Inside the global phenomenon that is LEGO investing
Unopened LEGO kits can be some of the best-performing investment vehicles in the market. But how exactly does this market work? Apart from size, why is an Imperial Star Destroyer worth so much more than an A-wing?
Quick take
- LEGO investing is a global phenomenon that yielded an average return of at least 11% (8% in real terms) in the sample period 1987–2015.
- Sets are typically retired every two-to-three years, which can increase demand for unopened sets and make prices soar.
- As with all investments, traders should keep track of their costs and profits, and declare their income and claim relevant deductions.
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Not long after his wife passed away, as he was struggling with intense grief, Sean McConville discovered a new and powerful purpose for LEGO. Often shared quietly with his two children, it had a meditative effect. It was relaxing and calming, a distraction from the raw emotion that otherwise consumed him. As McConville put LEGO bricks together, it was as if he was rebuilding certain broken parts of his life.
“When my wife passed away, we hadn’t been a LEGO family,” McConville reveals. “But then we built some sets as a family. I then sold some sets online so we could buy more and I made more for those sets than what I’d paid for them.”
McConville had given up his executive-level job to allow himself space to grieve and deal with the anxiety and depression he was suffering since his wife’s death. He began doing some research and discovered an entire ecosystem built around LEGO investing and there was a very welcome financial boost to boot.
One well-known investor is American Shane O’Farrell. He runs the website and YouTube channel Brick Bucks, sells books on LEGO investing and also runs a masterclass for new entrants to the market. O’Farrell says he made almost US$500,000 in two years by buying and selling popular sets.
LEGO: The smart toy story
O’Farrell’s investing success is supported by history. The academic paper published in 2022 in the Research in International Business and Finance journal titled LEGO: The Toy of Smart Investors, revealed that LEGO’s mix of diminishing supply over time due to kits being retired every few years and its high collectible value, means its value outperforms just about any other investment class.
“We find that LEGO investments outperform large stocks, bonds, gold and alternative investments, yielding an average return of at least 11% (8% in real terms) in the sample period 1987–2015,” the paper’s authors reported.
That 11% is an average across all sets, McConville says. Some bring in much more than that while others don’t.
As an example, McConville points to two collectors’ kits, both related to Star Wars. In 2022, the Imperial Star Destroyer retailed at around A$1100. The now-retired kit currently sells to collectors for twice that amount. At the same time, the A-wing kit that retailed at around A$400 is now worth less than its original retail price.
“The difference is literally just demand,” he says. “The A$400 set was probably over-produced and on the market for too long.”
The risk of investing in LEGO
As with all investing, there is risk and there is return.
“LEGO returns are not exposed to market, value, momentum and volatility risk factors but have an almost unit exposure to the size factor,” according to the Research in International Business and Finance paper. (Unit exposure to size factor simply means the popularity of the LEGO kit and the physical size of the LEGO.)
The authors advise that “low exposure to standard risk factors makes the LEGO toy and other similar collectibles an attractive alternative investment with good diversification potential.”
What are the ‘other similar collectibles’? They include Barbie dolls, model cars, model trains, and superhero and action figurines. The careful re-sale of each can sustain healthy businesses.
Almost three years ago, McConville launched a bricks-and-mortar LEGO store called Brickville, in Melbourne. His dream was to make A$15,000 a month, to bring in some much-needed funds and help pay the bills. “We do A$15,000 most weekends now,” he says.
Describing LEGO investing as “typically just a side hustle”, McConville sees his business as one that will eventually support him financially, as well as the employees it currently pays.
“You can start out with $50 or $100 as a hobby investor, but to do what I’ve done you’d need to start off with $20,000 to $30,000 of LEGO, just to get going,” he says. “I started with closer to $300,000 worth of LEGO, and I still have to keep replenishing.”
How does tax work when it comes to LEGO investing?
Of course, when LEGO is bought with the intention of resale for profit, and with LEGO sets often selling at a multiple of their original value, that purchase becomes about investing rather than a hobby.
And it’s not just hobbyists and small players doing the dabbling. A report from Barclays Wealth Management division, which surveyed more than 2000 high-net-worth individuals from 17 countries revealed: “Wealthy individuals hold an average of 9.6% of their total net worth in treasure assets [collectibles] although, in some countries, this share is as high as 18%.”
CA ANZ’s New Zealand tax and financial services leader, John Cuthbertson FCA, says purpose governs the tax treatment of such purchases, no matter which end of the financial spectrum the buyer comes from.
“If you’re acquiring LEGO with the intention of resale for profit, it’s likely treated as personal property acquired for disposal, subject to tax,” says Cuthbertson. “Sometimes, people don’t understand this.”
He refers to an issue that arose in New Zealand during COVID lockdowns, when many people registered for the first time on online share-trading platforms.
“Younger people in particular jumped on there because they were bored and had nothing else to do,” he says.
“They could buy small units of shares and it was inexpensive, so they bought and sold without fully understanding that they were trading. Once they were trading, they were liable for any tax on gains. Conversely, they were also entitled to a deduction for any losses. But they had to set that up properly in terms of documentation.”
