Investing Unit 4: Collectibles/Business/Commodities

September 01, 2009 Print Friendly and PDF




Collectibles

People collect just about anything-stamps, coins, art, cars, autographs. To be financially successful with collectibles as an investment, however, a high level of knowledge is required. Some people collect as a hobby and enjoy spending their time this way.

To make money with this type of investment, you need a collection of items in top condition. You probably cannot regularly use or touch the collectible and will need to safely store them in a protective environment. Keep documented evidence of the value of your collection, (e.g. an appraisal of antiques). Regular maintenance and insurance may be necessary, too and there could be storage costs. The specific needs and the type of collectible will determine costs.

Generally, collectibles do not provide a regular or periodic income. When you sell an item, you see the gain in value. When you want to sell, you may take a while to find the buyer willing to pay what you think your collectible is worth. A professional appraiser or auction house may also be required to sell items to other investors. As you make investment decisions about collectibles, it is important to be sure that you are truly focusing on the value of the investment and that you are not unduly influenced by the psychological pleasure you receive from owning it.

Business

Ownership of a business is another investment option. There are many different kinds of businesses and many ways to be involved. You may own and operate a business yourself or hire someone to operate it. You can start your own business or purchase a franchise of a larger business. While businesses certainly offer opportunity for income, they also have many risks. Careful attention must be given to the financing, cash flow needs, and reserves. It is important to separate businesses from the family budget. You want to avoid putting your shelter, for example, at risk because your business has difficult financial times.

In many states Cooperative Extension offers education on micro- and home-based businesses. The Small Business Administration offers assistance. Other organizations in communities and in state government have valuable resources. If you are considering such an investment, search widely for information. The failure rate of small businesses is very high. Planning, especially development of a business plan, is critical.

Commodities

At the very top of the investment risk pyramid are commodities. These include pork, grain, coffee, sugar, etc. Financial expert Andrew Tobias says that since 90% of the people who speculate in commodities lose (and 98% may be a more accurate figure), the key is how to be among the 10% or (2%) who win. He simply compares investing in commodities to gambling. At the top of the investment risk pyramid, you have high potential for return, but also high risk. To invest there, you need to be able to afford to lose your entire investment.

Costs include brokerage fees. You also need considerable knowledge of the commodity in question and the markets in which it is created and sold as well as the changing situations of the buyers.

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This work is supported by the USDA National Institute of Food and Agriculture, New Technologies for Ag Extension project.