Lego builds wealth: Investment returns outpacing gold

Like many other children, my child also discovered a coveted Lego set under the Christmas tree. My son received the set 40601 "Majisto's Magical Workshop", which - although small - delighted him. In several years, when he decides to scale down his collection, he might be pleasantly surprised again. This is because it is one of those toys from the Danish brand that - if well-preserved - can appreciate in value over time.

Between 1987 and 2015, unopened Lego sets provided an average return of 11 percent per year, allowing investors to surpass inflation by 8 percentage points. This conclusion is drawn from the research conducted by Wiktoria Dobrynska and Julia Kiszilowa, whose findings were published in 2022 in the scientific journal "Research In International Business and Finance". The authors analysed 2015 sales prices of over 2,300 sets produced in previous decades.

Similar data is available in Falco Ziehl's book on investing in Lego between 1961 and 2020. The creators of the Brickfact app, designed for collectors of Danish bricks, claim that from 2011 to 2023, returns in this market were even higher, averaging 15.6 percent annually. However, this period includes a phase of heightened inflation, so real returns on Lego investments were likely similar to those indicated by other studies.

In any case, it seems that a children's toy, in the long run, allows for greater profits than alternative assets like art or wine, and even more than gold, bonds, and many stocks. For example, over the last 40 years, the American S&P 500 stock index gained slightly over 8 percent annually (nominally), while gold increased by only 2 percent. Moreover, returns from Lego have, thus far, been more stable. In the case of used bricks, it is difficult, of course, to expect similar results. Yet, even they can appreciate in value.

How did Danish toys become regarded as a capital investment? The key factor is the sentiment adults hold for them, stemming from childhood experiences. Many are willing to pay substantially to revisit the past, especially if they find a complete set in its original packaging, even if used. In fact, empty boxes from the 1980s and 90s can cost more than the original set.

It's only a short step to conclude that at least some of the sets on the market today could be appreciated in the future, especially if they remain in pristine condition. Some collectors who purchased such valuable sets for personal use also began buying extra copies for future resale. Following their example were investors who were not adult fans of LEGO (known as AFOL) but saw an opportunity for profit in the bricks.

The manufacturer from Billund, Denmark, does not particularly try to restrict the secondary Lego market, although it sometimes increases the supply of a specific set if it becomes popular among adults. Alternatively, it might introduce another, very similar set.

This should, theoretically, deter investors ready to purchase large quantities of a set to sell them after a few years. A notable example is the story of the Lego Ideas 21309 "NASA Apollo Saturn V" model, which was available until December 2019. Just a few months later, Lego launched an almost identical rocket model, differing by one brick and set number (92176). Conversely, in 2013, Lego produced 5,000 gold-painted minifigures fully aware they would become trading items. Today, their prices reach about £4,700.

Which Lego sets are suitable for investment? Various factors determine their future prices. One is, naturally, limited supply. Another is the theme. Historically, sets from the Star Wars universe have provided high returns. Even now, the 2007 model 10179 "Millennium Falcon" fetches prices several times higher than the larger 2017 reissue (75192).

Older sets with medieval themes show significant price increases, as do relatively recent bricks from the Lego Ideas series, targeted at adults, with short production runs, often referencing past sets and evoking emotions. Occasionally, the value of a set is determined by a single minifigure, as with Hulk from Marvel comics. In every case, the purchase timing is crucial: sets are often discounted shortly before the end of their series.

The studies by Dobrynska and Kiszilowa indicate that the largest (percentage-wise) price increases were achieved by small sets - likely due to their relative affordability even upon resale, making them accessible to many fans - and very large ones. According to them, among the fastest-appreciating sets were those from the girls' Lego Friends series, which debuted in 2012. However, this might be because the initial sets had limited production, as the Billund manufacturer had yet to be convinced of their popularity.

Many of the above features, which increase the likelihood of future price increases, are illustrated by the aforementioned 40601 set that inspired me to write this article. It is a slightly modified reissue of a medieval-themed toy from 1993. It entered the market in 2023, but Lego only offered it as a gift with larger purchases. The supply was limited enough that current prices have already doubled the catalogue price (though meant as a gift, the set had a catalogue price for purchase and return calculations). A even larger price increase was noted for the 2022 gift set 40567 "Forest Hideout" - a new edition of my childhood favourite toy.

However, it's important to remember that investing in Lego bricks has certain limitations and isn't risk-free. This market is shallow, meaning that large sums cannot be invested in it, while - to achieve good results - substantial time must be spent on building a "portfolio". The Lego market is also not highly liquid - although more so than, for instance, the art market. This complicates exiting an investment quickly. Meanwhile, the manufacturer might introduce a set that diminishes interest in similar past sets.

Finally, two caveats. I do not advocate for persuading children to refrain from playing with their dream sets simply because adults view them as a solid investment. Additionally, it seems ethically questionable to me when adults, for speculative purposes, purchase a large proportion of the stock of a popular model, depriving children of them. But perhaps the status that Danish bricks have achieved offers a good opportunity to encourage children that it's worthwhile to take care of their toys?

Grzegorz Siemionczyk