LEGO is no different, he says. As is the case with wine, art, classic cars and any other item not typically considered a financial vehicle but that attracts investors, profits on LEGO investments are taxable.
“If you are in this space and you want to do the right thing, you would be retaining your receipts and keeping some sort of documentation around what you’re doing, perhaps just a simple spreadsheet,” Cuthbertson says.
“At a minimum, you’d be retaining your receipts to substantiate the cost, because obviously the gain will be the difference between what it costs you and what you sell it for.
You might also have shipping fees, storage shelves and other costs such as insurance. You might be able to look at claiming some of those costs, as well.”
How do you invest in LEGO?
One LEGO investor who does all of the above, including keeping a spreadsheet of his purchase costs, income, and shipping and storage costs, is university student and entrepreneur Harrison Lavery.
Lavery’s LEGO hobby has been particularly profitable during his university years. Soon to graduate from a computer science degree, he was first introduced to LEGO investing through a university friend.
“He had purchased A$5000 of LEGO on Marketplace. He probably had around 50 sets,” says Lavery, who runs the Lego Investing Australia online resource and also a website development business.
“I asked why he had so much LEGO and he said he was going to flip it. He explained that LEGO only produces and sells sets for two-to-three years and, depending on the set, the price can increase once it’s retired.”
That was then, this is now. Lavery is currently holding LEGO sets originally worth around A$60,000, which currently boast a re-sale value of more than A$100,000.
Over the last four years, by trading just a few hours each week, Lavery has made enough money to see himself comfortably through university.
Not long ago, for example, Lavery noticed a sale at BIG W for the Imperial Star Destroyer set. Normal retail price was A$1100, but the sale price was A$890. The set was due to retire in 12 months. He and a friend purchased several sets.
“About a month after the set was retired, I was selling them on eBay for A$1500 each,” he says. “They’re selling for about A$2200 now. If only I’d held on to them for a little bit longer.”
As is the case with all trading, timing the sale is a big part of the process, Lavery says. Sometimes demand simply won’t develop in the market. Other times, demand explodes as soon as the set is taken off the shelves.
“Usually the worst case scenario, as long as you’re buying under retail, is that you can sell it for the original retail price,” he says. “So, it doesn’t feel as if you’re taking a huge risk.”
Among the many resources in the LEGO investing ecosystem are online spreadsheets, updated by those in the know, that track the on-sale dates of kits, current pricing schedules, sales figures and likely retirement dates. The LEGO Group itself is not involved.
What is the LEGO Group?
The LEGO brick was made by carpenter and Danish furniture designer Ole Kirk Christiansen in 1936. Patented by his son Godtfred Kirk Christiansen in 1958, the name LEGO is derived from an abbreviation of the two Danish words leg godt, meaning ‘play well’. Today, the LEGO Group is a privately held company based in Billund, Denmark, and is still owned by the family.
The LEGO Group was approached for this story. While the organisation turned down a request for an interview, its communications team responded, “While there may be occasional instances where certain sets increase in value, it’s not something the LEGO Group actively focuses on. Our primary goal remains fostering creativity and inspiring the builders of tomorrow through learning through play.”
Is LEGO actually a good investment?
Why do we all love LEGO? It’s because we all remember it from our childhood, Lavery says. Like Barbie dolls and rollerskates, and Guinness World Records books, it reminds us of a time when we were free of the concerns of adult life.
Then, when we grow up and have “adult money”, Lavery says, and particularly when we’re faced with a challenge such as COVID-19 lockdowns or, as in McConville’s case, a shared activity with his children after his wife passed away, LEGO takes on new meaning.
Many investors, including Lavery and McConville, also buy sets for themselves. While most of the boxes they purchase remain pristine and unopened – once opened, a set loses approximately half its value – the joy of LEGO is rarely lost on the investor.
“People can get quite nostalgic about LEGO,” Lavery says. “In difficult economic times it’s one of those things people will splurge on to make themselves and their kids happy. Also, a lot of retired people like to buy LEGO. It’s universally loved and there’s a set for everyone.”
Six sets of LEGO success
How much can a LEGO set increase in value after its retirement? Here are six of the best, according to Brickville founder, Sean McConville.
1. LEGO Star Wars TIE Fighter Pilot Helmet 75274
Retired January 2022
Price when discontinued: $100
Price at 1 year: $350
Price at 3 years: $350
2. LEGO Minifigure Collectible Series 1 Forestman 8683-14
Retired June 2010
Price when discontinued: $5
Price at 1 year: $10
Price at 3 years: $25
3. LEGO BrickHeadz Disney Ariel & Ursula 41623
Retired March 2019
Price when discontinued: $30
Price at 1 year: $45
Price at 3 years: $150
4. LEGO Star Wars Rebels - The Ghost 75053
Retired November 2015
Price when discontinued: $140
Price at 1 year: $240
Price at 3 years: $400
5. LEGO The LEGO Movie Welcome to Apocalypseburg! 70840
Retired January 2022
Price when discontinued: $450
Price at 1 year: $850
Price at 3 years: $1200
6. LEGO The Simpsons House 71006
Retired November 2017
Price when discontinued: $400
Price at 1 year: $480
Price at 3 years: $650
