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Memorabilia vs. Collectibles: What’s The Difference?
Before you decide to invest in sports memorabilia, it’s essential to understand how they differ from collectibles.
Sports memorabilia are genuine items that have been authenticated by a professional sports authenticator, such as Collectors Universe. The sports memorabilia market is worth over $5 billion and is one of today's fastest-growing asset classes.
By comparison, sports collectibles aren’t necessarily professionally authenticated or valuable, such as a player bobblehead. They usually represent minimal growth potential and are purchased primarily because the person is a sports fan who wants to own the item.
How Investing in Sports Memorabilia Differs From Traditional Asset Classes
While all investments share some similarities, sports memorabilia differs substantially from traditional investments, like stocks and bonds.
This is primarily due to how sports memorabilia derive their value.
Many factors affect the value of a piece of memorabilia, such as the player's performance, the scarcity of the item, and the item's condition.
For example, a baseball card can increase in value if the baseball player featured in the card becomes a generational talent, increasing the value of that card.
Why You Should Consider Investing in Sports Memorabilia
Here are some of the reasons why you should consider investing in this alternative asset class in 2021:
A. Earning potential
Investing in sports memorabilia can be a very good investment.
PWCC, a leading trading card marketplace, publishes the Top 100, 500, and 2500 indices relating to the various sports card grades. The data suggest that sports card investing is one of the most profitable investment avenues.
When comparing the sports card market and the stock market data from January 2008 to May 2020, the sports trading cards Top 100 Index saw returns of 264%, the Top 500 returned 175%, and the Top 2,500 returned 98%.
It’s far harder to predict the returns on sports memorabilia because they vary on a case-by-case basis.
However, when you analyze individual sales, you’ll find that it can be an extremely lucrative asset class. For example, a Honus Wagner baseball card sold for a record-breaking $3.12 million in 2016.
With that said, as there isn’t a definitive source for comparing historical price appreciation, it can be tricky to judge your expected returns.
Risk vs. Return
A fascinating point to note is that while returns are unpredictable, the conventional definition of risk does not apply to this asset class.
That’s because even if a collectible does not appreciate, simply owning the asset might provide a lot of sentimental value.
For example, a collector may purchase some football cards as an investment; however, simply owning the cards is worth the investment as they may feature some of the collector’s favorite players.
B. Low correlation to the stock market
While financial returns are a priority, sports memorabilia also provides an efficient means of diversifying your portfolio.
When looking to diversify, one of the most important metrics to consider is an asset’s correlation to the stock market.
Correlation is simply a measure of the relationship between two different assets.
Ideally, you want assets that share a low correlation with the stock market. This means that they experience price changes largely independent of general financial trends. This protects your portfolio from being adversely affected by specific market fluctuations.
While it’s tricky to accurately gauge memorabilia’s correlation with the stock market, memorabilia shares many similarities with art and will often display similar characteristics during times of economic recession.
Given that art has a correlation of less than 0.3 with the stock market, it’s safe to say sports memorabilia would share a similarly low correlation, making it an ideal asset class for diversifying.
Risks of Investing in Sports Memorabilia
While all investments carry a degree of risk, certain asset classes like sports memorabilia are exposed to specific ones.
Some of these risks include:
- Tax obligations - If you buy an item and sell it later for a higher price, you’re benefiting from capital gains. The capital gains tax on the sale of an item, assuming it has appreciated, is a whopping 28%. If sold within a year, it’s taxed as ordinary income.
- Illiquidity - As sports memorabilia is still a relatively new asset class, finding buyers can be difficult. While stocks can easily be bought or sold on an exchange, a memorabilia collector usually has to find interested parties to liquidate the memorabilia, which can take a lot of time and effort. However, this risk can be mitigated by investing with Collectable, which offers you a secondary market where you can easily trade shares in memorabilia.
- They’re tangible (and damageable) - Since you’re buying tangible assets, there’s always a risk of damage, loss, or theft. That’s why you need safe storage and should consider having your memorabilia insured, which involves additional costs.
- The item may not appreciate - Not every piece of memorabilia will appreciate. Even if you’re collecting primarily from an investment perspective, it’s worth investing in pieces you enjoy because you may have to hold on to them for some time.
