Husband's retirement strategy -- $250,000 on collectible guns

NEW YORK (Money) -- My husband and I are 48. A couple of years ago he started buying collectible guns for our retirement and has spent over $250,000 on them so far. I totally disagree with his strategy, but would like to know what you think. Is this a good idea? -- D.K., Laramie, Wyoming

I've heard of a lot of supposedly sure-fire investments for retirement over the years, including parking lots, fish farms, self-storage facilities and tax liens just to name a few. But collectible firearms...that's a new one to me.

Let me start by saying I have nothing against the idea of your husband or anyone else assembling a collection of antique or vintage handguns, rifles, whatever. There's a lot of fascinating history behind them.

But as a strategy for investing for retirement, I have to side with you: I think it's a bad idea for a number of reasons.

First, unless the $250,000 your husband has spent so far is a very, very small part of a much larger retirement kitty -- and I mean something along the lines of $5 million or more -- his strategy is seriously flawed because it's not diversified.

Low-risk retirement

Going lock, stock and barrel into any single asset class is never a good idea. Doing so with a niche investment amplifies the risk.

Your hubby is also foregoing some valuable tax benefits. If you check out IRS Publication 590: Individual Retirement Arrangements (IRAs), you'll see that collectibles are not permissible investments within an IRA.

So to the extent your husband limits himself to firearms, he's giving up the chance to get a tax-deduction of up to $5,000 this year (plus another $1,000 if he's 50 or older) by investing through a traditional deducible IRA, or the option of investing the same amount of after-tax dollars in a Roth IRA in return for tax-free withdrawals down the road. (To see which type of IRA you and your husband may qualify for, click here.)

Those tax bennies effectively boost your after-tax rate of return, giving you a bigger bang for your retirement savings buck. Even in taxable accounts, collectibles are not treated as generously in the tax code as conventional investments like stocks, bonds and mutual funds.

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The long-term capital gains tax rate on collectibles can run as high as 28%, a full 13 percentage points higher than the 15% maximum tax rate on long-term capital gains on securities.

That's not to say that taxes alone should drive your investment decisions. But it does mean that by investing in collectibles you are handing over to the government a significantly larger portion of any long-term gain.

There's one more reason I think that not just firearms but collectibles in general (art, gems, coins, etc.) aren't suitable as core investments for retirement: It's extremely difficult to get a handle on their appreciation potential.

Although stocks and bonds can certainly be volatile, they also have underlying cash flows (interest payments in the case of bonds, earnings with stocks) that provide a quantitative gauge for assessing their value.

But collectibles don't generate income. They don't even have an industrial value, as gold, silver and other precious metals do. Without a framework for estimating fundamental value, pricing collectibles is much more subjective than pricing securities.

Basically, it boils down to what another collector is willing to pay at that moment. And that can vary substantially depending on what happens to be in or out at any particular time.

Bottom line: To have a shot at a comfortable retirement, you and your husband need to build a nest egg that's invested in diversified mix of more conventional assets along the lines outlined in our MONEY 101 lesson on asset allocation.

If you can do that while your husband also buys collectible firearms -- or any other type of collectible -- fine. But I'd be very wary of going along with his collecting on the premise that it's securing your future retirement.