Guitars are fun to play, and if you are a professional musician, they could even be the way you make your living. You may have heard of a vintage Les Paul going for more than 50 times its purchase price. But is that an outlier, or are guitars really a good investment?
If you have a solid understanding of the market for guitars, it is quite possible to make money investing in them. Like any other investment, there are hazards to avoid and opportunities. Keep reading for a deeper discussion of the reasons why guitars are a good investment.
Are Guitars A Good Investment?
Quick side note before we start, I’ve had some readers ask about the easiest way to learn guitar. I’ve shared that here for those that are interested.
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Guitars are a good investment if you understand the market for them. They can be more predictable than stocks, there is a great variety of valuable guitars that hold their value, and they are physical assets. As an added bonus, they are assets you can play or display.
Many vintage guitar purchases have proven to be exceptional investments. Take a 1956 Gibson Les Paul “Gold Top” that originally sold for about $400. In 2006, that guitar was worth anywhere from $30,000 to $85,000. That makes that original $400 a great investment!
Of course, predicting that a particular guitar was going to be worth 100 times its original value would only be possible if you can time travel. But there are some great reasons that guitars are good investments. Understanding them can help you decide if investing in guitars is right for you. Here are five of those great reasons.
Guitars Have Predictable Investment Value
It is extremely important here to note that predictable investment performance is a matter of perspective. There is simply no way to accurately predict the performance of any given investment. Just like stocks or other traditional investment products, volatility is an inherent risk. You might do everything right and still wind up with a guitar that is not worth much more than you paid for it.
However, unlike most financial investment vehicles, knowledge of the guitar market can make it easier to predict whether a particular guitar will be worth more down the road.
How to Predict If a Guitar Might Be a Good Investment
When guitars increase in value, it is typically due to a series of similar factors. Watching for these things can help you choose which guitars to buy.
- Fame. If a guitar is played by a musician who has become a household name, it is likely to be worth a great deal of money. A 1959 Les Paul is worth a lot because that’s the kind of guitar Jimmy Page played. If you see a guitar player on the rise, there is a good chance their brand of the guitar will see an increase in value.
- Limited Production. Supply and demand is a basic factor of any economy. If a guitar is very popular, but only a small number were made, the rarity of that instrument is going to make it a more viable investment.
- Quality. Cheap guitars do not just have inferior sound quality when compared to quality guitars. They also do not hold their value as well. A well-made guitar is a lot more likely to increase in value.
- Materials. Older guitars were often made from materials that are no longer available. For instance, a neck made from Brazilian rosewood is going to be a lot rarer than one made from maple just because Brazilian rosewood is too hard to get.
- Different Production Methods. Processes and tools change over time. Where a guitar may once have been carved with hand tools, today it might be built in a fraction of the time using power tools or an assembly line. Those vintage guitars took more time to build and, in many cases, that time shows in the quality of the guitar – and the resale value.
Thanks to these common indicators of value, predicting the investment performance of a guitar is, generally speaking, easier than predicting the performance of any given traditional investment vehicle.
Portfolio Diversity When Investing In Guitars
One perceived advantage of a mutual fund or other investment portfolio is the ease with which you can diversify your portfolio to mitigate risk and volatility. However, a savvy guitar investor will also be able to build a collection of guitars that will allow you to smooth out some of the highs and lows in the market.
This diversified portfolio of investment guitars is even easier to build than you might imagine.
You can check the vintage guitar price indexes to see which guitars are considered good investments. Using that index as a baseline, you can select a few guitars to start your guitar portfolio and have a comfortably diversified portfolio.
You do not have to stick directly to the price indexes to diversify. If you feel lucky and have good knowledge of the guitar market, you can try different collections of guitars. For example, a collection including Martin dreadnaughts and 000s from the 1930s would have out-performed the index. Of course, there is still a risk, as other collections would have performed worse.
