Are Guns a Good Investment?

Demand for guns in the United States is at or near record levels. The FBI conducted a record-high 23.1 million firearm background checks in 2015 — outstripping the previous annual high of 21 million checks in 2013 — indicating that 2015 was also a record-breaking year for actual gun purchases.

Americans tend to buy firearms in the wake of mass shootings like the one in San Bernardino, California, both for their own defense and out of concern that such incidents may lead the government to restrict gun sales in the future.

These reasons for buying guns are endlessly debated. But what about buying a gun as an investment?

Pros of investing in guns

There’s plenty of demand: Amid growing demand, prices for assault rifles and ammunition have risen steadily. (In the recent surge, share prices for listed companies that make firearms also have climbed. Prime examples include Smith & Wesson Holding Corp. (SWHC) and Sturm Ruger & Co. (RGR).

Meanwhile, during the recession, wealthy investors began to rediscover high-end collectible guns as a place to put their money, as reported by The Street.

They hold their value: While it’s not recommended to regularly take unique, antique or collectible guns to the firing range, a gun likely won’t lose its value if it’s well-maintained.

Some weapons are a solid bet: A few years ago, Time wrote that English shotguns by makers like London-based Holland & Holland were increasing in value by 3 percent to 5 percent a year. The value can get a big boost depending on who previously owned the gun, Time added:

At Holt’s December sale, a 12-gauge Purdey once owned by champion U.S. shooter Russell B. Atkins had an estimated value of $24,000 to $32,000 — and sold for $52,800. Then again, the Boss gun that [firearms auctioneer Gavin Gardiner Limited] sold for $134,400 in December achieved its record price because of the quality of the firearm, not because the seller was legendary guitarist Eric Clapton.

A small pistol that gangster John Dillinger carried in his sock during an arrest auctioned for $95,600, more than twice the original estimate, according to The Street.

Cons of investing in guns

There’s no guarantee values will increase: When Congress was about to enact the 1994-2004 ban on manufacture of assault weapons like the AR-15 for civilian use, demand spiked, pushing the price up by hundreds of dollars, according to the Huffington Post.

However, price spikes don’t last, as seen in a study that evaluated a two-year period after the ban was originally enacted (weapons already in existence were grandfathered in). According to the National Institute of Justice:

The research shows that the ban triggered speculative price increases and ramped-up production of the banned firearms prior to the law’s implementation, followed by a substantial postban drop in prices to levels of previous years.

This isn’t surprising. When something is relatively simple to make, like guns, supply will ultimately meet demand. If Congress ever outlaws AR-15-style rifles, like the one used in the Sandy Hook Elementary School shooting in 2012, reduced supply will lead to higher prices if existing weapons are grandfathered in and allowed to remain in circulation. But if Congress does not outlaw such weapons, supply will catch up with demand, making price spikes temporary.

Other disadvantages:

• Traditional investment vehicles, like an IRA or 401(k), can offer tax deductions. As with other collectibles, there’s no tax advantage to investing in guns.
• You’ve got to spend more for proper, safe and secure storage.
• If the law is changed so that no new guns can be made, but those remaining in circulation are legal, prices will go up. But if a gun you own is entirely outlawed, its legal resale value may drop.

How to invest in collectible guns

There’s a big difference between buying a type of gun simply because you think it will be outlawed, and investing in a gun as a collectible: one is gambling on what Congress will do, the other is buying something unique and hoping its value increases over time.

If you’d like to gamble on Congress, you don’t need expertise — just knowledge of federal gun sale laws. But if you’d like to collect guns, make yourself an expert or find someone who is.

Then learn which guns are likely to increase in value. Generally speaking, people who invest in collectible guns recommend you look for old guns by famous makers that are in just-like-new condition and come with the original box. Don’t fire it. And be patient.

Adds MadOgre.com in a detailed tutorial about investing in guns:

If you want to get into investing in guns … it’s all about research, education, and jumping on it when the moment strikes. Then you have to have patience. Decades worth.

Still interested? An article in Outdoor Life about investing in shotguns offered these three tips:

• “Trust your sense of style and taste.” Author Jim Carmichel says that if you do, you’ll still enjoy owning the gun if it proves to be a lousy investment.
• Buy guns that have a proven track record of value. For example, take the Model 21 Winchester, he says:

Nowadays you’re lucky to find a good used 12-gauge for $3,500. If you had bought the same gun new 10 or 20 years ago, you would have made a solid 10 percent per annum on your investment, in addition to owning and using a shotgun that says a lot about who you are.

• “Buy the best you can afford plus a little.”

Would you consider adding guns to your investment portfolio? Share with us in comments or on our Facebook page.