How do Magic finance and personal finance fit together? I haven’t seen too much written on the subject, but I think it’s worth discussion. Personal finance is incredibly important to success in life, so the degree to which Magic finance can aid or derail you along the way is very relevant.

I’ve seen people engage with Magic finance different ways. Some in the Magic finance community come from finance backgrounds, or at least have a strong interest in it. These people usually take a sophisticated approach and use their general finance knowledge to educate Magic decisions.

I’ve also seen people with no apparent knowledge of finance or economics dive into Magic finance. If they are disciplined enough to keep their monetary commitment small, Magic is as good a place as any to learn the basics. If they lack that discipline, Magic can very easily get tangled with personal finance and lead to major problems. This may be a kid’s game, but we are often talking about adult money.

Magic demographics don’t help—the majority of Magic players I encounter are in their twenties or thirties. This is exactly the time to be developing your personal finance goals and executing on your plans, and Magic can be a distraction. I feel it would be less of an issue if most Magic players were, say, in their fifties and much further along in their personal finance journey.

Indeed, my biggest worry is that some people are unwittingly overexposed to Magic under the guise of “investing” at a time in their lives when this can really compromise personal finance goals. I realize that there is a lot to talk about relating to Magic and personal finance, but today I’m going to talk specifically about this aspect of it.

The Holy Grail Test

Let’s start with a hypothetical situation to get us thinking. Imagine you have a near-mint Alpha set. This set is your golden ticket—you are planning to hold it until the time is right, then sell it for something important like a house or to pay for your kid’s college or your retirement.

It’s a great investment, right?

Here’s the catch. The set is locked up in a vault and you can’t get it out. You can’t see it, can’t touch it, can’t display the cards, can’t take pictures to show off to your friends, can’t put any of the cards in your cube or build a Vintage deck, nothing. The set condition has been verified, but essentially all you have is a certificate of ownership similar to a stock certificate. The Alpha set is completely intangible to you.

How much less interested are you in owning this Alpha set now that you can’t enjoy it?

You might be thinking, “If I can’t even look at it, what’s the point? I’d rather dump it and buy/invest in something else with that money.”

Or you might be thinking, “I’m retiring early off that set whether or not I ever lay eyes on it. I’ll frame the certificate in the meantime.”

There is no right answer, of course. The purpose of the exercise is to get you to think honestly about how you view the set as a real investment, detached from the personal value you place on owning Magic’s holy grail.

Would your opinion of owning an Alpha set as an investment change substantially if you didn’t have physical possession of it? Would you keep it if you had possession, but be willing to let it go if your only connection was the deed? If all you had was a piece of paper, would you rather just own some Apple stock?

Remember, you don’t play with an investment. Your investments don’t provide entertainment. You don’t show your investments off at the card shop, and you certainly don’t develop a deep personal attachment to an investment (if you are smart).

As Magic players and financiers, we often want to have it both ways. We want to believe that an Alpha set (or whatever item in question) is a great investment and that we can display it and enjoy it every day. We want it to be something we love and a smart decision.

If having possession of the set would influence your decision to any degree, you are thinking at least partially with your heart. That’s a bad thing when it comes to investing.

It is very, very hard to look at something like this objectively. A near-mint Alpha set might be literally the coolest thing on the planet to own for many people reading this article, and for me too. We would all value it very highly from a personal perspective. It would bring us great happiness and pride. Very few of us can afford an item like this, but all of us would love to own it.

In truth, very few of us can afford something like that as part of our hobby. Many more of us can afford something like that as an investment. Funds are much more likely to be available for investments than they are for hobbies—you didn’t save all that money for nothing. Thus, for many, the obstacle to owning something awesome is not coming up with the money, but justifying it as an investment. I can certainly come up with $5,000 for a [card]Black Lotus[/card] if it’s an investment.

Now take a look at your collection. You probably don’t own a near-mint Alpha set, but many people own some number of “high end” Magic cards. Did you, at any point, justify the purchase of some of your cards by saying that they would be good investments? Maybe this is what convinced you to jump into Legacy, or to plow a bunch of money into Reserved List cards. You’ll get to play Legacy and by the time you are done, you’ll make some money too, right? This logic conveniently gave you access to your savings and not just the hobby money you set aside this month.

Ask yourself: Would I be willing to lock my Legacy deck away in the same way as the Alpha set? If it really was an investment, you should be able to do that. Again, we don’t play with investments. Heck, if it was really an investment, you should want to lock away your Legacy deck to protect it. The last thing you want is to damage it.