Guitars Have Good Overall Market Stability
It may come as a surprise to find out that guitars have enjoyed less volatility than the stock market. Especially in the last 15 years, as the stock market has been a roller coaster that shot sky-high or plummeted through the floor, the market for vintage guitars has been relatively steady. This makes a guitar investment safer than stocks overall.
Of course, the best gains come from market volatility. After all, ‘buy low and sell high’ only works if the market experiences both highs and lows. However, for a long-term investor, a stable and predictable market is ideal. Steady growth over a long period of time is safe and knowing that your investment is not going to become completely worthless is great for peace of mind.
When You Buy A Guitar, You Have A Physical Asset
When you buy a portfolio of stocks, you are not actually getting anything. You can sell them or buy more, but you will not have any proof of your investment outside a record with your broker. While that is generally just fine for money, having physical assets on-hand is not only good for knowing where your assets are, it provides a more secure investment.
When you can go down to your basement and look at your collection of guitars, you know exactly where they are. Nobody can embezzle your guitars. Bank errors cannot make your guitars disappear. An internet outage cannot deprive you of access to your guitars. In other words, having a physical asset on-hand makes it less likely to lose value due to incompetence or fraud.
Guitars Have Worth Beyond Their Investment Value
Possibly the most compelling reason to collect guitars is not a practical consideration at all. The fact is guitars are just cooler than stocks. You cannot plug a mutual fund into an amp and jam with friends. You might be able to hang a stock certificate on your wall, but it will not look as sweet as a pre-1965 Fender.
If you are considering investing in guitars, you almost certainly understand this already. Let Warren Buffet sink all his money into mutual funds and pleated khaki pants. Guitars will rise and fall in value, but they are forever going to be more fun to have around than a statement from your broker.
Are There Downsides To Investing In Guitars?
As with just about any investment, there are a few things to keep in mind if you decide to get started investing in guitars. There are some excellent reasons that guitars are a good investment, but it is still a good idea to know the potential hazards.
Barrier To Entry
You could get started in a mutual fund with as little as $100 and an account with a broker. You can even sink your savings into your 401(k) and pay for it with money that never even shows up in your paycheck. But investing in guitars requires some capital upfront, and the required investment goes up quickly if you want a diversified portfolio.
One Guitar Does Not An Investment Make
When you are looking for guitars to buy as investments, it is typically considered a good idea to keep each purchase under $5,000. However, a well-diversified portfolio of guitars might have a dozen or more guitars, and in that case, you could spend more than $50,000. That is a significant amount of money for a starting investment.
You Get What You Pay For
This barrier to entry is made more significant by the fact that cheap guitars are bad investments. A guitar you can pick up for a couple of hundred bucks is unlikely to hold its value and may actually be worth less than you paid for it after a few years. So, if you decide to invest, you really need to spend some money to get good guitars.
If you own a couple of hundred shares of a given stock, you could cash out on that stock with a phone call. Depending on the broker you use, you may have that money in your checking account by the end of the day. This immediate access to money is part of what makes the stock market so volatile, but it is also a reason that stocks are attractive to many investors.
It Takes Time To Find The Right Buyer For Guitars
If you have a collection of guitars worth a few hundred thousand dollars, it could take you weeks or months to cash out.
- You cannot just take them down to a pawn shop if you want to sell.
- You will want to auction them, which means waiting for the day of the auction, waiting for the auction to close, and then waiting for the auction house to deliver your earnings.
- That assumes that the auction house can sell the guitar for what you want to get for it. In some cases, your guitar may not sell. Or it might sell, but then the buyer backs out. In that case, you have to start the entire waiting game again.
Guitars are a good investment, but only if you have the time and patience to get what they are worth. If you sell in a hurry, you are likely to lose your shirt, so cashing out of an investment in guitars will take time.
The Guitar Market Is Small
Every weekday morning that the stock exchange is open, millions of people are buying and selling stocks. Any particular stock may be bought and sold hundreds of times during a given day.
