The Appeal of Tangible Assets
The Gold Investor's Lesson:
In 1980, gold hit $850/oz. fears drove a buying frenzy.
An investor who bought at that peak and held until 2000 saw gold drop to $280—a 67% loss over 20 years, not counting inflation.
Those same dollars in the S&P 500 would have grown over 1,000%.
Gold recovered eventually—reaching $2,000+ in 2020. But timing matters enormously with commodities.
Why people buy tangible assets:
- "Real" value—you can touch them
- Perceived inflation protection
- from financial assets
- Emotional satisfaction (especially collectibles)
- Status and enjoyment (art, cars, watches)
But tangible assets have significant drawbacks that investors often overlook.
Understanding Commodities
What Are Commodities?
Raw materials traded in markets:
- Precious metals (gold, silver, platinum)
- Energy (oil, natural gas)
- Agricultural (wheat, corn, coffee, livestock)
- Industrial metals (copper, aluminum)
Ways to Invest in Commodities
| Method | What You Own | Pros | Cons |
|---|---|---|---|
| Physical ownership | Actual metal | Tangible, no counterparty risk | Storage, insurance, buy/sell spread |
| ETFs/ETNs | Futures contracts | Liquid, easy access | Contango costs, tracking error |
| Mining stocks | Company shares | Potential dividends | Company-specific risks |
| Futures directly | Contracts | Precise exposure | Complex, leverage, rolling costs |
The Problem with Commodity Investing
Commodities don't produce anything:
- No earnings
- No dividends
- No interest
- Value is pure supply/demand speculation
Long-term commodity returns:
- Gold: ~0-2% real (after inflation) historically
- Broad commodities: Often negative real returns
- Oil: Highly cyclical, long periods of losses
Compare to stocks:
- Companies create value
- Earnings can compound
- Dividends can be reinvested
- ~7% real historical return
Gold: Special Case
Why gold is different:
- 5,000+ year history as money/store of value
- Central banks hold gold reserves
- Perceived safe haven in crisis
- Limited industrial use
Arguments FOR gold:
- Insurance against currency collapse
- Hedge against extreme scenarios
- Portfolio diversifier
- No counterparty risk (physical)
Arguments AGAINST gold:
- No cash flow
- Poor long-term returns
- Doesn't reliably track inflation
- Storage/insurance costs
If you own gold:
- 0-5% of portfolio maximum
- Physical or low-cost (GLD, IAU)
- Don't expect significant returns
- Think of it as insurance, not investment
Commodity ETFs: Hidden Costs
The contango problem:
Commodity ETFs typically hold futures contracts, not physical commodities. When futures prices exceed spot prices (contango), funds lose money rolling contracts.
Example:
- Commodity spot price: $100
- Next month's futures: $101
- Each month, you pay more for the same exposure
- Over years, this compounds into significant losses
Result: Many commodity ETFs significantly underperform the underlying commodity prices.
Understanding Collectibles
Categories of Collectibles
Art:
- Contemporary art
- Fine art/old masters
- Prints and photographs
- Sculptures
Wine:
- Investment-grade Bordeaux
- Burgundy
- Other fine wines
Vehicles:
- Classic cars
- Vintage motorcycles
Timepieces:
- Luxury watches (Rolex, Patek Philippe)
- Vintage watches
Other:
- Sports memorabilia
- Rare coins and stamps
- Trading cards
- Jewelry
The Reality of Collectible Investing
Watch Out
Collectibles are NOT investments in the traditional sense:
- Returns highly variable
- Most items lose value
- Survivorship bias distorts perception
- High transaction costs
- Storage and insurance expenses
- Authenticity risks
- Illiquidity
- No reliable market
The Problems with Collectibles
Selection risk:
- Which artist/watch/car will appreciate?
- Most collectibles don't
- You're competing against experts
Transaction costs:
- Auction house fees: 10-25% each side
- Dealer markups: 20-50%
- Insurance: 0.5-2% annually
- Storage: Varies widely
Illiquidity:
- Finding buyers takes time
- May need to discount in distressed sale
- Limited market for specific items
Authenticity and condition:
- Forgeries exist in every category
- Condition changes value dramatically
- Restoration may help or hurt value
- Documentation matters
Taxes:
- Collectibles taxed at 28% capital gains (vs. 20% for stocks)
- No step-up in basis treatment changes
- Complex reporting requirements
Survivorship Bias
You hear about:
- $100 million Picasso sales
- $10 million classic car auctions
- Watches that 10x'd in value
You don't hear about:
- Millions of artworks that never sold
- Cars that depreciated 90%
- Watches worth less than purchase price
- Estates selling collections at pennies on dollar
The successes are publicized; the failures are silent.