5 Things to Keep in Mind Before Investing in Sports Memorabilia
Before you decide to invest in sports memorabilia, there are a few things you should keep in mind.
1. Decide what to invest in
Once you’ve decided to invest in sports memorabilia, determine which types of memorabilia you want to invest in.
The term ‘sports memorabilia’ is broad and encompasses many different items. Instead of buying whatever is most accessible, it’s generally best to invest in what you know well rather than investing in a sport you're not familiar with.
For example, you can choose to focus exclusively on baseball cards from the 50s.
2. Set a budget
Rare sports memorabilia items can be costly, especially if they include an autograph. That’s why it’s important to set a budget for yourself, which will help you focus your efforts and narrow down your search.
3. Do your research
Once you’ve found an item you like that fits within your budget, you need to do your due diligence.
It’s a good idea to look at auction records, related publications, and internet forums to learn more about the item. You need to know what an acceptable price for the item is and some telltale signs of a fake.
Beckett’s Price Guide is an excellent resource for comparing card prices and gauging industry standards. Alternatively, eBay auctions also provide helpful information on determining how valuable an item is, especially when it comes to baseball memorabilia.
4. Be willing to wait
Unlike traditional investments where tons of assets are available immediately, valuable sports memorabilia are often hard to come by.
For example, if that mint condition Mickey Mantle rookie card is unavailable or is priced too high, be patient; it takes time to build a collection worth substantial money. You might need to wait months or even years for the item to become available.
The same can be said when it comes to selling an item and waiting for the right buyer.
5. Ensure that the piece is authenticated
Manufacturing and selling copies of authentic autographed memorabilia is a huge market. In fact, the FBI estimates that as much as 90% of autographed sports memorabilia on the market is fake.
To ensure you’re not falling victim to this, focus on items that have been authenticated by leading authentication services, such as PSA, JSA, Upper Deck, or Beckett. Additionally, ensure the item comes with a certificate of authenticity.
The Most Affordable Way of Investing in Sports Memorabilia
Sure, you can buy a baseball card pack at the store, but there’s no guarantee that those cards will appreciate. Additionally, there’s no way to determine how long it will take a card to appreciate either.
One of the key ways to capitalize on the memorabilia market is to invest in items that have already appreciated greatly.
Unfortunately, investing in already-valuable memorabilia is expensive and usually done via a reputed auction house like Goldin Auctions.
However, new platforms are emerging to provide everyday investors with the opportunity to take advantage of investments that would otherwise be out of their reach.
One of these platforms is Collectable, which aims to democratize sports memorabilia investing so that anyone can take advantage of this unique alternative investment.
What is Collectable?
Collectable is a fractional investing platform that lets investors purchase shares of valuable sports collectibles. This way, instead of paying millions to own a signed item, you can invest as little as $1 to own a stake in that item.
How does Collectable work?
Once you’ve purchased your shares, you can earn through buying, selling, or trading your shares with other collectors through the secondary market. This offers you an added layer of liquidity that you can’t find anywhere else on the market.
Additionally, you’ll earn a portion of the proceeds when Collectable sells an item you’ve invested in.
What are the fees involved?
The only fee Collectable charges is a sourcing fee of between 0-10% of the item’s appraised value. The sourcing fees are a combination of cash and equity within the offering.
What’s the minimum investment?
While investment minimums vary on an item-by-item basis, most are incredibly low, sometimes even $1.
What are the potential returns?
While the returns vary with each item, the platform recently sold a 1980 Larry Bird, Julius Erving, and Magic Johnson basketball card for $720,000, providing investors with returns of over 100% in less than four months.
To learn more about Collectable, check out our Collectable review covering the pros, cons, risks, returns, and so much more!
While sports memorabilia is a relatively new asset class, it’s shaping up to be a very profitable one for investors.
And while it comes with its share of drawbacks like limited liquidity and uncertainty over returns, its ability to appreciate quickly and diversify your portfolio make it a viable option for many investors.
If you’re interested in discovering the best investments in sports memorabilia and other alternative assets, check out the MoneyMade Investor Quiz. Answer some simple questions and you'll be matched with the best investment options for you!