantages Investors must take the risk that an item will be damaged, stolen, or destroyed. –The overall rate of return will be reduced by the costs of: Safekeeping Storage Insurance The value of a particular collectible may drop precipitously if a supply previously unknown to the market is discovered. The potential for fraud and forgery must be considered. –More than in any other area of investment –Investors should insist that sellers verify or guarantee the authenticity of a particular item.

7. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company7 Tax Implications An individual who invests in collectibles is typically purchasing a capital asset. –With the exception of dealers –Any gain realized on the sale will be subject to long-term capital gain treatment Assuming the asset is held for the requisite amount of time –Any loss will be treated as either long-term or short-term capital loss.

8. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company8 Tax Implications The individual can control the timing of any gain or loss. –There is no fixed maturity date on collectible investments. –The investor can delay any sale of an investment until a year when income is low, deductions are high, or a year in which tax brackets have dropped. The increase in value of collectibles occurs on a tax- deferred basis year after year.

9. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company9 Alternatives The investor may switch from one area of collectibles to another as personal tastes and interests change. Gold, silver, platinum, and other precious metals share some of the same characteristics as collectibles, including: –Their tangible nature –Emphasis on capital appreciation

10. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company10 Where and How do I get it? Specialty stores –Typically offer the finest investment grade collectibles –Usually concentrate in a particular area of collectibles –Relatively high overhead Investors can expect to pay a premium in doing business with such establishments Auctions –Provide the investor with: Useful pricing information An opportunity to meet other investor-collectors –Add to the psychological pleasure of buying, selling, and owning collectibles

11. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company11 Where and How do I get it? Internet auction sites –Offer access to a huge marketplace of traders and collectors –More impersonal Collector conventions –Gathering places for large groups of buyers and sellers –Offer many of the same opportunities as auctions, but in a somewhat less formal setting Local newspapers –A source of information on estate sales The pressure to pay taxes and other estate settlement expenses often makes valuable items available at favorable prices.

12. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company12 Where and How do I get it? General interest newspapers –Carry advertisements for collectibles –Collectors’ magazines are directed at collectors in general. The Antique Trader Flea markets –An important source of collectibles for the modest investor –Carnival-like gatherings –Provide an opportunity to view a large array of items on sale at what are often bargain prices –The investor has an opportunity to negotiate the price with the seller.

13. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company13 Where and How do I get it? Fellow collectors –May provide one of the most important sources of information –May also provide supply and demand for collectibles –Many collectors develop expert knowledge in a particular field and may maintain personal contact with a large number of individuals who share similar interests.

14. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company14 What fees or other costs are involved? Typically, there are no commissions or fees associated with the purchase of collectibles. –Exception: The formal auction where a percentage of the bid price is added and paid to the auction house by both the buyer and seller of the item. Shipping, storage, and insurance costs must be factored into the investment equation. –As with all tangible investments Appraisal costs may also add significantly to the purchase price of an item.

15. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company15 How do I select the best of its type? There are authoritative price guides in the collectibles marketplace –They are not always accurate. –Serve as useful tools for investors –Fall short of being as indicative of value as are the transactions of buyers and sellers on an organized exchange Authorities and experts in a particular area of collectibles –Typically affordable only to wealthy investors Dealers in collectibles can: –Provide access to information –Share their expertise with valued customers

16. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company16 How do I select the best of its type? The purchase of collectibles requires knowledge on the part of the investor. –As much as in any other investment, if not more so –Includes knowledge of the particular characteristics that make the investment valuable –Can be obtained through courses/programs given through Colleges Adult continuing education programs Museums Galleries –These educational experiences: Enhance the collector’s psychological enjoyment Increase the potential for investment gain

17. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company17 Where can I find out more about it? Many reference books for the collector are available in libraries and local bookstores. –The Encyclopedia of Collectibles –The Concise Encyclopedia of American Antiques –Investments You Can Live with and Enjoy –A Guide to the Grading of U.S. Coins Periodicals are available for almost every type of collectible. –Antiques –Antique Toy World (www.antiquetoyworld.com) –Antique Trader

18. Collectibles Chapter 26 Tools & Techniques of Investment Planning Copyright 2007, The National Underwriter Company18 Where can I find out more about it? Clubs, museums, and auction houses Internet search engines –www.google.comwww.google.com –www.yahoo.comwww.yahoo.com