How to be good at collectibles

Some of the keys to successful card investing include buying rare, good condition cards of established players, said Bart Brewer, an adviser at Global Financial Advisory Services.

“Even though you don’t have to be super-rich to do baseball cards, if it’s going to be part of a portfolio, you have to have some money,” Brewer said. “The rich people want stuff that other people don’t have.”

If there are only a handful of copies in existence, it can create a frenzy when one goes on the market, as buying opportunities are rare.

In May, a 1979 Wayne Gretzky rookie card in mint condition sold for a record $3.75 million, according to Heritage Auctions.

Over the past six years, values for sports cards have climbed steadily, Brewer said. Because of that, cards with significant worth generally must be graded, meaning an independent company authenticates them and judges their condition. Three major companies provide this service, and backlogs and costs have built up during the pandemic, he noted.

Authentication is a necessity, as counterfeiting is rampant. That, along with a lack of liquidity and reliable valuations, makes collectibles investing trickier than buying securities or funds.

For many items, proper storage, security and insurance are also extremely important.

“My own rule is … I kind of look at this like emerging markets,” Brewer said. “The risks aren’t the same, but it’s a different animal. I am very hesitant to put any more than 5% of anyone’s portfolio in what I would call ‘exotics.’ And this is definitely an exotic.”

Another factor to consider is selling fees. Bid-ask spreads, even for high-value items, can be 10% to 15%, Brewer said. “This is not like buying a mutual fund or an ETF, where you have tight bid-ask spreads.”

Collectors are also notorious for loss-aversion bias, holding onto bad investments for too long, he noted.

“My biggest concern with collectibles as a part of an investment portfolio is performance reporting,” Chris Diodato, founder of WELLth Financial Planning, said in an email. “Last March, for instance, stocks were whipping up and down 5% or more daily. What about art? Nobody knows because the same pieces of art were not valued daily.”