Investment potentials are limited; Collectibles are for love, not money

If you've got your eye on ''tangibles'' as an investment, it's time to sit down and have a heart-to-heart financial chat with yourself.

You might start out with these questions first: ''Do I want to invest in diamonds, coins, antiques (fill in the blank) because I like them for their aesthetic value? Or is it because I heard people really raked in the profits on these items a couple of years ago?''

If you genuinely like stamps -- if you think it would be thrilling to own the first American stamp ever sent on a letter to the Philippines -- then you're a good candidate for investing in them. Wanting to collect a tangible because you think it's beautiful or because its history fascinates you, or because you just really like it for what it is, is a rule of thumb when it comes to investing in collectibles, most experts say.

But if you plan on making collectibles part of your individual retirement account, forget it. When Congress made IRAs available to all workers as of the first of this year, it accepted the argument that investments in collectibles make no contribution to the goal of capital formation for US business and industry. It thus prohibited collectibles as IRA investments.

Still, particularly in inflationary periods, people are interested in collectibles.

''The more people become interested in collectibles, the more they read about them. And the more they read about them, the more they know about them. And the more they know about them, the better decisions they make,'' reasons Pamela Brown, a vice-president at Sotheby Parke Bernet, the large New York auction house.

Consult your financial accounts on this next question: ''Is the money I want to put into collectibles money I can do without for the next five years?'' Collectibles are a long-term investment. Most dealers in collectibles agree: You must be willing to wait at least five years before expecting to realize a good return. And remember, a vault full of diamonds or rare coins pays no interest.

Not only that, but when you are finally ready to sell, it may take as little as 12 hours or as long as four months before you find a buyer. Most collectibles just aren't liquid. ''You can't pick up the phone and sell 'x' number of stamps instantly,'' says Joseph Krois Jr., president of National Philatelic Advisers Corporation in New York.

Generally, collectibles are considered a hedge against inflation. When political and economic uncertainty dominate, collectibles look attractive. In the 1970s collectibles did well ''because the high inflation made it extemely difficult for investors to find ways of maintaining real value. There was also a lot of political uncertainty and worry about financial collapse,'' says Ben Laden, an economist with T. Rowe Price.

Prices on collectibles went up, up, up. . .until they hit a phenomenal peak at the beginning of 1980. But by that point, too many speculators had pushed prices up, and too many people began wanting to cash in on their tangibles while the going was good. In the mad rush to sell, prices plummeted.

For example, a D-flawless diamond, a top grade diamond, was selling for $6, 000 a carat in 1976. By 1980 it had reached $60,000 and today it's worth about $ 25,000, says Stanley Urlaub, president of Bentleys Bank Ltd., the parent company of Bentleys Diamond Trust.

The markets for almost all collectibles are now ''flat,'' says Mr. Laden. He expects they will stay low for a while because inflation is starting to come down and the Fed is keeping tight rein on the money supply. ''The '80s will be much less of a positive environment for collectibles than for stocks and bonds, '' he predicts.

This year, though, dealers in collectibles have more to grumble about than down markets. The exclusion of collectibles from IRAs has them boiling. ''Collectibles were taken away for political reasons,'' says stamp adviser Krois. ''I understand the need to help banks, but collectibles aren't the reason for the country's economic troubles.'' Both the stamp and coin dealers are vigorously lobbying for repeal of that amendment.

''Congress is denying investors the freedom of choice,'' Mr. Krois argues. Though most dealers recognize that collectibles are not a big part of IRAs right now, they feel the decision to keep them out of IRAs is hurting the future market. In his opinion, ''Chances of repeal are good.''

But, if an investor in collectibles already has it clearly in mind that profit is a secondary concern, then the issue of IRAs and flat markets should not cause any sleepless nights. That is why it's so important to like an item for the item's sake. And, of course, the argument that dealers always fall back on is history.

Take US coins. According to a 1981 report by Salomon Brothers, the return on coins over the past 10 years has been 27.1 percent. For the past five years it's been 29.7 percent. In the year ending June, 1981, the return was minus 8 percent. The dealers contend it's just a matter of time before values start rising again, and while prices are low -- now is the time to buy.

But if you do any buying, the experts suggest you keep these basic rules in mind.

* First, familiarize yourself with the collectible. Read everything you can about it, before you buy. Consult trade magazines and associations.

* Find yourself a reputable dealer who has been in the business for many years -- long enough to know about the quality and price of an item. A crooked dealer can't stay hidden for long from other expert dealers, says National Philatelic's Mr. Krois. Don't trust a dealer that guarantees to buy back your collectible later on for exactly what you paid for it. By then, the market price may have dropped and the deal won't wash.

* Have your collectible's quality quaranteed by the leading certifier in that field. Get a certificate. If the certificate doesn't match what the dealer guaranteed, take the collectible back to the dealer immediately. This is especially true for gems, diamonds, and coins.

* Industry indexes describing the going rate of collectibles are usually correct -- but not always. Rates change every day, publications don't. Sotheby's Pamela Brown says she rarely uses the indexes. ''Indexes are misleading. They don't reflect variations in condition. Auction houses put out catalogs with detailed pictures of items. After a major sale, they will send out a price list showing what these items went for.'' A subscription to a Sotheby's catalog costs

* Buy nothing but the best quality you can find for the amount of money you want to spend. Buy the most unique and rare item you can afford. ''It's better to buy one doll at $10,000 than 10 dolls at $1,000,'' Ms. Brown says. Top quality items almost always move well, whether it's a recession or not. Middle-range items suffer during a down market.

* And last, but certainly not least, don't put more than 10 percent of your portfolio in collectibles. ''This market is just too specialized and too volatile'' for that, states Jim Barry, a certified financial planner.