Rolexes, Birkins and Pokémon cards: do collectibles really beat the stock market?
Every few years a headline announces that some tangible luxury has beaten the stock market. Rare watches, designer handbags, vintage cars, fine wine, graded trading cards. The pitch is appealing: you get to own something beautiful, something you can wear or hold or show off, and it supposedly earns more than a dull index fund. Who would not prefer a Rolex Daytona to a brokerage statement?
Sometimes the headline is even true, for a particular item over a particular period. The harder question is whether collectibles, as a way of investing, reliably beat stocks once you account for everything involved. The honest answer is usually no, and the reasons are worth understanding even if you love the objects themselves.
The headline prices are the survivors
The most famous collectible sales are, by design, exceptional. In 2017 a Rolex Daytona once owned by the actor Paul Newman sold at auction for about $17.8 million, a record for a wristwatch at the time. Rare Hermès Birkin bags, particularly exotic-skin versions, have sold at auction for several hundred thousand dollars. First-edition holographic Charizard cards in top grade have changed hands for remarkable sums.
These sales are real, but they are not representative. The items that reach a major auction house and make headlines are the ones that became desirable. The great majority of watches, bags and cards bought with investment in mind never appreciate meaningfully, and they rarely make news when sold at a loss. Many "collectible beats the S&P 500" studies are built on auction records or price indexes of the most sought-after items, which is a little like measuring the stock market using only the stocks that went up.
The Beanie Babies boom of the late 1990s is the cautionary version. Millions of people bought them expecting their value to keep rising, and price guides seemed to confirm it. Today most of them are worth little. The tulip mania of the 1630s is the older version, although historians such as Anne Goldgar have argued that its scale and its economic damage were considerably exaggerated in later retellings. Either way, the lesson travels well: a price that exists mainly because people expect it to rise is fragile.
The costs that index funds do not have
Suppose you do pick a collectible that genuinely appreciates. The next problem is that buying and selling physical objects is expensive in ways that buying an index fund is not.
- Transaction costs. Major auction houses typically charge buyers a premium on top of the hammer price, often running well into the twenties as a percentage, and sellers pay commission too. Dealers need a margin between what they pay and what they charge. The round trip can eat a large slice of any gain.
- Insurance and storage. A valuable watch or bag needs insuring, and serious collections often need secure storage. Wine needs climate control. Cards need protection. These costs recur every year, like a management fee you never see on a statement.
- Authentication and grading. Trading cards are worth vastly more when graded in top condition by a recognised service, which costs money and time. Watches and handbags may need authentication before a buyer will trust them.
- Taxes. In some countries collectibles are taxed less favourably than stocks. In the United States, for example, long-term gains on collectibles can be taxed at a higher maximum rate than long-term gains on shares.
An index fund, by contrast, can be bought for a tiny annual fee, held for decades without insurance or storage, and sold in seconds at a price everyone can see.
Liquidity, fakes and fashion
Three further risks rarely appear in the glossy pitch.
Liquidity. A share in a large company can be sold almost instantly at a known price. A watch or a handbag has to find a buyer, and the price you get depends on timing, condition and who happens to be looking. In a downturn, buyers can disappear entirely. The secondary market for luxury watches, for instance, boomed during the pandemic years and then cooled noticeably from 2022 onwards, leaving recent buyers of hyped models with paper losses and few eager takers.
Fakes. Counterfeits are a serious problem in watches, handbags, trading cards and wine. Sophisticated fakes can fool experienced buyers, and even a genuine item can lose value if its provenance cannot be documented. A share certificate is not going to turn out to be a well-made replica.
Fashion. A collectible's value depends on taste, and taste moves. Particular watch references, bag colours and card sets go in and out of favour. A generation that grew up with a certain toy may pay heavily for it in middle age; their children may not care. A company's value depends on its future profits, which can also disappoint, but at least there is an underlying cash flow to anchor the price. A collectible's value rests almost entirely on what the next buyer is willing to pay.
What the longer studies suggest
Academic work on collectibles over long periods, including studies by economists at the London Business School and elsewhere covering art, stamps, musical instruments and similar assets, has generally found positive real returns but ones that trail equities, particularly once transaction costs are counted. Collectibles have also not reliably protected investors in every downturn, despite often being marketed as a safe haven.
That does not make collecting foolish. The economists who study these markets often describe an "emotional dividend": the pleasure of owning and using something beautiful. If you love wearing a watch, its return includes every day you wear it. The mistake is buying an object you do not want because you expect someone else to pay more for it later. That is not collecting; it is speculation with storage costs.
Collectibles on the Sixty-40 wheel
Sixty-40 includes collectibles alongside stocks, bonds and houses, and in the game they are treated like any other position: $1,000 in, simulated to today. Some of them do well on the results screen. When a Daytona, a Birkin or a Charizard lands on your wheel, it is worth remembering what the simulation leaves out, from auction fees and insurance to the risk of buying a fake, and asking whether the index fund sitting quietly at the bottom of the scoreboard would really have been the worse choice.