Learn How to Turn Collectibles Into Cash

If you know what you're doing, economic downturns can be a great time to pick up bargain collectibles.
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Much like when the stock market turns bearish and there is an opportunity to pick up undervalued stocks, the same can be true with collectibles during rough economic times.

When people are hard up for cash, they often dip into their collections to raise needed money -- and even people that don't collect may scour their attics for valuable items to place them into the collectible market.

Hard economic times can mean there are more collectibles available for sale at the same time there are fewer numbers of people willing to buy them. This can result in bargain finds that can pay off handsomely in the years to come.

Before talking about collectibles as an investment, it's important to understand that a collectible is anything that has value which increases with time due to other people wanting it or because of its rarity. This means that virtually anything can be a collectible and many items that you would never consider probably are.

Becoming an expert in at least one collectible area, and preferably a few, can go a long way to greatly improving your personal finances. In fact, beginning and investing in a part-time collectible business in your spare time is an excellent way to bring in extra money to supplement your full time job and may eventually produce enough that you can do it full time.

To make a profit on a collectible, you need to know these basic rules:

Know Your Collectible

Don't invest in any collectible if you don't know what you're doing. The biggest problem with investing in collectibles is that people hear something is a good investment and put money into it without understanding what they are buying.

As with most investment vehicles, if you don't understand it, you shouldn't be investing in it. The value of a collectible for the average person is difficult to determine, so you need to have enough knowledge in that collectible area to know the items worth.

It's Active Investing

Many people believe collectible investing is passive investing. If you think that all you need to do is buy the collectible, wait, and then sell it for a big profit down the road, collectible investing is probably not for you.

If you want to make money with collectibles, you need to participate actively in that culture so you know what's going on, when to buy and when to sell. Collectible markets can be fickle, and prices can change rather quickly at times. If you simply buy, hold and hope that when you are ready to sell it is worth a lot more, you will likely be quite disappointed.

Enjoy Your Collectible

What ever collectible you choose to invest in, you should enjoy that particular collectible. You'll need to spend quite a bit of time learning about the collectible market and learning what makes that collectible more or less valuable. If you don't enjoy it, you are likely to do a much poorer job in your research than if you enjoy doing it.

Know Your Objective

On the flip side, you don't want to fall in love with the collectible so much that you are never willing to give it up. Many people say they are investing in collectibles, but if you refuse to ever sell when a good opportunity to make a profit arises, the investment return is never realized.

The person who inherits the items after your death isn't likely to know the true value meaning that they, too, will not receive the investment gains. In this light, it is important to know your objective in investing in the collectible and not forgetting that.

Time and Value

Many collectibles can take a long time to increase in value depending on what the collectible is and there is no guarantee that they will quickly increase in value.

This is another reason it's important to be active in the collectible community, since it will give you a better understanding of what's increasing in value and what is not. While flipping collectibles is possible in a hot market, you need to look for quality items that have long-term value when buying during a poor economy.

Lack of Liquidity

In the past, one of the biggest issues was lack of liquidity -- that is, it could often be difficult to find a buyer for a your collectible when you were ready to sell. Online auction sites such as

eBay

(EBAY) - Get Report

have greatly reduced this negative, as it's now much easier to get rid of something than it was before online auctions existed and you are now selling to the many more collectors (in fact, the whole world) instead of your local neighborhood market.

Jeffrey Strain has been a freelance personal finance writer for the past 10 years helping people save money and get their finances in order. He currently owns and runs SavingAdvice.com.