Philatelic Investment - Risks and Disadvantages

Risks and Disadvantages

Investing successfully in stamps requires a high degree of specialised knowledge. This takes time to acquire and there are many pitfalls for the inexperienced investor. Some of the risks and disadvantages are:

• The return is not guaranteed.
• The cost of buying is high compared to most other forms of investment.
• The cost of selling is also relatively high.
• Purchases may be liable to a sales tax, for instance VAT in the European Union, which the buyer may not be able to reclaim.
• Stamps may need to be expertised, for a fee, to ensure that they are what they appear to be.
• As tangible items, stamps may need to be insured and are at risk of physical damage or deterioration.
• The future market for the sale of philatelic items is uncertain. The demand for philatelic items comes principally from collectors, not investors, and the majority of collectors are aged over 50 in western countries. There are relatively few younger collectors in Europe and North America that would be expected to be the buyers of the future, although anecdotal evidence suggest that may not be the case in India, China and other developing countries.
• In the longer term, the future existence of postage stamps may be in doubt as people use electronic communications more and more and send fewer letters. If stamps are no longer sold for postage they may cease to be collected and if they are not collected, the vital collector demand that underpins the investment market may disappear.
• Stamps have little intrinsic value, they do not have the raw material value of a gold coin, they do not represent a share in a business like equities, and they usually lack the enduring visual appeal of a great work of art.
• Stamp investment is relatively unregulated compared with, for instance, investments in a mutual fund and investors may have little protection if things go wrong.
• The size of the philatelic market is small compared to the value of the stock market and vulnerable to aggressive buying by speculators which may distort prices. This happened in the 1970s when a speculative bubble was followed by a collapse in prices.
• Stamps do not generate any interest or dividends.
• It may be impossible to determine the current market value of your stamps without selling them.
• Stamps packaged as "investment portfolios" may be charged at prices higher than their normal market value.
• Stamps may be relatively illiquid as finding a buyer may take time.
• There is very little reliable and independent historical information about the performance of stamps as investments.
• A long term view is necessary. A quick purchase and sale is unlikely to be profitable.
• When more traditional investments are doing well, interest in alternative investments like stamps may quickly wane.
• Special instructions will need to be given to spouses or executors in the event of the owner's incapacity or death as they may be unfamiliar with philatelic items.
• Stamps may take time to be sold unlike cash, equities or mutual funds which can usually be realised with minimal delay.