If you have dreams of making millions when your racehorse wins the Kentucky Derby, or financing a round-the-world cruise by selling an antique bracelet or buying a new car courtesy of those musty baseball cards you bought years ago, brace yourself.
Investing in racehorses, jewelry or collectibles can be fun but don't count on them to make you rich, experts say. Here's why:
Owning a racehorse can be exciting, but most don't run at the Kentucky Derby and command huge stud fees afterwards.
"Anyone familiar with horses knows how expensive and high maintenance they are," says Albert Lu, managing director of WB Advisors, a registered financial adviser and precious metals dealer in Houston, Texas.
"As an investment, they do not make sense for the vast majority since the buyer must quantify the potential return and has a very limited window to capture profits. Persons with specialized knowledge in this area may reap huge rewards but this is a very limited class of investor."
Just a small selection of expenses you should expect to encounter along the way, in addition to the initial purchase fee: training, boarding, transportation and vet bills.
Unless you're Elizabeth Taylor, Lu says, "investing in jewelry makes little sense. The mark-ups are high and items are difficult to value and sell. Investors interested in rare metals should invest in them directly.
"Only a limited class of investors possess the knowledge and financial resources to justify this type of investing. "
Another thing to consider is that tastes vary widely and what you think is drop-dead gorgeous may do nothing for potential buyers. Also, while sentimental value may be priceless, it doesn't always mean monetary value.
Baseball Cards and Other Collectibles
"Baseball cards, collectibles, and artwork. These are things that you should feel free to buy if they interest you, but it's hard to call them an 'investment' unless buying and selling them is your primary business," says William Hammer, a certified financial planner in Melville, N.Y., and co-founder and president of Hammer Wealth Group.
"You need to know a lot about these niche markets to do well, and you can get burned because of factors beyond your control.
"For example, you paid $25 five years ago for your 2002 Johnny Baseball rookie card. It was worth $250 last month, but it's only worth $50 now that he tested positive for steroids this week."
What to do Instead?
So if you're not going to have a fling with unconventional investments, where should you look instead?
"I have one uncommon investment idea -- invest in your earning power," Hammer says. "Get a new certification, obtain new skills, or go to some high-level courses that make you more valuable in the marketplace. I'd think that your investment would be a lot lower risk and higher reward."
Lu agrees. "Although it is not exciting, using free cash to expand one's skill set through training or other means is a good way to increase cash flows in the future, which is the ultimate aim of investing," he adds.
"Warren Buffett often reminds us that investors should look for companies with a "durable competitive advantage" over its competitors. We should also strive to create this advantage for ourselves in our careers by investing to develop our unique characteristics into marketable traits."