Investing in Wine, Art, Collectibles

May 14th, 2008  |  Published in Investing  |  Comments Off on Investing in Wine, Art, Collectibles

I always thought of investing in collectibles such as wine, scotch, or art, as something the fantastically wealthy did as they played polo on their front lawn and retired to their private libraries to smoke their fancy cigars. That got me thinking for a moment and wondering if investing in collectibles is something that the general public should start doing… then I came to my senses.

You Don’t Understand It

You should not invest in art because you probably don’t understand it. I studied art history for one year in high school and the only thing I learned as that you had to be the first to do something. You had to be the first to use cubes to represent people (Picasso) if you wanted to be famous. You had to be the first to repeat images and make them crazy colors (Warhol) if you wanted to be famous. You had to be the first to draw vertical and horizontal lines and start coloring them in with primary colors (Mondrian) if you wanted to be famous. Are you seeing a trend? You have to be first and lucky and even then there was no certainty for the artist him or herself! So you want to invest in it? If you don’t understand it, you can’t possible make money in it.

Probably Too Expensive & Limited Demand

Do you really want to put a few thousand (or even a few hundred) on a collectible with a limited demand? The stock market is hard enough and there are millions of people at any moment willing to buy your stock from you. The collectible market is even less fluid and so you run the risk of never finding a buyer for your great artistic find.

They Do It For Fun

When the fantastically wealthy invest in art or scotch or wine or whatever, it’s more for entertainment than it is as an investment. Regular people compare cars and the number of bedrooms and bathrooms in their homes, fantastically rich people talk about how they paid $5,000 for a bottle of this limited edition wine from some obscure place that no one else has.

Don’t invest in collectibles. 🙂

What Is A Self-Directed IRA?

May 13th, 2008  |  Published in Retirement  |  Comments Off on What Is A Self-Directed IRA?

A self-directed IRA is a type of Traditional or Roth IRA in which you’re allowed to invest in things other than stocks, bonds, or mutual funds – such as investing directly in a hot new biotechnology or traditional technology startup. In fact, it’s the only way you’d be able to invest your IRA dollars into anything non-traditional to include but not limited to real estate, race horses, and basically anything else (as long as you follow a few rules).


The biggest rule is that you can’t do anything that makes it appear as if you’re using deferred funds for current use. The biggest example is in real estate investing. If you use your IRA funds to “invest” in a property that you end up using and the IRS finds out, then your entire IRA could be disqualified, considered distributed, and you’ll have to pay any associated taxes and withdrawal penalties if you’re under 59 1/2. The disqualification aspect is the biggest danger associated with self-directed IRAs because it can sink you.

There are some categories that are explicitly not allowed and the two biggest are life insurance and collectibles. The “current use” rule regarding life insurance is clear, you’re technically always using it, right? With collectibles, it appears that the rule exists simply because there’s no way to enforce the “current use” rule otherwise. If the IRS ever asks, you could simply give your cousin the piece of art and say they were using it.

How To

This part is pretty simple, just head on over to your bank’s trust department or open an account with a custodial firm (many traditional brokerages, such as Vanguard, also handle self-directed IRAs). They handle all the accounting from disbursing the funds to collecting the profits but they stay mum on all other issues, they are not allowed to give advice. The fees are typically higher than your normal IRA account but that’s because they do a lot more work handling all those esoteric investments you’re thinking about.