The truth is that virtually no one buys Magic cards purely for investment reasons without placing at least some personal value on them. We love this game and can’t deny it.

Where is the line?

The Magic Finance Trap

What does it matter if your cards are investments or not? So you sprung for a Beta [card]Black Lotus[/card]. You wanted it, saved for it, and bought it. It’s your money, and it is a good investment, in your opinion.

Let’s back up for a minute. To start, you should have a personal finance plan. If you don’t, go see a financial planner and figure that out immediately. It’s very important to your success and happiness in life.

Next, check to see if the Beta Lotus is in your personal finance plan. Oh, it’s not?

Things that derail you from your personal finance plan are very dangerous. Seemingly small lapses now can have large cumulative effects over time and can prevent you from achieving your long-term goals.

The path to retirement that you laid out, with or without a financial planner, almost certainly does not include high-end collectibles. Most likely, your financial plan requires you to save money at a certain rate and then invest that money into an age-appropriate mix of stocks and bonds while keeping enough cash on hand for things that might come up.

You fall into the Magic finance trap when you stop executing on your personal finance plan so that you can participate in Magic finance (or even just Magic the game). There is nothing wrong with owning a Black Lotus by itself. The issue is that if you are in your twenties or thirties, spending $5,000 of savings on a Magic card (or on a bunch of specs) might hurt your long-term financial goals more than you realize. If you are in your fifties and financially secure, buy your Lotus, buy your Jaguar convertible, buy whatever you want.

Don’t get me wrong, I’m not saying Magic finance isn’t profitable. I’m not saying the Lotus or other specs won’t appreciate in value. I’m not arguing that stocks and bonds will give you better returns. And I’m not saying you don’t know what you are doing.

I’m saying it’s not part of the typical plan. A financial plan is created to get you where you want to go in life with as much certainty as possible. It is designed to get you an average annual return that will allow you to retire on time. The investment mix is chosen to give you the mix of growth and stability that you need.

How does a Lotus change the retirement equation? What is the expected average annual return on Beta power over the next 30 years? I have no earthly idea and honestly, neither do you. By diverting any significant amount of savings toward Magic, you are factoring a big fat question mark into your retirement equation. I’m guessing that’s not something you want to do.

Your Magic Number

How much of your personal wealth do you have committed to Magic or Magic finance? I’m talking about anything you put significant monetary resources into. That might include your cube, your Legacy deck, your Modern collection, your specs, etc.

Do this calculation: Total up all your savings and investments (forget debt for now) and divide it by the total cash value of your entire Magic portfolio (as described in the last paragraph). It can be a rough estimate—no need to go checking buylists on every card. This ratio is going to tell you how many dollars you have saved for each dollar of Magic cards you own. Please don’t post your number or share it with anyone.

I bet if we plotted the results, one data point for every reader of this article, they would be all over the chart.

For some, the number would be huge. These people have big savings and modest Magic collections. Their magic numbers would be 25, 50, maybe 100+. To clarify, a ratio of 25 might mean that I have $25,000 in savings compared to a $1,000 collection.

For some, the number would be lower, maybe even close to one. Their collections rival their entire non-Magic savings. This could be a young person with $10,000 saved up and $10,000 in Magic stock, or it could be an older, high-end collector with $100,000 in investments and $100,000 in Beta power.

For the grinder in his early twenties who scraped together everything he had to buy a Legacy deck to play the SCG circuit, his number might be approaching zero. He has a $4,000 Legacy deck but his biggest problem is finding gas money to get to the next event because his checking account is empty.

There is no right answer—but I think there are some wrong ones. If your ratio is very low, say if you are the grinder in the above example, you really can’t afford to be doing what you are doing. The higher the ratio, the less money you have tied up in Magic and the easier it will be for you to succeed in personal finance using conventional means. Wherever you stand, increasing this ratio is a good goal to have. That means you are increasing savings faster than your Magic collection.

It’s valuable just to know where you stand. Consider it a victory if you had a pretty good idea what your ratio would be prior to doing the math. Worst case is you had no idea how deep you were into Magic and just got blindsided.

There is going to be a group of people reading this article who feel like it doesn’t apply to them because they know better. Some of them are wrong, some of them are right. “It’s okay that I have most of my money tied up in Magic because…” seems like a risky line to take, but maybe you know what you are doing.

There is plenty more to be said about Magic and personal finance. This article attempted to help you answer only one high-level question: “Am I in over my head?” If there is interest, I will write more on the subject.

Find me on Twitter at @acmtg or leave a comment here at BSB.

Thanks for reading.