Art as Investment
The Art Market
Characteristics:
- Highly opaque pricing
- Concentrated (few artists drive returns)
- Taste-driven (trends change)
- Dominated by wealthy collectors
- Long holding periods (10+ years typical)
Average returns:
- Art market indexes show ~5-7% nominal returns
- But these are survivorship-biased
- After insurance, storage, transaction costs: likely negative
- Specific artwork returns vary wildly
Art Investment Platforms
Fractional art investing (Masterworks, etc.):
- Buy shares in artwork
- Wait for sale (3-10 years)
- Receive share of proceeds
Considerations:
- High fees (1.5% annual + 20% of profits)
- Illiquid (limited secondary market)
- Platform selects art (you trust their judgment)
- Relatively new, limited track record
- Still subject to art market risks
If You Love Art
Buy what you love to look at:
- Enjoyment has value
- Don't buy for appreciation
- Consider it spending, not investing
- Any appreciation is bonus
Watches as Investment
The Watch Market
Investment-grade watches:
- Rolex (especially sports models)
- Patek Philippe
- Audemars Piguet
- Limited editions
Reality check:
- Most watches depreciate
- A few models appreciate significantly
- Buying retail at list price is nearly impossible
- Gray market premiums already price in appreciation
- Fads change
Watch Investment Realities
What people see: Rolex Daytona bought for $13,000, now worth $35,000
What they don't see:
- Years-long waitlist to buy at retail
- Gray market price already $35,000
- Maintenance costs ($800+ per service)
- Insurance costs
- Risk of damage or theft
- Future desirability unknown
Advice:
- Buy watches you love wearing
- Consider used/vintage for value
- Don't expect appreciation
- Budget for maintenance
Wine as Investment
The Wine Market
Investment-grade wine:
- Top Bordeaux (First Growths)
- Burgundy grand crus
- Some Champagne
- Very specific vintages matter
Requirements:
- Perfect provenance
- Professional storage
- Authentication
- Insurance
Wine Investment Realities
Challenges:
- Storage costs: $15-20+ per case per year
- Insurance: ~0.5% annually
- Authentication issues
- Drinking temptation
- Condition changes value
- Tastes evolve
Returns:
- Fine wine indexes: ~8-10% historically
- After costs: Significantly lower
- Specific bottles vary wildly
- Need expertise or pay for it
If You Want Tangible Assets
The Enjoyment Approach
Do This
Healthy relationship with collectibles:
-
Buy what you love
- Art you want on your walls
- Watches you'll wear
- Cars you'll drive
-
Budget as spending
- Don't count on appreciation
- Include ongoing costs
- View as consumption, not investment
-
Stay within means
- Use discretionary funds only
- Not retirement savings
- Not emergency fund
-
Enjoy the process
- Learn about what you collect
- Connect with communities
- Value is in enjoyment
Small Allocation Approach
If you want commodity/collectible exposure:
- 0-5% of portfolio in gold ETF
- Treat collectible purchases as consumption
- Don't count them in investment allocation
- Maintain liquid emergency fund separately
What NOT to Do
Watch Out
Collectible investment mistakes:
- Buying for investment rather than enjoyment
- Spending emergency fund on collectibles
- Counting illiquid collectibles as
- Buying without expertise
- Ignoring storage/insurance costs
- Falling for fads
- Trusting sellers' projections
- Paying retail for "investments"
The Bottom Line
Commodities and collectibles are appealing for their tangibility but challenging as investments. Commodities have poor long-term returns and hidden costs through futures rolling. Collectibles face high transaction costs, illiquidity, authenticity risks, and dramatic survivorship bias in reported returns. If you want gold, keep it to 0-5% as insurance, not investment. If you want collectibles, buy what you love and budget it as spending, not investing. Your core wealth-building should come from boring, liquid, low-cost investments in stocks and bonds—not tangible assets that are expensive to own and difficult to sell.