So I think most everyone here would agree that every investment has it's pros and cons, I think there are still a lot of people who are hesitant about trusting toys as an investment. I think everyone can agree that it is better to put your money in a situation where it can grow over a place where it can't (like a savings or checking account) because with inflation, that large sum of savings you have can be worth a lot less later on.
But what makes all of us so attracted to Lego investing over all of these other types of investments? Since I have some experience investing in several different normal investments, I thought I would compare and contrast the pros and cons of a few of these so a few of you who are a little worried about getting in could rest at ease a bit more.
Increased interest Savings Accounts
These are accounts that are offered by the bank when you have a checking account. Most of the time these require a balance of somewhere near $10K and have an interest structure based on how much money is in the account at any given time (the more in the account, the more gaining interest). Currently, to get 2% in these types of accounts is pretty phenomenal. Here are the pros and cons of these types of accounts:
- Guaranteed growth: Because your money is in a guaranteed growth account, you will never lose money (unless the bank goes under which is a whole other conversation). You will have small growth, but guaranteed money coming in and you can rest easy that you aren't taking a chance.
- You have access to your money at any time – you can pull out of these accounts assuming you don't break the minimum. Even if you have to withdraw everything, you can do it with a very small penalty.
- These types of accounts make it really easy to take out other loans for things like cars, as they can act as collateral. They are a direct asset you can use in debt negotiations, unlike Lego sets.
- Growth is always the same: There is no sleeper, no fluctuation which means with the very low interest rates, you aren't getting a whole lot out of your money. Think about buying a Lego set that you knew would have a CAGR of 2% for the next 5 years.
- High minimum balances to get the interest rate: This means you always have to have that giant chunk of money in the account to get the interest rate. If you do have to pull money out, your interest rate will go down. The market also somewhat controls these so it will still go down without you doing anything.
- You don't have a whole lot of control over your investment because it is bland gain – no risk, no reward
CDs and Bonds
These are accounts you open with banks or other financial entities where you commit to basically have them hold the money for a period of time (the longer and more money you put in, the better interest rate you get) and they guarantee a certain amount of gain while they have it.
- Guaranteed growth just like the savings account.
- Can be used as assets for collateral.
- Safe from market problems as the interest rates are fixed and don't flucuate.
- Interest rates currently are under 1% unless you put in a large sum of money. This means almost anything that nets you positive money is better than the CD you are investing in.
- Interest rates don't fluctuate, meaning if they go way up, you don't benefit until your CD matures
- Money is bound to the CD. If you break the CD, you will pay a penalty on your money and most likely forfeit all of the interest you gained. This also takes a trip to the bank and paperwork which means your investment is not very accessible.
The Stock Market
This one is obviously the most popular because of the possibilities of making insane amounts of money at any point in time. Everyone will use this at some point; if you have a 401K you are already involved with it. This is a very time consuming activity, but can net some serious rewards.
- You control your investment. You can pull money out and put money in at any time (although you do pay fees).
- Invest at the right time and sell at the right time, you can make more money than you can ever dream of.
- There are a wide variety of investment types available and a wide range of companies to choose from to invest with.
- There is more information than anyone could ever actually use because of the popularity.
- This is where the bubble lies. One second, you have millions, and the next, you have nothing.
- Volatile, as the last point suggested, because it is based on so many outside unpredictable factors like asset freezing, government spending, company decisions you don't hear about until after they are made, and most of all speculation.
- Though there is a ton of information, everyone is saying something different. There are too many opinions to really be able to perfectly compare each and every stock.
- Proven track records mean very little. See Apple Inc.
- Tons of work involved for the investor. You have to pay attention to tons of market factors you can't control at all times. There is no off-season. There is no clearance.
These are like savings accounts based on the stock market. You give your money to other people and they invest it for you and grow your portfolio without you having to choose investments and do research.
- Normally advertised gains are usually around 10% or more.
- Very little work from you.
- If you are going to invest in the stock market, these people are the ones who actually know it (or should anyway).
- Someone else has your money and you aren't controlling it.
- If your money is lost, you have no recourse in most situations.
- Just as volatile as the stock market.
- You don't see up to date statics of your money constantly so it's hard to know when to remove your money.
- Money is not accessible.
So why is Lego, in my opinion, better than all these? First off, the Lego market is not near as volatile as these other markets. Yes, there are ups and downs with the economy, but Lego as a company has a proven track record and popularity is only growing. There are many less outside factors involved making your money safer. Where as if a company went under you might lose all your money invested in it, if Lego went down, while hampering future gains, all our sets would immediately go through the roof!
You also have control over your money to choose your investments and it is much less time consuming than the stock market. You have sites like this with statistics and other proven investors to help you in what to purchase. Because this is dealing with one type of item , these statistics matter a lot more. You can actually draw correlations because there are so many data points that are similar and there aren't a bunch of random outside factors that can make a set go down in value. Generally these outside factors only make set's values go up (like a controversy or an early retirment)
You can say, if you want less volatility, what about the CDs and the savings accounts? The returns are the problem. Even if you invest $100K in these accounts, at 2% you are going to come out with $2000 in one year. Lego's average theme CAGR is over 10%! And, while some sets definitely don't hit this, there are a very small number of sets that actually lose value. If you get sets on sale in general at the right price, you can avoid risk completely as being a fixed price investment, event he worst doesn't lose too much money and can generally never become worth nothing.
Here are the pros and cons as I see them:
- You control your investments
- You have statistics and experiences you can learn from that actually provide data you can trust
- Dealing with one product and one company, not a bunch of different companies
- Outside factors generally only help increase the value, not lower it.
- Fixed price investment so the price can not go down near as easily unless a set is super discounted.
- Average CAGR is over 10%
- Though growth is pretty low risk, it is not guaranteed.
- Takes more time than savings accounts and CDs to manage.
- Money is not readily available and can not always be used to count as assets.
- Increased Investors can thin out the market.
- Can't get rich quick.
As always, you should make your own decisions, but I wanted to offer up why some of us, even newer investors, are so sure this market will be there. Hopefully this can help you decide what is the best for you, and rest easy with your choice to invest in Lego.
Note: All of the information here are my own opinions and are pulled from my experiences. You may or may not have success with these methods.