Alternative Investment  

Can collectible investments be a useful diversifier?

This article is part of
Guide to investing in alternatives

Can collectible investments be a useful diversifier?

Collectible investments have been tarnished by investment scams in the past but for some clients they can be a serious investment and another way of diversifying a portfolio.

In his book, ‘101 Extraordinary Investments’, author Toby Walne points out investing in collectibles dates all the way back to Edwardian and Victorian exploration.

He writes: “Exploration funds were often simply raised by trading in curiosities picked up on travels – from shrunken heads used as a currency in Papua New Guinea, to African chieftain masks, Amazonian butterflies, and colonial postage stamps.”

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He goes on: “What is not commonly known is that this business is still very much alive and thriving today hidden by the very same – as well as many other – closed doors, with a wide range of modern collectables changing hands along with traditional and unusual curiosities.”

Lisa Best, research manager at Intelligent Partnership, says today, these “passion investments”, which range from classic cars to fine art, watches, antiques or jewellery, are often purchased for pleasure rather than profit.  

She adds: “But, ‘investment grade’ collectibles can provide diversification, inflation hedging, a physical store of wealth and an additional source of returns as well as the pure joy of ownership.”

Cautionary tales

But recent coverage of niche investments, such as fine wine and antiques, is often in the context of a scam, in particular those which target older or vulnerable people.

It is fair to say, investing in collectibles should come with a warning of some kind as they are not appropriate or suitable for every investor.

Claire Walsh, chartered financial planner at Brighton-based Aspect 8, explains: “I wouldn’t recommend anyone seek out unusual investments, but where people have a knowledge or interest in a particular collectible area it is quite common for them to want to invest in their passion.”

She suggests: “Many people do this without really considering it as an ‘investment’ but they are indulging their hobby and see a potential growth asset as a bonus.”

So who might benefit from investing some money in collectibles?

Ms Walsh believes: “Investing in collectibles should really only be considered by people where they have sufficient income and/or assets in mainstream investments to meet their needs and they are looking for something a bit different and where they can afford to lose the money. 

“The value of collectibles can be highly volatile and much more dependent on buyer sentiment.”

Ms Best believes those with a well-diversified investment portfolio may benefit from a small allocation to collectibles.  

“Their value is driven by scarcity rather than mainstream market movements, but it can be impacted by spending patterns, and it’s vital to have a high level of expertise or a trustworthy specialist to avoid the pitfalls,” she explains.