Are stamps a suitable alternative investment?
As with any other investment, investing in stamps or philatelic material carries its own risk. Historically there are some stamps that have experienced tremendous increases in value. There have also been stamps, however, that decreased in value over time. People most suited to using stamps as alternative investments are experienced stamp collectors themselves. If you have no experience in stamp collecting you will probably have to consult a reputable and trustworthy dealer to assist you.
Premium stamps have proven themselves a strong and stable investment through times of economic turbulence. Philatelic investment was popular during the 1970s but then fell out of favour following a speculative bubble, and prices of rare stamps took many years to recover. Investing in rare stamps requires a high degree of expertise and can be very risky for the novice.
Stamps have little intrinsic value, since they do not have the raw material value of gold and they do not represent a share in a business like equities.
In some countries investing in stamps can act as an easy local currency hedge. Most stamps are catalogued in GBP or USD, so if your local currency weakens, the value of your stamps will increase in relation to your local currency.
Stamps should be considered a long term investment (at least 10 years, in my opinion). Remember that you have to recover your buying and selling fees too (auction commissions are normally between 10-20%). Remember as well that when your stamp investment reaches a certain level you it will also be necessary to take out insurance and perhaps to rent a safe. These additional costs should also be covered by any increases in the value of your stamps.
As with any other marketable product, price is determined by supply and demand. Demand can drop if trends and tastes change in the future. A sudden appearance of large quantities of a scarce item in the market can cause a problem on the supply side. We can’t accurately predict what the demand will be after 10, 20 or 50 years. There are no guarantees.
Other risks include: damage to your stamps, theft/loss of your stamps, and fakes and forgeries.
For most just enjoying your stamp hobby is best: consider increases in the value of your collection a bonus. If you decide to use stamps as an investment, only allocate an appropriate percentage of your investment portfolio to your stamp investment.
Choosing stamps for your investment?
When purchasing stamps purely for investment purposes you should choose stamps that you predict will be in demand in future years and will hold their value for a long time. Unfortunately, this is no easy task. The following tips can help, but will never guarantee success.
- Choose popular stamps that are scarce already and already growing in demand. The stamps should already have a high catalogue value that ideally increases annually. These stamps are most likely to increase in value in future.
- Some collectors and investors also try to anticipate future trends and buy low ahead of time. This is difficult to get right, however, and may go totally wrong.
- Choose stamps from bigger countries that have fairly liquid markets. Some stamps may have very high catalogue values, but there are only a few collectors in the world interested in such a stamp. Other higher value stamps are traded more regularly.
- High value stamps are the most likely to be forged. Make sure you are buying authentic stamps, and consider buying stamps with certificates or with the option to certify them. Remember that even experts may make a mistake.
- Diversify. As with all investments, don’t put all your eggs in one basket. Rather, purchase a small portfolio of stamps (with different countries or themes) rather than one single high value stamp. The single stamp may show better results when you look back later, but less diversification is more risk.
- Only buy stamps that are in great condition with no faults. Make sure you understand exactly what this means.
- Make sure you don’t pay too much for your stamps, if you pay 20% above actual market value it can take years to reach breakeven. Do proper research.
Handling and storing your stamps:
Make sure you know exactly how to handle and store your stamps to prevent any possible damage.
Other things to remember:
If your stamps carry a high value you will have to start considering taking out insurance in case of theft.
You will also have to consider renting a safe.
Remember to provide for this investment in your testament. Give specific instructions to your executor to ensure the full value of your stamps is realized.