The market for stocks is enormous. If you want to sell, you can simply put in a sell order and assume that you can get your money. You may not be able to get the exact price you were hoping for, but you can sell.
Compared to the stock market, the market for guitars is tiny.
Where stock may have thousands of shares available, a limited production run of a specific guitar may only wind up with 400 guitars in total. A stock can split and make more shares, but if a guitar splits, you just do not have a guitar anymore.
The Pool Of Guitar Buyers Is Limited
Not only is there a much smaller supply of guitars, but there are also not a whole lot of buyers. A guitar, being a collectible, is only worth what someone will pay for it. It does not matter if your guitar is worth a fortune. If you cannot find someone who wants to buy it, it is worth little more than the enjoyment you get from playing it.
One Buyer Can Throw The Guitar Market For A Loop
Another side effect of a small market is that individual investors can have a profound impact on market prices. If an especially prolific collector starts picking up a lot of a specific kind of guitar, the prices on it can skyrocket. And if an investor dumps an entire collection on the market at the same time, it could depress the market for all those guitars, even the ones in your collection now.
Do You Know Enough About Guitars To Invest In Them?
Possibly the most important question to ask yourself when you are deciding whether to invest in guitars is, “do I know what I’m doing?” If you want to invest in stocks, you need only a basically functional amount of knowledge. Pick a decent stock, or just invest in a mutual fund, and you are ready to go.
On the other hand, investing in guitars is not for rookies. If you do not have an excellent grasp of the market, you could lose a lot of money. Knowing which guitars will increase in value requires a level of knowledge that could be a significant barrier for a newbie.
However, if you are thinking of investing in guitars, it is probably because you already like guitars. All these concerns are secondary to the fact that you can gain enjoyment simply from having the guitars, especially if you play. A wise investor considers the potential for loss, but sometimes the pure joy from a great guitar is more important.
What Guitars Are Good Investments?
If you are thinking of getting into investing in guitars, there are a few guitars that make a great first investment. While it is important to keep in mind that past performance is not a promise of future gains, there are a few guitars that are fairly safe bets.
The site Catawiki compiled a list of five guitars that are good investments. Here is a quick summary.
Leo Fender’s company built handmade guitars for many years. After he sold his company in 1965, Fender became a reliable brand, but not as iconic. Fender guitars made before 1965 enjoy a steady increase in value to this day.
Guitars Made With Korina Wood
A guitar made with Korina wood is very rare because the wood is both hard to get and hard to work. It does make a beautiful guitar, but large companies that mass-produce guitars are not going to want to use it. This makes guitars made with Korina wood rare and valuable.
Japanese ‘Lawsuit’ Guitars
In the 1970s, a few Japanese manufacturers made guitars based on guitars that were popular. Their quality was good, but when they were sued by the original designers, they were forced to stop selling them. If you are able to find one of these ‘lawsuit’ guitars for a reasonable price, it may be a good investment.
Pre-Wwii Martin Guitars
Rarity and quality are two key determiners of investment value, and Martin guitars made before World War II are both rare and excellent in quality. These acoustic guitars are known for great sounds and were used by many prominent musicians, making them valuable.
Guitars Played By Legends
If you can get your hands on a guitar that was owned and played by a musician who is a household name, that guitar could be worth millions. Of course, scoring that deal might require you to spend millions, so you could look for guitars owned by rising stars. Your favorite garage band might not be in the spotlight today, but if they sell you a guitar and then make it big, you could own a treasure.
Are Guitars A Good Investment?? Final Thoughts
Investing in guitars can be worth it – but it’s important to know what you are doing and have the patience to wait for a willing buyer in a very small market. But it can pay off if you take the time to gain the knowledge to make the right purchase. In the meantime, guitars look great on your wall, and if you know how to play, you can reap benefits beyond the sale price.
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Last Updated on December 31, 2020.